Risk Innovations Introduces Employee Model Option Plans

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Employee Model Option Plans reduce the expense and uncertainty of incentive compensation.

Risk Innovations, LLC announced today the introduction of Employee Model Option Plans (EMOPs), a new method of constructing equity-based incentive compensation plans.    

An EMOP changes an incentive compensation plan’s referenced asset value from the company’s daily stock price to a moving average of that company’s stock price. This reduces the potential distribution of option payoffs and the value of the options granted. Second, the plan document of an EMOP specifies exactly how the options will be valued by describing an option pricing methodology and how each of the inputs to that calculation will be determined.

“EMOPs can better align employee objectives with shareholder wealth creation,” said Bruce Thomas, President of Risk Innovations. “They are more cost effective than traditional stock options and help stabilize changes in the value of leveraged share-based compensation grants from one period to the next. Moreover, EMOPs help bridge the perception gap between shareholders and third parties, who tend to overestimate the value of share-based compensation, and employees, who tend not to value it nearly enough.”

EMOPs permit companies and employees to obtain financial leverage without suffering the excessive volatility in value that accompanies traditional options. This is good for Employees since they can enjoy the benefits of leverage without having to obsess over day-to-day stock price movements or worry that they don’t understand the value of their options. EMOPs are beneficial for shareholders as well since they pay employees only for long-term share price appreciation.

The objectivity and transparency of this method reduces the potential for regulatory scrutiny and litigation that could arise from charges that FAS 123(R) had been misapplied in some way. “Since EMOPs specify precisely how they will be constructed and valued, there can be no debate about which option valuation model should have been used or how the inputs to the model should have been calculated,” said Ware Preston, Risk Innovations’ Vice President. “This makes these plans easier and less expensive to administer and less subject to second-guessing and litigation.”

Patents are pending on the business methods underlying EMOPs, and Risk Innovations is currently in discussions with compensation consultants and large companies about using these methods to develop their incentive compensation programs.

Risk Innovations, LLC develops new financial products. More information about EMOPs can be found on the company’s web site at http://www.riskinnovations.info/EMOPPage.html.


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Bruce Thomas
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