The company’s future is very unclear and subjective, and informed investors make bets using their experience and the market determines the price.
But that’s for the preferred stock.
The employees are compensated with common stock, which is valued at some fraction of that. There is often no market price since it’s not sold to investors. It’s also very unclear and subjective, and the reported value is picked by the company in a situation where everyone wants it to be low.
The first result Googling it (DLA Piper) says it often used to be determined by just dividing the preferred stock price by 10, until accounting rule changes in the early 2000s.
I think “fraud” is a bit strong here - it’s very subjective after all - but it may not exactly be a fair market price either.
The company’s future is very unclear and subjective, and informed investors make bets using their experience and the market determines the price.
But that’s for the preferred stock.
The employees are compensated with common stock, which is valued at some fraction of that. There is often no market price since it’s not sold to investors. It’s also very unclear and subjective, and the reported value is picked by the company in a situation where everyone wants it to be low.
The first result Googling it (DLA Piper) says it often used to be determined by just dividing the preferred stock price by 10, until accounting rule changes in the early 2000s.
I think “fraud” is a bit strong here - it’s very subjective after all - but it may not exactly be a fair market price either.