Equity compensation in damages: grant-date value versus realized value

Executive matters rarely hinge on base salary. They hinge on the equity stack. A senior plaintiff at a large public employer may have three or four tranches of restricted stock units vesting on staggered schedules, a performance share unit plan with multi-year measurement windows, refresh grants that stack on top of the initial award, and a long-term incentive plan whose payout depends on operational metrics that may or may not have been met during the loss period. How the forensic model treats each of those components can swing the final damages number by multiples.

Two defensible approaches dominate. The first values equity at grant-date fair value, using the company’s stated valuation at the time each grant issued. The second values equity at realized value, using actual market and performance outcomes during the loss period. Both are defensible under Daubert. They produce very different numbers.

Grant-date value

Grant-date value uses the number the employer itself reported when the award issued. For RSUs, that is the share price on the grant date multiplied by the number of units. For options, it is a Black-Scholes or binomial-model value at grant, typically disclosed in the employer’s proxy statement or equity-plan filings. For PSUs, it is the target payout valued at grant.

The strength of the approach is that every input is documented in the record. The number is agnostic to what happened to the company’s stock price or performance during the loss period. It is hard to attack as speculative.

The weakness is that it understates the loss when the company performed well and the plaintiff would have realized substantially more than the grant-date value. For plaintiffs at fast-growing public companies, this understatement can be significant.

Realized value

Realized value uses the actual outcome: share price at each vesting date, actual PSU payouts based on achieved performance, actual option exercise prices if exercised. For a plaintiff who would have held through the loss period, the realized value is the closest proxy for what the plaintiff actually lost.

The risk is counter-factual assumption. A defense expert will ask whether the plaintiff would actually have held, whether the plaintiff would have exercised at peak or at trough, and whether the plaintiff’s hypothetical behavior during the loss period matches the reconstructed model.

Choosing between them

In practice, the choice depends on loss-period length, plaintiff-specific historical behavior, jurisdiction-specific preference (some courts have expressed views), and the clarity of the factual record. For shorter loss periods with well-documented vesting schedules, grant-date is often cleaner. For longer loss periods at high-growth employers, realized value is often fairer even if it requires more defense of counter-factual assumptions.

The honest model does not pick one and hide the other. It presents both, labels each clearly, and lets the trier of fact see what assumption drives which figure. Opposing counsel can then attack the specific assumption rather than the composite number.