Jurisdiction(s):
United Kingdom

Key definition

Share option definition

What does Share option mean? A share option is a contractual right to buy (and less commonly to sell) shares at a fixed or formula-based exercise price within a stated period or on specified events. In practice it is a call option over shares, granted either by the company (over unissued shares) or by an existing shareholder (over issued shares). The option gives the holder a right, not an obligation, to acquire the shares; if not exercised before expiry it lapses. The term is descriptive rather than defined in statute or case law, although particular employee share option schemes are defined for tax...

Understanding face and fair value of employee share options: valuation methods, market value determination, and application in UK accounting and executive remuneration disclosures

Published by a LexisNexis Share Incentives expert

Practice notes

Company reports, institutional shareholder guidelines and HMRC guidance all cite the ‘face value’ and ‘fair value’ of share options. These expressions mean very different things, and grasping each is vital for consistently and properly comparing the scale or value of grants made and for carefully assessing the impact from a corporate accounting standpoint. This Practice Note provides a high level overview of the distinctions between the face and fair value of a share option and clearly explains how face and fair values are applied to compare alternative remuneration packages.

Face value

The face value of an option is the amount by which the value of the shares subject to the option on a specified date exceeds the total price payable for them...

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Web page updated on 22/05/2026

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