I am assuming you need to exercise the options and then donate the stock, or the proceeds from the sale of the stock.
If your options are (USA law) NQSO, non-qualified stock options, then 1) there is essnetially no difference between donating cash and donating stock/proceeds 2) you are most likely making an expensive mistake in not holding the options till much closer to their expiration date.
If they are qualified stock options, then 2) would still apply, but I do not know about QSOs and their tax/charity treatments.
Options have a "time value" and if your options were tradable, you could sell them for significantly more than the value you get from exercising them and selling or keeping the stock. That options granted to employees are NOT tradable means the only way to realize the "time value" is to keep the options until close to their expectation date.
That your personal utility for additional dollars is lower as you get more is probably irrelevant or irrational in the case where you are donating to charities. Pretty clearly there are plenty of charities that have utility functions for recieved dollars that are nearly completely linear over the range of values you are talking about. It would seem, then, that you should have something pretty close to a linear utility associated with the dollars you give to these charities.
Cheers, Mike
I'm sorry, I wasn't clear. I'm not thinking about selling the options prematurely to turn them into donateable money sooner. I'm considering shifting from my current "all salary is mine, all options are to charity (eventually)" to "some salary is mine, some is to charity, all options are mine" (or somewhere in between).
When I started my new job at a startup about a year ago, I started getting about a third [1] of my pay in stock options. Being risk neutral in donating, I decided to spend my salary on me and donate any proceeds from my stock options. This let me increase the fraction of my pay I was giving away without decreasing what I keep. Mathematically and economically, considering just what I can give, I think this was the right decision.
The problem is, much of my potential impact is from convincing others to give, and if I have to talk about stock options, expected value, and money that I intend to give away it's confusing and distracting. Things were much simpler when we could just say "we lived on about $22,000 and gave about $45,000". Should I switch back to giving money?
It would not be an easy switch. Options represent a small chance of a lot of money, and they're not very valuable to me personally. (Each additional dollar is worth less than the last). If I were to start giving a third of my compensation away as cash, that would be about 2/3 of my paycheque [2]. Which would be pretty hard. Maybe I should donate some combination of cash and options? Making this more complicated, I had negotiated more options in exchange for a $10K lower salary, figuring that for money I was giving away this was the right thing to do. Suggestions?
[1] You might say "how can you say 'about a third' when you have no idea whether your stock options will even be worth something ever?" What I did was estimate how likely I thought Cogo Labs was to be worth $X in about ten brackets ($0, $10M, $50M, ...), and then calculate an expected value as $0*P_1 + $10M*P_2 + $50M*P_3... Then I multiplied by the fraction of the company whose options would vest to me each quarter, and got something about half my quarterly salary. So: one third of compensation.
[2] It's 1/2 my salary (the last third is options) but 2/3 of takehome pay because 1/6 of my pay goes to taxes and other paycheque deductions.
(I also put this up as a blog post)