Managing employee share plans can feel like navigating a maze of compliance, fairness, and financial accountability. Getting the valuation of your share plans right isn’t just about ticking compliance boxes – it’s about making smarter financial decisions and helping participants understand their own stake in the company they work for. Whether your company offers Share Options, Restricted Stock Units (RSUs), Performance Shares or Employee Stock Ownership Plans (ESOPs), accurate valuations are the backbone of effective equity management.
Why Accurate Valuation Matters
1. Stay Compliant, Stay Confident
Regulators don’t take shortcuts, and neither should you. Adhering to standards like IFRS 2 or ASC 718 is non-negotiable in most parts of the world, and maintaining accurate valuations ensures you’re always ready for scrutiny. By staying compliant, you protect your company from penalties and maintain credibility with investors and stakeholders.
2. Build Stakeholder Trust
Your financial statements paint a picture of your business’s health, and valuations are a key part of that story. Flawed or inconsistent data can raise red flags. When valuations are precise and transparent, you’re giving investors, employees and share plan administrators a reason to trust your numbers.
3. Create Fairness for Employees
Employees want to know their contributions are recognised and valued fairly. Whether it’s share options or performance shares, accurate valuations show employees exactly how you’re rewarding their hard work.
4. Make Smarter Decisions
Equity plans can be complex, but when valuations are accurate, they become a strategic asset. From forecasting expenses to designing competitive reward packages, precise valuations give you the insight you need to make confident decisions.
Which Plans Require Valuations?
Let’s talk about the plans that need valuations;
- Share Options: Valuation methods like Black-Scholes, Monte Carlo Simulation, Binomial Tree, or other models are used to determine grant date fair value. The model may vary depending on the type of option, strike price, salient dates and other key terms.
Find out how to value complex share incentives using the Monte Carlo method.
- Restricted Stock Units (RSUs): You’ll need to value these for expense recognition throughout the vesting period.
- Performance Shares: These require valuations that account for performance conditions, especially if they are market-linked.
- Employee Stock Ownership Plans (ESOPs): ESOPs need to be valued correctly as its fair market value can influence the plan’s viability, structural design, and funding.
- Phantom or Cash-Settled Plans: Even though these are cash-settled, their payouts are often tied to stock performance, demanding accurate market-linked estimations.
Many companies still rely on manual processes, outdated tools, or expensive consultants for share plan valuations. These approaches can lead to errors, inefficiencies or significant delays.
How can ShareForce help?
ShareForce simplifies the complexities of equity, phantom, and cash-settled incentive plan valuations with its powerful valuation tool, enabling you to test and perform calculations instantly. Say goodbye to the manual grind with real-time insights and streamlined reporting to meet deadlines effortlessly.
ShareForce isn’t just a technology – it’s a team of specialists ready to provide end-to-end support. From plan setup and testing to audit-ready reports, we’re here to make your equity management easier.
