At Veritas, we offer comprehensive Employee Stock Option Solutions covering design, implementation, valuation and reporting of all forms of share-based employee payments.
The emergence of equity linked compensation structures has led to the development of various forms of share-based employee payments. Schemes such as Employee Stock Ownership Plans wherein stocks and options are granted to employees are aimed at sharing the ownership of the company with the employees. On the other hands, schemes such as Stock Appreciation Rights and Phantom Units wherein cash payments are promised to employees based on the movement in the price of the underlying share (or fair value of the company) aim at rewarding the employees without diluting the ownership.
Given the nature of these schemes, complex valuation techniques and detailed reporting is required by the companies to comply with the accounting requirements and ensure an appropriate expense is recognised in the accounts in each reporting period.
We at Veritas help you ensure compliance with all the measurement and disclosures as per the relevant accounting standards. Our approaches and models are tailored to incorporate the unique features of your scheme and accordingly employ the most appropriate measurement model and estimate all the required parameters. We deliver full suite of valuation services that fulfil the requirements of Ind AS 102 / IFRS 2, FASB ASC Topic 718, SEBI (Share Based Employee Benefits) Regulations (2014), Guidance Note on Share Based Payments issued by Institute of Chartered Accountants of India (ICAI) and any other local financial reporting requirements applicable for the company.
Share-based compensation structures are well defined plans designed to benefit both employee and employer by aligning their interests. The primary objective of such schemes is to maintain the focus of the employees on the company’s performance and to contribute towards maximisation of shareholders’ wealth, whilst also rewarding the employees for their services.
Designing and implementation of such schemes therefore requires consideration of multitude of factors and the need to strike a balance between various conflicting objectives. Some such considerations include assessing creation of liability vs. equity, dilution of ownership vs employee participation in ownership, cash pay outs vs. equity settlements, size of grant, exercise price, vesting criteria, etc.
The decision on each of these factors in turn requires understanding the financial implication for the company under different scenarios and alternative design choices, incorporating factors and variables unique to each organisation. Getting the design right is therefore paramount and can significantly impact the size and volatility of reported costs / expenses associated with the scheme payments.
At Veritas, we help you assess each of design consideration from both employee and organisation perspective and determine the best design for your organisation.
We also support your company in implementation of the chosen scheme. This involves creation of ESOP Scheme documentation and manual, identification and appraisal of eligible employees, creation of ESOP pool, documentation and granting of ESOPs, drafting of compensation committee and shareholder resolution supporting documents, etc.