Fair Value of Stock Options (ESOP, ESPS, SAR)

For ESOP Accounting, we typically requires two valuations:

  • Company’s share price
  • Fair Value of option

Date of Valuation will depend on type of Stock options:

  • Equity-settled plan – Grant date fair value
  • Cash-settled plan – Grant date and each balance sheet date

Fair Value of option can be determined using following methods:

  • Black- Scholes model
  • Binomial/Lattice model
  • Monte- Carlo simulation model

Amongst the three, Black- Scholes model is a widely used method by Indian listed and non-listed companies.

ESOP Scheme Design and Implementation

Understanding key Requirement of stakeholders

Providing Different 2-4 options of ESOP Scheme

Cost Benefit analysis under schemes

Management Approval from Scheme structure

ESOP Scheme

ESOP Scheme Design

ESOP Grant Letters for members

Legal vetting of Scheme and Grant Letter

ESOP Accounting Expense

In Cost-Benefit analysis, accounting expenses for projected years and future cash flows from employees perspectives will be calculated based on the expected target benefit to be given to individual members (ignoring Individual Taxes).