A better way
to value employee share plans

Case studies

The background

A large UK retail company needed ongoing support for the annual valuation of the share incentives granted to staff and senior management.  The existing models and assumptions for valuing their share incentives had not been reviewed for many years and did not allow for more recent developments in the IFRS 2 accounting standard.

Our solution

We developed a more robust approach for valuation of their share plans that included:

  • Replacing their current Black-Scholes model with a new valuation model for their all-employee share savings plan which allows for the possibility of employees cancelling their share options
  • Developing a bespoke Monte Carlo model to allow for the specific performance conditions applying to executive share awards, including a total shareholder return (TSR) condition
  • Establishing a transparent method for setting the valuation assumptions to enable our client and their auditors to easily understand and justify our approach

 The results

The new valuation models reduced the accounting cost for the all-employee share savings plan by over 20%.

Our independence and well-documented approach gave our client’s auditors confidence to sign off the valuations, freeing up more time for the finance team to focus on other areas.

Using LCP’s existing suite of valuation models we were able to implement this change cost‑effectively.

Working with us

In this video, some of our clients share their experiences of working with us. Find out more about our client promise here.

Valuation of employee share plans and application of accounting standards can be complex. We advise clientsaccording to their needs, from advising on models and assumptions for in-house valuations, to developing bespoke financial models to value complex share options and everything in-between.

We help companies navigate through the complexity of pensions provision.