Valuations for Equity Awards and Share-Based Compensation
Estimating the value of equity awards and share-based compensation depends on a number of variables, and often requires complex modeling to incorporate unique terms and complex risks.
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Client Stories
Client Stories
Duff & Phelps acquired Kroll in 2018 and unified under the Kroll brand in 2022.
Kroll assists both public and private organizations with stock compensation planning and financial reporting.
Our services address:
- IRC 409A valuation: Common stock valuation for 409A purposes
- "Plain Vanilla" Stock Option Awards
- Performance Awards with Market Conditions (options, SARs, LTIPs and RSUs)
- LLC profits interests grants (modeling of LLC distribution waterfall)
- Repricing and other award modifications
- Option exchange programs
- Purchase price impact of replacement awards issued to employees of an acquired business
- Estimates of inputs for use in client models such as volatility estimation considering company specific leverage
- Pre-award planning and "what if" analyses of alternative plan designs and future scenarios.
Kroll valuation models are tailored to our clients' needs. We help companies select the most appropriate approach and estimate all required parameters (e.g. analyzing historical exercise patterns to estimate expected lives or exercise probabilities, deriving the appropriate volatility and correlation inputs). We deliver well-supported IRC 409A valuation, as well as valuation that fulfills FASB ASC Topic 718, IFRS 2, or other country specific financial/tax reporting requirements.
Kroll has deep experience with the full range of equity valuation techniques, including:
- Black-Scholes modeling and parameter estimation, and incorporating underwater option valuation approaches to adjust expected life assumptions
- Binomial lattice models, customized to capture key plan features such as vesting requirements, provisions for death, disability, and retirement, and other factors affecting early exercise
- Monte Carlo simulations, incorporating performance and/or market conditions and other complexities in the analysis.
- We are experts in determining which approach is most appropriate, and tailoring the analysis to the specific situation at hand.
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