Valuation: An Important Aspect in Stock Option Plans
In any Stock Option Plan, the Valuation aspect plays a very crucial role. The value of stock options is needed upon grant, during interim periods and at the final payment date to facilitate the calculation of the benefit extended to the Employees.
For ESOPs, there are basically 2 types of Valuations:
(1) Accounting Valuation: This Valuation is required to amortize the Employee Compensation Cost during the vesting period. Accordingly, the compensation value is computed initially i.e. at the time of Grant and at the end of each reporting period till the liability in respect of Options granted gets settled.
(2) Perquisite Valuation: This Valuation would be conducted only in case of unlisted Companies, at the time of Exercise of Options by the Employee to know the value of the perquisite to be added in the Employee’s salary for the month in which he makes the exercise of his option.