Financial Reporting Valuation

Equity-Based Compensation Valuation

Mercer Capital provides independent valuation of stock options, restricted stock units, stock appreciation rights, performance share units, and other equity-based compensation awarded to employees

ASC 718 Compensation – Stock Compensation (formerly SFAS 123R) mandates the recognition of equity-based employee compensation as an expense. IFRS 2 Share-Based Payment contains similar requirements for the accounting of equity-based compensation according to the international financial reporting standards.

Valuation of equity-based employee compensation is also necessary in the context of tax compliance. Stock options and stock appreciation rights may be part of non-qualified deferred compensation plans regulated by Section 409A of the Internal Revenue Code. Compliance with Section 409A requires “a reasonable application of a reasonable valuation method” to determine the fair market value of the stock of a company that awards equity-based employee compensation.

Our valuation of equity-based compensation is tailored to the specific type of award granted. The typical valuation methods considered include Black Scholes, binomial lattice modeling, and Monte Carlo simulation.

Related Services

Employee stock option valuation services
Stock appreciation rights valuation services
Restricted stock units valuation services
Performance share units valuation services

Contact a Mercer Capital professional for more specific information about our equity-based compensation valuation services.

Research and Resources

Pay Versus Performance: What’s New in Year 2?

The SEC’s Pay Versus Performance disclosure rules introduced significant new valuation requirements related to equity-based compensation paid to company executives. As the 2024 proxy season gets underway, what lessons have been learned and what guidance has the SEC provided to registrants? We discuss some of the SEC’s recent Compliance & Disclosure Interpretations and share some best practices as companies gear up for Year 2 of the new Pay Versus Performance framework.

5 Things to Know About the SEC’s New Pay Versus Performance Rules

In August 2022, the SEC adopted final rules implementing the Pay Versus Performance Disclosure required by Section 953(a) of the Dodd-Frank Act. These rules go into effect for the 2023 proxy season and introduce significant new valuation requirements related to equity-based compensation paid to company executives. What does this mean, and how does it apply to you? What are the requirements, and why might there be significant valuation challenges involved? We discuss this and more in this article.

Why Quality Matters in Valuation for Equity Compensation Grants

While complexity of the equity compensation grant or capital structure does not inherently increase scrutiny, it does make it more challenging to demonstrate clear compliance with tax and financial reporting regulations. With appropriate awareness, management can minimize total compliance cost by selecting valuation procedures appropriate to the situation and getting it right the first time.

Professionals

Lucas Parris, CFA, ASA-BV/IA

Senior Vice President

Travis W. Harms, CFA, CPA/ABV

President

J. David Smith, ASA, CFA

Senior Vice President

Sujan Rajbhandary, CFA, ABV

Senior Vice President

Samantha L. Albert, ASA, ABV

Vice President

Zachary M. Barber, CPA/ABV

Vice President