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3 methods for valuation of employee stock options

Posted by Nasrat Kamal on 30-Aug-2017 17:58:59

With the arrival of Ind AS, companies need to value and account for their stock option schemes using the fair value method. This post describes three methods to carry out fair valuation.

Background

Stock option plans have been highly successful globally in aligning the interests of the employees with those of the shareholders. In India too, many companies offer stock options to remunerate their employees. 

Grant of stock options to employees is a cost to the company when they are granted, or a liability that is yet to be settled from a company's perspective. Globally, there are accounting standards that deal specifically with the accounting of employee stock options; e.g. IFRS 2 and ASC 718 (US GAAP). But the situation in India hasn't been so clear. There hasn't been a comprehensive accounting standard dealing with accounting standards. There are a range of rules and guidelines, that affect different companies differently. 

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Topics: Employee benefits, Ind AS 102, ESOP, stock options

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