To align the interests of executives and investors, many companies use equity-based compensation as part of their long term incentives (LTIs).

Payouts from equity-based compensation depend not just on whether certain performance targets are met but how the company's share price develops in the future, which is by its very nature uncertain. This makes determining the value of equity-based compensation on the date that it is granted a considerable challenge and the subject of much debate.

Yet assessing the value of equity-based compensation elements is essential for practical reasons. Under IFRS 2 and other international accounting standards, companies listed on the stock exchange must assess the value of their equity-based compensation instruments on the grant date (and at each reporting date, depending on the system) so that an expense can be recorded in the accounts. The fair value of each tranche must be calculated at the relevant time of valuation. Listed companies must also publish in their annual reports details of equity-based compensation elements and their grant-date fair value for members of the management board and executives.

Moreover, assessing the value of share-based compensation is necessary for the appropriate calibration of compensation systems. Consistent valuations also greatly improve the comparability of findings in compensation studies and benchmarks.

hkp/// group has many years of experience in the valuation of equity-based compensation instruments for accounting purposes whether for client projects, published studies or in our capacity as experts. Our valuations follow international best practice and adhere to both national and international accounting standards.