In the interests of providing a sustainable remuneration system for board members and executives many companies use share-based remuneration instruments as part of their long-term incentive (LTI) schemes.

Listed companies are bound by the requirements of international accounting standards like IFRS 2 to value and recognize their share-based remuneration instruments as expenses as and when they are granted and, depending on the set-up, on each balance sheet date. This must also be ascertained so that executive board member remuneration can be disclosed in the annual report. The fair value of the installment under review on the respective valuation date must be calculated.

The experts at the hkp/// group have been carrying out valuations of share-based remuneration instruments for years as part of projects, studies and for calculating the relevant values for accounting purposes. Adequate consideration of the company-specific set-up of LTI plans requires expertise that go far beyond simply applying standard valuation models. The valuations conducted follow international best practice and correspond to both national and international accounting guidelines.

When it comes to valuations as part of remuneration studies, the focus is on the comparability of the calculated values. For this, uniform assumptions are made, and valuation parameters selected accordingly. Valuations for accounting purposes on the other hand follow the relevant accounting guidelines and are conducted individually in consultation with clients and their auditors. Likewise, when designing new share-based remuneration elements, valuation forms an essential basis for fair calibration.

Which valuation methods does hkp/// use?

No specific methods are prescribed by IFRS 2. Valuations must however be performed using recognized actuarial methods. These include, among others, the method most frequently used at hkp///, the Monte Carlo simulation, the use of which has become established on the market for LTI plans with complex performance conditions such as relative success targets.

When defining valuation parameters hkp/// follows the standard methods and works closely with you to take the individual requirements of your company into account.

The advantages of the hkp/// approach

  • Partners and employees of hkp/// offer experienced and competent partnership for all things salary-related – particularly when it comes to the design of share-based remuneration instruments.
  • hkp/// remuneration experts get to grips with your LTI plan design and implement this in an individually tailored valuation model.
  • The valuation process, valuation parameters as well as the valuation results are illustrated transparently in a comprehensive valuation report.
  • The valuations performed by hkp/// reflect international “best practice” and correspond to IFRS 2.
  • Parameters are defined in close consultation with your company in accordance with company-specific needs.
  • We can also coordinate the valuation with your auditor beforehand on request.

Simply get in touch. We would be happy to answer your questions regarding valuation and provide you with a tailored quote.

* Photo by Katya Austin on Unsplash
Author Jennifer S. Schulz

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