Remuneration is a complex area and one that is often more grey than black and white. So we have a lot of understanding at Guerdon Associates when plans don’t work as they were intended or disclosures don’t quite convey the message they were meant to.
We have a less relaxed view on the valuation of equity for expensing purposes. AASB 2 is fairly clear on how share-based payments under incentive schemes should be valued for reporting purposes.
Yet every year when we review annual report data, we see valuations that are so far off from what we expect we can only conclude an error either in calculation or disclosure has been made. In other cases, key information is not disclosed, despite it being mandatory to do so under AASB 2.
AASB 2 defines how to value a share-based payment depending on whether it has market-based or non-market based hurdles.
Where companies often come undone are in the assumptions they need to make to implement AASB 2’s strictures. For example, how does a newly listed company estimate its expected volatility? Another risky area is where offer letters do not include enough information. In the absence of necessary inputs, valuers may make assumptions that do not match market practice.
As both a remuneration consultant and an independent equity valuation expert, Guerdon Associates has the unique advantage of understanding remuneration policies and practices AND how equity grant conditions impact expenses. This allows us to interpret equity offer documents and make assumptions regarding details that are necessary for valuation yet absent from most offer documents. Most importantly, these assumptions are firmly anchored in our knowledge of market practice. Further, our technology for developing and running mathematical valuation programs is both very efficient (in terms of programming time), and very robust (in terms of the number of simulations and other complex calculations required).
Our valuation processes and help improve the robustness, compliance and disclosure of clients’ expensing. If we discover ways to improve the equity structure at those organisations along the way, all the better.
If you would like to talk to us about your valuation processes or get a second opinion on expensing, don’t hesitate to contact us on 02 9270 2900 or 03 9600 0295, and at firstname.lastname@example.org.© Guerdon Associates 2020 Back to all articles