ESOP Valuation Services for Private Companies

Yes. Ind AS 102 requires fair value to be measured at the grant date of each option grant. Because the underlying share price, volatility, risk-free rate, and expected life can all change between grants, a valuation performed for an earlier grant cannot be reused for a later one. Each grant date produces its own fair value and its own expense schedule.

Yes. The accounting fair value under Ind AS 102 is measured at the grant date and is not updated afterwards. The perquisite value for income tax, however, is based on the fair market value of the shares on the date of exercise, less the exercise price paid by the employee. These are two different numbers measured on two different dates for two different purposes. We scope both requirements at the outset so neither is missed when the time comes.

At a minimum, we need the ESOP scheme document, the board or compensation committee resolution approving the grant, the grant letter terms (exercise price, vesting schedule, contractual term), the company's latest audited financials, and the current cap table. For volatility estimation, we may also request details on the company's industry segment, revenue stage, and any recent funding round valuations. We share a structured checklist at the start of every engagement.

For a standard grant with complete information, the report is typically delivered within 7 to 10 working days from the date we receive all required documents. Complex plans with multiple tranches, graded vesting, or performance conditions may take longer. We agree on a clear timeline at the outset and flag any dependencies that could affect delivery, so your share allotment process stays on schedule.

The contractual term is the maximum period stated in the ESOP scheme during which the option can be exercised. The expected life is the period the option is actually expected to remain outstanding, accounting for the fact that employees tend to exercise early, forfeit unvested options, or leave the company before expiry. Ind AS 102 requires the expected life, not the contractual term, as the input to the pricing model. Defaulting to the contractual term is one of the most common reasons ESOP reports are questioned.

The contractual term is the maximum period stated in the ESOP scheme during which the option can be exercised. The expected life is the period the option is actually expected to remain outstanding, accounting for the fact that employees tend to exercise early, forfeit unvested options, or leave the company before expiry. Ind AS 102 requires the expected life, not the contractual term, as the input to the pricing model. Defaulting to the contractual term is one of the most common reasons ESOP reports are questioned.

Ind AS 102 does not mandate a single model. The two most widely used are the Black-Scholes model and the Binomial (lattice) model. Black-Scholes works well for straightforward grants with a single vesting date. The Binomial model is better suited when the plan has graded vesting, early exercise features, or performance conditions that affect exercise behaviour. We select the model based on the specific terms of your plan and document the rationale in the report.

Since a private company has no traded share price history, volatility is derived from a set of comparable listed companies matched by industry, size, and business stage. The peer set is adjusted for differences in capital structure, operating leverage, and growth profile. This is the most judgment-intensive input in the entire valuation, and auditors scrutinize it closely. Our reports include full peer selection criteria and the adjustments applied.