Employee Share Plans – What we offer

Accounting

LCP offers a full range of services to help you comply with accounting requirements for your employee share plans. We have specialist experience in valuing share options and preparing accounting disclosures for share plans to comply with IFRS2, the international accounting standard (and FRS20, the UK equivalent) and FAS123, the US accounting standard.

We also provide assistance with deferred tax calculations under IAS12, NI accruals and Directors' remuneration disclosures under IAS24.

Planning and modelling

We can provide strategic advice to ensure that plan design meets your company's objectives, and answer questions like:

  • What will my accounting charges look like in future years?
  • What happens if our share price takes off or plummets?
  • What if I add further conditions to optimise share grants, or alter their terms?

Most importantly, we communicate clearly and effectively to ensure that you understand the results of our modelling.

Our model

Options granted to employees are not generally tradeable, and accounting standards require their fair value to be determined by a model. Although the Black-Schöles formula is well-known, it has severe limitations and cannot cope with many of the complexities of even standard employee options. For example, Black-Schöles cannot allow for employees' options to exercise over an extended period, or that employees may leave employment and have to cash their options in early, or that they make “irrational” decisions.

As a result, LCP has developed an Actuarial Binomial model which allows for these complexities. Our model uses the same powerful mathematics underlying the Black-Schöles approach, but takes this much further so that it can value accurately the particular characteristics of employee share options.

Certain share plans have features, such as unusual market-related performance criteria, that are of a form that cannot be modelled robustly using the Actuarial Binomial model. In these situations we use a bespoke Monte Carlo model to incorporate these characteristics. This involves simulating the market-related performance thousands of times to provide an expected fair value for the share plan.

Our model is specifically designed to comply with IFRS2, FRS20 and FAS123 and, because of the way the inputs and outputs are designed, the results can easily be audited.

Read our Briefing Plus for further details.