FAS Solutions helps clients rigorously calculate the grant date fair value of relative TSR awards. We guarantee that our advanced modeling will result in accurate auditable valuations without the possibility of overstatement on the P&L or the Proxy.
Continuing with the third step in the sequence:
- TSR Award Design
- Pre-grant Valuation and Testing
- ASC 718 Grant Date Valuation
- Tracking and Forecasting
Once your company grants a relative TSR award, we perform the valuation as of the grant date with cutting edge multi-factor Monte Carlo simulations models that are customized to impound every aspect of your company’s TSR award. We do not use packaged Monte Carlo software with a tweak here and there. Each model is custom built quickly and efficiently to the specifications of your award. The grant date valuation that we calculate is the basis for the accounting cost of the award which is expensed over the requisite service period. The ASC 718 compliant valuation takes the form of total fair value – i.e., total accounting cost – or fair value per target share from which total fair value requires simply multiplying by the number of target shares. Equivalently, fair value per maximum share multiplied by the number of maximum shares yields the same total fair value. For combination awards involving an internal performance metric there might be a vector of fair values pursuant to ASC …… Your company expenses the fair value corresponding to the most likely outcome of the internal performance metric. The requisite service period often extends beyond the performance period in the case of additional service-based vesting. Post-vest holding requirements do not extend the requisite service period. For relative TSR awards the determination of the requisite service period is generally straight-forward. In the case of an absolute TSR metric with uncertain timing, we use the same Monte Carlo technology risk-adjusted calibration to calculate the “derived” service period.