Understanding and communicating the value of long-term equity incentives (LTI) can be a challenge as companies adopt increasingly robust awards designed to balance executive rewards with shareholder expectations. WTW helps companies understand the value being delivered from these programs and navigate the complex accounting, reporting and disclosure requirements. Our ability to combine in-depth technical valuation knowledge with strategic executive compensation consulting provides you with holistic guidance for your LTI programs.
Equity-based compensation plans provide a powerful link between executive performance and shareholder interests. To ensure these interests remain aligned, it’s essential to conduct a rigorous assessment of the value offered by these plans in order to communicate with key stakeholders.
Some of the challenges companies face include:
- Evolving designs. The nature of performance conditions and hurdles can impact valuations in unexpected ways
- Volatile markets. The effect of unanticipated market events can make it difficult to set expectations about the future
- Complex standards. The complexity of accounting and reporting rules may trigger unintended consequences
These challenges become an obstacle when reviewing the potential for realized pay outcomes and the alignment between pay and performance. Management and the board benefit from WTW’s comprehensive assessment of design alternatives and the associated valuation and reporting implications.
WTW award valuation services
WTW’s team of actuaries and executive compensation consultants has extensive experience in financial modeling, corporate finance and compensation strategy, which ensures a comprehensive approach to the valuation of your LTI programs. Our services will provide confidence to management and the board, satisfy regulatory requirements and reduce valuation risk. Our valuation services include:
- Black-Scholes and binomial lattice modeling for stock options, stock appreciation rights and employee stock purchase plans. Includes thorough review of exercise expectations, stock price volatility and other valuation assumptions
- Monte Carlo simulation modeling for relative total shareholder return (“TSR”) and other market condition performance awards
WTW reporting and disclosure services
The reporting of equity compensation is highly technical and time consuming. WTW can help alleviate this burden by preparing detailed accounting and disclosure information and allowing your team to focus on other priorities.
Our reporting and disclosure services include:
- Computation of periodic accounting expenses, deferred taxes, excess and shortfall tax benefits and dilutive shares
- Forecasting of these items for outstanding awards and planned grants for budgeting purposes
- Valuation and accounting support for corporate transactions, including business combinations and spinoff transactions
- Calculation of compensation actually paid for named executive officers, to comply with pay versus performance disclosure requirements
WTW performance monitoring
Granting an equity incentive award is just the first step. It is also essential to monitor plan performance, so boards and executives can stay ahead of any surprises and communicate effectively with stakeholders. WTW makes it easy with the following service:
- Monitoring of TSR and other market condition award performance using the WTW TSR Performance Monitor (“TSR PM”) application. TSR PM is a secure, online application that provides management with daily updates of plan performance
The WTW difference
Valuations are inherently complex and there is generally not a single “right” answer, but our team of experts will help you get to the “best” result and make sure it is communicated and reported accurately. This is critical for the appropriate design and delivery of executive pay and assuring that it remains in the best interests of shareholders.
WTW clients benefit from our unique ability to work effectively with all LTI award stakeholders, including executives and the board, as well as HR and finance teams. We have a proven track record of providing high quality and timely valuation and reporting services to our clients, with the ability to tailor our services to best suit a company’s needs.
