Valuation

TSR Award Valuation

Relative TSR (total shareholder return) awards offer simpler ongoing accounting than other performance awards, greater alignment with shareholder interests, and a measure that’s widely understood and accepted throughout the industry. The tradeoff is that the complexity of these awards make them tricky to understand at first glance. With compensation committees demanding detailed analysis, auditors requiring custom valuation and thorough backup, and participants wondering how their existing awards are tracking, understanding the impact of the underlying variables is crucial today more than ever.

Services

Equity Methods provides valuations and quantitative support during all four stages of a TSR award’s lifecycle:

  • At grant, develop ASC 718-compliant fair value estimates and provide support throughout the external audit process, including a SOC 1 report
  • Provide cost estimates for estimating grant quantities and proxy grant values for all award designs being considered
  • Suggest minor reformulations of the award that preserve the core incentives but allow more awards to be granted
  • Model the cost impact of alternative design scenarios to maximize grant quantities for a given cost
  • Anticipate events that could lead to positive or negative changes in cost, especially during the highly sensitive period leading up to the grant date
  • Help manage the risk of value changes after the performance start but prior to the grant
  • Calculate updated current performance status for ASC 260 earnings per share (EPS) calculations

Deliver credible, actionable information to your compensation committee and senior management while managing expectations among all stakeholders.

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Infographic showing the four stages of the TSR award lifecycle

Additional Resources

articleBlog Post

Have Your rTSR Fair Values Caught a Fever? Here’s Your Prescription

Find out what’s behind the market-wide spike in relative total shareholder return values, and what you can do to mitigate it in your awards.

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descriptionIssue Brief

Design Features that Drive the Fair Value of a Relative Total Shareholder Return Award

Now in its second edition, this issue brief discusses the key design features that drive the fair value of a relative total shareholder return (rTSR) award. 

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descriptionIssue Brief

TSR Performance Tracking: Managing the Peer List

Relative total shareholder return (rTSR) is here to stay. Learn more about ways to shape and track the peer list that forms the basis of these awards.

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articleBlog Post

An Introduction to Monte Carlo Valuation for Relative TSR Awards

Have you ever wondered exactly how a Monte Carlo simulation model works to value relative TSR awards? In this issue brief, in plain English, we unpack what a Monte Carlo simulation does and how it treats the various features of a TSR award.

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TSR Essentials

With so many moving parts, TSR awards continue to present challenges in their upfront design, grant-date valuation, and post-grant tracking. These difficulties often cascade into the proxy, resulting in unintended…

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Meet Our Experts

Nathan O’Connor

Managing Director

Therese Sebastian, CEP

Managing Director, Valuation & HR Advisory Services

David Outlaw, CEP

Managing Director, Valuation & HR Advisory Services

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