IF YOU GRANT ESOPS
AN ACCURATE VALUATION OF THIS EXPENSE IS ESSENTIAL
AND COULD POTENTIALLY REDUCE YOUR COSTS

VALUING STOCK OPTIONS AND OTHER SHARE-BASED COMPENSATIONS
Whether your company prepares financial statements under USGAAP or International GAAP it is required that your company's compensation expense relating to share-based payments such as ESOP are recognized in financial statements.
As a result, an accurate valuation of this expense is of utmost importance to your company, and could potentially reduce your company's costs relating to share-based payments.

WHAT REGULATIONS RELATE TO SHARE-BASED COMPENSATIONS?
FAS 123(R), SAB 107 and IFRS2 were enacted to curb abuses in executive compensation. These regulations require fair-value measurement and recognition of all equity-based compensation, including:
 Restricted stock
 Stock appreciation rights
 Performance shares
 Stock options
 ESPP

WHICH MODELS CAN BE USED?
FAS 123(R), SAB 107 and IFRS2 do not prescribe the use of a specific option-pricing model but do require that companies use an option-pricing model that takes into account, at a minimum, the following six inputs:
 The exercise price of the option
 The expected term of the option
 The current price of the underlying share
 The expected volatility
 The expected dividends
 The risk-free interest rate(s) for the expected term of the option

The commonly accepted models are:
 Lattice - Binomial/Trinomial & Monte Carlo Simulations
 Black & Scholes

WHICH MODEL IS PREFERABLE?
Lattice models such as the Binomial model or Monte Carlo Simulations allows for the use of dynamic assumptions about interest rates, expected volatility, exercise behavior etc. unlike closed-form models such as Black & Scholes. FASB specifies that lattice models such as Monte-Carlo simulations are more flexible therefore provide a more accurate fair value of ESOs. Lattice models such as Monte-Carlo simulations should be used when certain conditions need to be considered such as:
 Vesting
 Options with performance conditions
 Stochastic volatility
 Post-vesting probability of forfeiture
 Sub-optimal exercise behavior

S-CUBE YOUR PREFERRED APPRAISER
S-cube can help select the most appropriate model and establish appropriate inputs into the valuation process, regarding such issues as expected volatility, historical option exercise behavior, expected forfeitures, and estimated option lives.
With years of extensive experience S-cube's team of professional advisors has performed hundreds of valuations for both private and public companies. Our advisors have gained the trust and confidence of the "big four" accounting firms in Israel and the appreciation of hundreds of satisfied customers.

OTHER SERVICES
S-Cube provides cutting-edge consulting services for the design and administration of compensation and benefit programs and financial products that help companies manage their benefit liabilities while enhancing shareholder value. Our professional appraiser team performs various other professional services such as:
 ESO Advisory
 Company Valuations
 Fair Market Valuation of Common Stock for Section 409a of the IRC
 Fair Market Valuations of various financial instruments