Critical simulation using Fair value of CSARs

A prominent listed company in BFSI has been implementing ESOPs since long. Owing to saving of equity dilution, it intended to explore the possibility of implementing an Cash-settled Stock Appreciation Rights (“CSAR”) Plan for across section of its employees.

However, as the CSARs entail cash payout, the company was sensitive of expense while it has the intention to reward the employees for every bit of growth of company valuation.

We (ArthEdge) were given the task to have a critical simulation of CSAR cash expenses vis-à-vis accounting provisioning for a long period. It was an impact analysis for decision making to fix the grant parameters of the CSARs as to quantum of grant, vesting period/ schedule/ %, exercise period, base price, etc.

The most challenging task was owing to the accounting standard’s requirement of measuring the cost on marked-to-market which required multiple Black & Scholes valuations for the entire length of simulation period and that too in different growth scenarios.

The entire CSAR plan structure along with simulations were demonstrated resulting in successful implementation.