Today Most of the founders and their employees do not understand the common issues when it comes to stock-based remuneration.
The founders need to first understand this well before they can structure offers with a significant stock component .valuations are central to the employee stock ownership plan process.
It is a call option which means that under an employee stock ownership plan (ESOP) the employees have no obligations and have the right to buy the shares of the company on a predestined date at a predestined price. It is a strategy that enables a company to awards the existing & new employees with stock options based on their performance. ESOP Valuation commonly an enabler used by a company to engage, retain & enumerate its employees and get them awarded for being associated with the company while creating a sense of ownership in the mind of employees and their interest in the organization remains intact.
Thus ESOP Valuation (both for the accounting of “Compensation Expense” by a company and for perquisite Tax payable by the employees) plays a significant role in the success of an ESOP scheme.