Under Ind AS 102 (Share-Based Payment), companies that grant ESOPs, RSUs, SARs, or other equity-settled compensation must recognise the fair value of the award as an employee compensation expense over the vesting period. The fair value is measured at the grant date using an option pricing model and is not adjusted for subsequent changes in the company's share price.

The P&L charge begins from the grant date — not from exercise. This surprises many first-time ESOP issuers, and it is why early engagement with an actuary (before the grant) is important for budgeting the compensation charge accurately.

What We Value

Instrument	Model	Ind AS Standard
Employee Stock Options (ESOPs)	Black-Scholes / Binomial	Ind AS 102
Restricted Stock Units (RSUs)	Discounted share price (with dividend adjustment)	Ind AS 102
Performance Share Units (PSUs) — market conditions	Monte Carlo simulation	Ind AS 102
Stock Appreciation Rights (SARs) — cash settled	Black-Scholes (remeasured each period)	Ind AS 102
Phantom Stock / Virtual ESOP	Liability method — remeasured each period	Ind AS 102

The Five Black-Scholes Inputs — and How We Determine Each

Input	Listed Company	Unlisted Company
Share price (S)	NSE/BSE closing price on grant date	Independent fair value from DCF / comparable company valuation
Exercise price (K)	Per scheme rules	Per scheme rules
Expected life (T)	Based on historical exercise behaviour of employees	Mid-point of vesting period and contractual term
Volatility (σ)	Historical price volatility — typically 2–3 year daily returns	Peer company basket — sector-matched, size-adjusted listed comparables
Risk-free rate (r)	G-Sec yield at tenor matching expected life	G-Sec yield at tenor matching expected life

Unlisted company volatility: This is the most judgment-sensitive input in an ESOP valuation. The choice of peer companies (sector, size, stage) and the time period of historical returns materially affects the fair value — and therefore the P&L charge.

What You Receive

Actuarial certificate — grant-date fair value per option/unit
Assumptions documentation — volatility, expected life, risk-free rate, dividend yield
Expense recognition schedule — annual charge by vesting tranche and total over vesting period
Modification accounting computation (for repricing, extension, or cancellation events)

We Also Help With Scheme Design

Before the grant, we advise on pool sizing, exercise price setting, vesting schedule design, and the accounting cost implications of each design choice. A scheme designed with the P&L charge in mind avoids surprises when the first audited accounts are prepared. See our ESOP Design 101 guide for the complete framework.

Frequently Asked Questions

The P&L charge begins at the grant date and is spread over the vesting period. If options vest over 4 years, one quarter of the total fair value (adjusted for expected forfeitures) is charged each year. There is no charge at exercise — by then, the entire cost has already been recognised.

If the employee's departure means their unvested options lapse, the cumulative expense recognised to date for those options is reversed — reducing the compensation expense in the year of departure. The reversal goes to retained earnings, not back to P&L in prior periods.

For unlisted pre-IPO companies, there is no share price history. Volatility is estimated using the historical share price volatility of a basket of listed companies in the same sector and of comparable size. We select peers systematically and document the selection basis for auditor review.

RSUs (where the employee receives the full share value on vesting, not just the appreciation) are valued differently. An RSU is essentially a share grant with a vesting condition — its fair value is the share price at grant date, adjusted for any expected dividend yield during the vesting period. No option pricing model is needed, but the expense recognition over the vesting period and the disclosure are the same as for ESOPs.

Request an ESOP valuation

Grant-date fair value, expense schedule, and complete Ind AS 102 disclosures — for listed and unlisted companies. Delivered for every grant event.

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