EIP: Employee Incentive Plan
Delivering a cost-effective, integrated and adaptive compensation package
Many companies use Employee Incentive Plans (EIP) to compensate, retain and attract high-value employees.
Deloitte’s ‘one-stop shop’ for the EIP lifecycle is a cost effective, integrated and adaptive solution. It includes design, valuation, hedging and monetisation. It also considers tax, legal, accounting and human capital matters to maximise the benefits from these plans.
Our EIP team includes financial engineers and ex-derivatives traders with in-depth practical experience of the equity derivatives market.
Introducing the EIP Life Cycle
Deloitte’s proposition is innovative and adds value in the following key areas.
Design and sensitivity analysis
During our quantitative design and sensitivity analysis, we stress test valuation parameters against key performance indicators to assess potential negative impacts from EIP. This testing is done in collaboration with Deloitte’s accounting, tax and legal specialists.
Valuation of equity derivatives
Deloitte has developed a ‘best practice’ equity derivative valuation framework. This features an advanced and fully integrated proprietary quantitative model to value a large range of employee share and option schemes from simple to complex and incorporates more dynamic assumptions than standard models currently used in the industry.
We can assist with the quantitative design of an optimal hedging strategy. If a company is required to purchase existing shares on the open market, it should consider hedging strategies to mitigate the risk of an increase in the share price between the grant date and the vesting date. These strategies allow a company to free up treasury shares usually held as a simple hedge in such circumstances.
Deloitte can help structure monetisation strategies that allow employees to borrow against vested options to fund the exercise of those options and use leftover cash to reduce debt or diversify their investments. With equity markets remaining unstable, employees are often keen to hedge the value of their options by locking in the potential gain while maintaining some level of exposure to the company.
Management plan (private equity)
In the private equity world, management compensation incentive plans are also important to align employee motivation with business objectives and investor interests. Deloitte can help a company structure or value sophisticated equity compensation schemes.
Contact our expert to find out how we can help you.