Management Incentive Plans
Minority Discounts Awards made under a MIP will usually be that of a small minority holding where the recipient has less control and influence over the company than a majority owner. This lack of control and marketability makes the recipient’s ownership stake less valuable. To account for this, the final step in the valuation of a minority shareholding is to apply a minority discount. This requires consideration of the specific terms and circumstances of the award, and the range of generally accepted discounts to ensure that an appropriate discount is
applied (thereby avoiding an over or understatement of the value of the awards). The Shares and Assets Valuation Manual no longer prescribes discount ranges according to shareholding size and requires justification of the rationale for the selected discount on a case-by- case basis. Factors to be considered include: the size of the shareholding; the achievability of the hurdle; dividend expectations and the likely timing of exit.
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