Valuing management incentive units

This article was originally published on Nov. 4, 2019, and has been updated.

Management incentive units (MIUs) are a form of equity compensation issued by private companies to employees, management, directors, consultants or investors. Depending upon whether it is probable that the vesting conditions will be met, the value of MIUs, and the related compensation cost, is either recognized in the financial statements or disclosed as unrecognized compensation cost in the financial statement disclosures. Therefore, a valuation should be performed when MIUs are issued, modified or when there is a change in ownership.

RSM’s valuation services team has issued a white paper, Valuing management incentive units, which addresses the following matters:

• The definition of MIUs and how MIUs differ from other common forms of incentive compensation (e.g., stock options) in terms of design and accounting treatment
• Valuation approaches for MIUs and areas of concern that RSM auditors and valuation specialists often review with their clients and clients’ valuation specialists
• The need to conduct MIU valuations for tax purposes because the value of MIUs for tax purposes is based on a standard of “fair market value,” which can be different from the financial-reporting “fair value” basis

Download the white paper