With an ever-changing business environment, sustained stock price declines might be a new thing for you or your employees. Whether you’re experiencing market volatility or customer pains, you may be wondering, is it the right time to consider a new common stock valuation?

The answer is: maybe. And it all depends on circumstances. Regardless, as a private company, you have control.

Pros of Doing a New Valuation

1. Equity compensation can help with employee retention
Stock options are an additional form of compensation. When used appropriately, they can serve as a morale booster and give employees a greater stake in the future of the company. By executing a new valuation, companies may be able to reduce the price of their stock, thereby distributing options to employees at a lower cost — providing them with valuable assets with more upside potential.

Remember that valuation experts use information that is known or knowable as of the valuation date. So, a new valuation in the trough of the market could make your company more attractive if you are hiring.

Of course, if the value has declined, you must also be sensitive to giving new employees options below existing employees. What this means and how you communicate this is important. You might even consider repricing existing underwater options to further incentivize current employees (keep reading as we will dive deeper into this shortly).