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IFRS 2 Share-based Payment – Vesting and non-vesting conditions

Date recorded:

The Committee has previously considered several issues related to vesting conditions within IFRS 2 and which alternative provided the best solution to address these issues (i.e., an interpretation, as part of Annual Improvements, a separate IFRS 2 amendment project, or as part of the post-implementation review of IFRS 2).

The Committee had diverse views on how to proceed and requested the views of the IASB. At the September 2010 Board meeting, the Board acknowledged that not every issue required being addressed in a similar process and therefore asked the Committee to prioritise the issues under consideration and then determine a best route forward.

The IFRS 2 issues currently being considered by the Committee include:

  • Issue 1 - Correlation between an employee's responsibility and the performance target
  • Issue 2 - Share market index target
  • Issue 2A - Vesting conditions other than service or performance
  • Issue 3 - Performance period longer than the required service period
  • Issue 4 - Non-compete provision
  • Issue 5 - Interaction of multiple vesting conditions
  • Issue 6 - Termination of employments

The staff noted that issues 1, 2, 3, 4 and 6 were raised by submissions to the Committee whereas issues 2A and issue 5 were derived during Committee deliberations. The Committee decided to take the following action:

  • Address issues 1, 2, 3 and 6 through the Annual Improvements process
  • Address issues 2A, 4 and 5 through an agenda request to the IASB for a separate amendment project to IFRS 2.

The Committee noted that the consideration of the separate agenda request would have to be considered alongside the ANC's report for a complete reconsideration of IFRS 2.

As part of the process to address issues 1, 2, 3 and 6 though the Annual Improvements process, the Committee tentatively agreed to propose separating the performance and service conditions from the definition of vesting conditions within IFRS 2 as follows:

  • vesting conditions
  • The conditions that determine whether the entity receives the services that entitle the counterparty to receive cash, other assets or equity instruments of the entity, under a share-based payment arrangement. Vesting conditions are either service conditions or performance conditions. Service conditions require the counterparty to complete a specified period of service. Performance conditions require the counterparty to complete a specified period of service and specified performance targets to be met (such as a specified increase in the entity's profit over a specified period of time). A performance condition might include a market condition.
  • performance conditions
  • Performance The conditions that require
    • (a) the counterparty to complete a specified period of service, and
    • (b) specified performance targets to be met (such as a specified increase in the entity's profit over a specified period of time) while the counterparty is rendering the service required in (a).
  • A performance target is defined by reference to the entity's own operations (or activities) or its share price. A performance target might relate either to the performance of the entity as a whole or to some part of the entity, such as a division or an individual employee. A performance condition might include a market condition.
  • service conditions
  • Service The conditions that require the counterparty to complete a specified period of service. If the counterparty, regardless of the reason, ceases to provide service during the vesting period, the counterparty has failed to satisfy the condition.

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