IFRS 2 — Vesting and non-vesting conditions

Date recorded:

The staff prepared a comprehensive analysis of proposed classifications of vesting and non-vesting conditions and their interaction as requested by the Committee in March.

From the start of the discussion, even before debating the technical issues themselves, several Committee members expressed their concerns that the whole technical analysis, albeit very useful for further development of the Standard (and a post implementation review of IFRS 2 Share-based Payment) showed that a fundamental analysis of IFRS 2 would be required. They argued that the staff analysis was very broad and if implemented would require substantial rewrite of the Standard and thus the issue was too big to be considered by the Committee. Therefore, these members urged the Committee to focus more narrowly on the specific issues that were raised by constituents.

Several Committee members were concerned with the interaction of the proposed changes and the review of the IFRS 2 currently being performed by the French standard setter on behalf of the Board (in order to identify principles of IFRS 2).

Nonetheless, Jean-Louis Lebrun (chairman of the working group at the French standard setter) clarified that the analysis would be useful for the analysis being performed and thus there was little scope for an overlap.

On the other hand, several Committee members fully supported the staff's proposal how to proceed, whether with interpretation or an interpretation accompanies with a recommendation to the Board to amend IFRS 2.

The staff proposed the following amendments that should lead to clarification of the application of the vesting and non-vesting condition and achieve consistency with general understanding of a common terminology. The summary of the staff proposal is as follows:


ItemProposed amendment
Vesting condition The definition of vesting condition should be clarified to address/ incorporate the following: (1) the counterparty perspective, (2) a required explicit or implicit service requirement, and (3) the elimination of descriptions of specific conditions.
Non-vesting condition A stand-alone definition of non-vesting condition should be incorporated into IFRSs and encompass all conditions that do not determine entitlement.
Service condition A stand-alone definition of service condition should be incorporated into IFRSs and should be restricted to only a service requirement over a determined period of time.
Performance condition A stand-alone definition of performance condition should be incorporated into IFRSs and should be restricted targets that relate to solely to an entity's operations or activities. Additionally, examples similar to those provided in the US GAAP definition should be incorporated.
Market condition The definition of market condition should be removed from IFRS 2. Additionally, the concept of a market condition should continue to be captured as a vesting condition within the stand-alone definition of other vesting conditions.
Other vesting condition A stand-alone definition of other vesting condition should be incorporated into IFRSs that should encompass all conditions that determine the counterparty's entitlement provided the condition is not categorised as a service or performance condition.
Contingent feature Guidance on a contingent feature (inclusive of reload and non-compete provisions) as well as guidance on whether grant date measurement and subsequent measurements should be incorporated into IFRSs.
Vesting period The definition of vesting period should be revised to capture the concept of the explicit or implicit service period required for an individual vesting condition.
Attribution period A stand-alone definition of attribution period should be incorporated into IFRSs and capture the period of time over which the share-based payment award is recognised. This is the result of the interaction of multiple vesting conditions.
Multiple vesting conditions Application guidance should be incorporated into IFRSs addressing the interaction of multiple conditions by either 'or' or 'and' conditions.

Several Committee members expressed their concerns that the staff proposals reversed the conclusion the Board reached in the 2008 Amendment to IFRS2: Vesting Conditions and Cancellations in relation to the perspective from which vesting condition is defined. The 2008 Amendment changed the perspective from the employee to the employer; the staff analysis suggested changing the perspective back to how it was originally framed in IFRS 2. These Committee members questioned the change given that the Board specifically addressed the issue two years ago. The Chairman and the staff responded that 2008 Amendment was driven by practical considerations and the desire to have consistent accounting treatment. The staff proposed that as IFRS 2 is generally a rules-based standard, an exception for particular products would be retained. That approach could be used for conditions that are quite common but are not easily classified (for example, change of control).

One Committee member was concerned that the proposals would not clarify the issue and could lead to unintended consequences. In his opinion, such amendments bring no additional benefits as they introduce new concepts to the Standard. In addition, he thought that some of the issues raised do not require clarification at all.

There was some confusion whether the proposed amendments would or would not change the actual accounting. After a considerable debate the Committee members asked the staff to analyse the accounting treatment impact of the changes on some practical examples (that is, supplement the classification examples with the impact on measurement). In general, majority of the committee implied that the accounting treatment should not change significantly based on these conditions, even though some changes would be required (for some of the issues as well for entities that applied the principles in a different manner as proposed).

Some Committee members felt that the proposals provide guidance and clarity where no guidance existed before. These members also noted that some of these amendments contribute to convergence with the US GAAP and the vesting and non-vesting conditions are not generally challenged under US GAAP.

The Committee in general agreed with the proposal guidance for multiple vesting conditions and their interaction. Nonetheless, the Committee members were reluctant to introduce a concept of attribution period, majority of them preferred to refer to them as multiple vesting periods but covering the same concept.

The Committee resumed its discussion of these issues considering a subsequent Agenda Paper that was not distributed to Observers nor released on the IASB's Website before these notes were prepared.

The summary seemed to help Committee members identify the principle that differentiates a vesting condition from a non-vesting condition. However, Committee members suggested that, in addition, further work was necessary on the definition of a performance condition. This work would need to address, among others, the performance of whom: the entity or the employee; and performance compared to what? However, Committee members seemed to be satisfied that the staff analysis provided them with sufficient direction that the issues raised in the submission could be addressed in a satisfactory manner.


The Chairman asked whether the Committee was content to permit the staff to proceed further. In particular, he asked Committee members to identify circumstances that would help the staff to identify performance conditions appropriately and to test examples against the model. The intention would be to present the results of this analysis to the July 2010 Committee meeting.

The Chairman promised the Committee that this step would not commit them to any particular course of action: he was asking members to consult within their organisations to help the staff prepare as complete an analysis as possible.

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