IFRS 2

Share-Based Payment.
• IFRS 2
– Scope and Definition
– Recognition
– Measurement
– Vesting Conditions
– Valuation
Overview
• Scope exclusions
– Issuance of shares in a business combination (IAS 22)
– Share based payments in the scope of IAS 32 & 39
– Share based payments other than for goods or services

• Definition
–Transaction in which an entity receives or
acquires goods or services in exchange for:
– Equity instruments OR
– Based on the price of equity instruments
Types

–Equity settled
–Cash settled
–Choice between the two
alternatives
New – IFRS 2
Share based payments
Recognition
Share based payments

Equity instruments/
Goods or services Liabilities
(linked to share price)

Asset Expense Equity Liability

IFRS 2 Share-Based Payment © 2006 Deloitte - Roger Nasr

Recognition
With cash
Equity settled Cash settled
alternative

Fair value Equity component

Fair value (measure at grant date only)
each balance sheet
grant day only Cash component
date (Measure at each balance sheet)

No changes in fair Changes in fair value Changes if fair value

value in P&L until exercise follow split

IFRS 2 Share-Based Payment © 2006 Deloitte - Roger Nasr

Equity settled payments

Equity settled

Employees or similar Other than employees

Fair value Value goods or services

grant date only at date received

Expense allocated Expense recognised as

over vesting period goods or services are used

IFRS 2 Share-Based Payment © 2006 Deloitte - Roger Nasr

Vesting conditions

• Vesting conditions means that the employee does not get

the right to exercise options, unless certain conditions are
met
• Two types of vesting conditions
– Market based
– Achieve a target share price or share price relative to an index

– Non-market based
– Employment
– Accounting key figures (e.g. EPS, revenue targets)
– Personal targets
– IPO of the company
– Sale of the company
Vesting Conditions

• Issuance of fully vested shares

• relates to past service therefore expensed immediately

• Issuance of shares with a vesting period

• relates to services over vesting period: expense over vesting
period
• Two types of vesting conditions:`

1. Non-market based OR 2. Market based

vesting condition vesting condition

Fair value excludes vesting Fair value includes these vesting

conditions conditions

True-up No true-up
Adjust number of shares or Do not adjust number of shares
vesting date for actual results or vesting date for actual results
IFRS 2 Share-Based Payment © 2006 Deloitte - Roger Nasr
Valuation Model Example

100 options each that

vest if employed in 3
years

Fair value per option = $15

5 Total grant date value?
0
0 $750,000 (=500x100x15)
$250 each year
Adjust expense for actual vested shares
since there is a non-market vesting
condition
Example (continued)

If 80% are expected to vest (and does vest)

Year 1 Year 2 Year 3

$200,000 $200,000 $200,000

$600,000 total expense over three years

(50,000 options x 80%) x $15
Example (continued)

IF
At the end of year 1: expect 85% of options to vest
At the end of year 2: expect 88% of options to vest
At the end of year 3: 44,300 shares (or 88.6%) actually vest

Year 1 Year 2 Year 3

$212,500 $227,500 $224,500
(500 x 0.88 - (750 x 0.886 -
(250 x 0.85)
212.5) (212.5 + 227.5))

Total expense = $664,500 ($15 x 44,300)

Example (continued)

All employees resign during period 3 without receiving

options
(or another non-market vesting condition is not met)

Year 1 Year 2 Year 3

$200,000 $200,000 - $400,000
(250 x 0.8) (250 x 0.8) - (250 x 0.8) x 2

$0 total expense reduced to zero 

because no options vest