Meaning of ‘vesting period’ – award with vesting conditions only
An employee is awarded options that can be exercised, if the employee remains in service for at least three years from the date of the award, at any time between three and ten years from the date of the award. For this award, the vesting period is three years; the exercise period is seven years; and the life of the option is ten years. However, as discussed further in 8 below, for the purposes of calculating the cost of the award under IFRS 2, the life of the award is taken as the period ending with the date on which the counterparty is most likely actually to exercise the option, which may be some time before the full ten year life expires.
It is also important to distinguish between vesting conditions and other restrictions on the exercise of options and/or trading in shares, as illustrated by below.
Meaning of ‘vesting period’ – award with vesting conditions and other restrictions
An employee is awarded options that can be exercised, if the employee remains in service for at least three years from the date of the award, at any time between five and ten years from the date of the award. In this case, the vesting period remains three years as in above, provided that the employee’s entitlement to the award becomes absolute at the end of three years – in other words, the employee has to provide no services to the entity in years 4 and 5. The restriction on exercise of the award in the period after vesting is a non-vesting condition, which would be reflected in the original valuation of the award at the date of grant.