Awards with multiple service periods
Scenario 1
On 1 January 2013, the entity enters into a share-based payment arrangement with an employee. The employee is informed that the maximum potential award is 40,000 shares, 10,000 of which will vest on 31 December 2013, and 10,000 more on each of 31 December 2014, 31 December 2015 and 31 December 2016. Vesting of each tranche of 10,000 shares is conditional on:
(a) the employee having been in continuous service until 31 December of the relevant year;
(b) revenue targets for each of those four years, as communicated to the employee on 1 January 2013, having been attained.
In this case, the terms of the award are clearly understood by both parties at 1 January 2013, and this is therefore the grant date under IFRS 2 (subject to issues such as any requirement for later formal approval – see to above). The cost of the award would be recognised using a ‘graded’ vesting period – see below.
Scenario 2
On 1 January 2013, the entity enters into a share-based payment arrangement with an employee. The employee is informed that the maximum potential award is 40,000 shares, 10,000 of which will vest on 31 December 2013, and 10,000 more on each of 31 December 2014, 31 December 2015 and 31 December 2016. Vesting of each tranche of 10,000 shares is conditional on:
(a) the employee having been in continuous service until 31 December of the relevant year;
(b) revenue targets for each of those four years, to be communicated to the employee on 1 January of each year in respect of that year only, having been attained.
In this case, in our view, as at 1 January 2013, there is a clear shared understanding only of the terms of the first tranche of 10,000 shares that will potentially vest on 31 December 2013. There is no clear understanding of the terms of the tranches potentially vesting in 2014 to 2016 because their vesting depends on revenue targets for those years which have not yet been set.
Accordingly, each of the four tranches of 10,000 shares has a separate grant date – i.e. 1 January 2013, 1 January 2014, 1 January 2015 and 1 January 2016 – and a vesting period of one year from the relevant grant date.