Award modified by changing non-market performance conditions
At the beginning of year 1, the entity grants 1,000 share options to each member of its sales team, conditional upon the employee remaining in the entity’s employment for three years, and the team selling more than 50,000 units of a particular product over the three year period. The fair value of the share options is £15 per option at the date of grant. During year 2, the entity believes that the sales target is insufficiently demanding and increases it to 100,000 units. By the end of year 3, the entity has sold 55,000 units, and the share options are forfeited. Twelve members of the sales team have remained in service for the three year period.
On the basis that the original target would have been met, and twelve employees would have been eligible for awards, the entity would recognise a total cost of £180,000 (12 employees × 1,000 options × £15). The cumulative cost in years 1 and 2 would, as in the Examples above, reflect the entity’s best estimate of the original 50,000 unit sales target being achieved at the end of year 3. If, conversely, sales of only 49,000 units had been achieved, any cost booked for the award in years 1 and 2 would have been reversed in year 3, since the original target of 50,000 units would not have been met.