N° 2200

2017

Manual of Accounting
Policies (MAP)

Share-Based Payments

This procedure is strictly confidential and is for internal use of ArcelorMittal. Only ArcelorMittal staff may have access to this procedure.
No copy of it can be given to somebody outside ArcelorMittal without the written approval of the designated responsible person.
The divulgation of this technical note without the appropriate approval will be considered as an improper conduct.
N° 2200 - Share-Based Payments 2

Contents

1 – Objective and overview 3 3.4 Measurement date – Equity settled transactions 7

3.5 Fair value– Equity settled transactions 7
2 – Definitions 4
3.6 Vesting conditions – Equity settled transactions 8
2.1 Cash-settled Share-based Payment Transaction 4
3.7 Others 8
2.2 Employees and Others Providing Similar Services 4
3.8 Modifications including cancellation and settlements 8
2.3 Equity Instrument 4
3.9 Accounting at Unit level 8
2.4 Equity Instrument Granted 4
3.10 Accounting for share-based payment transactions
2.5 Equity-settled Share-based Payment Transaction 4 in the individual IFRS financial statements 8
2.6 Fair Value 4 3.11 Share based transactions with net settlement
2.7 Grant Date 4 features for withholding tax obligations 8
2.8 Intrinsic Value 4 4 – EXAMPLES 9
2.9 Market Condition 4
5 – REPORTING 12
2.10 Measurement Date 4
5.1 General Disclosures 12
2.11 Reload Feature 5
5.2 Disclosures of the Fair value 12
2.12 Reload Option 4
5.3 Disclosures in the statement of operations 12
2.13 Share-based Payment Arrangement 4
2.14 Share-based Payment Transaction 4
2.15 Share Option 4
2.16 Vest 5
2.17 Vesting Conditions 5
2.18 Vesting Period 5
3 – Guidance 6
3.1 Scope 6
3.2 Recognition 6
3.3 Measurement 6
3.3.1 Equity-settled share-based payment transactions 6
3.3.2 Cash settled transactions 7
N° 2200 - Share-Based Payments 3

1 - Objective and Overview

The objective of this procedure is to specify

the financial reporting by an entity when
it undertakes a share-based payment
transaction. In particular, it requires an entity to
reflect in its statement of operations and the
statement of financial position the effects of
share-based payment transactions, including
expenses associated with transactions in which
share options are granted to employees.

This procedure only covers the type of share-

based payment transactions that are done
within the group. For further guidance, please
refer to IFRS 2.
N° 2200 - Share-Based Payments
2 - Definitions
2.1 Cash-settled Share-based Payment
Transaction
A share-based payment transaction in which
the entity acquires goods or services by incur-
ring a liability to transfer cash or other assets
to the supplier of those goods or services for
amounts that are based on the price (or value)
of the entity’s shares or other equity instru-
ments of the entity.
2.2 Employees and Others Providing Similar
Services
Individuals who render personal services to the
entity and either:
- The individuals are regarded as employees for
legal or tax purposes,
- The individuals work for the entity under its
direction in the same way as individuals who
are regarded as employees for legal or tax
purposes, or
- The services rendered are similar to those
rendered by employees.
For example, the term encompasses all mana-
gement personnel, i.e., those persons having
authority and responsibility for planning, direc-
ting and controlling the activities of the entity,
including non-executive directors.
2.3 Equity Instrument
An equity instrument is a contract that evi-
dences a residual interest in the assets of an
entity after deducting all of its liabilities.
2.4 Equity Instrument Granted
The right (conditional or unconditional) to an
equity instrument of the entity given/granted
by the entity to another party, under a share-
based payment arrangement.
2.5 Equity-settled Share-based Payment
Transaction
A share-based payment transaction in which
the entity receives goods or services as consi-
deration for equity instruments of the entity
(including shares or share option).
2.6 Fair Value
The amount for which an asset could be
exchanged, a liability settled, or an equity ins-
trument granted could be exchanged, between
knowledgeable, willing parties in an arm’s
length transaction.
2.7 Grant Date
The date at which the entity and another party
(including an employee) agree to a share-
based payment arrangement, being when the
entity and the counterparty have a shared
understanding of the terms and conditions
of the arrangement. At the grant date, the
entity grants the counterparty the right to
cash, other assets, or equity instruments of
the entity, provided the specified vesting
conditions, if any, are met. If that agreement is
subject to an approval process (for example, by
shareholders), the grant date is the date when
that approval is obtained.
2.8 Intrinsic Value
The difference between the fair value of the
shares to which the counterparty has the
(conditional or unconditional) right to subscribe
or which it has the right to receive, and the
price (if any) the counterparty is (or will be)
required to pay for those shares. For example,
a share option with an exercise price of CU15
for a share with a fair value of CU20 has an
intrinsic value of CU5.
2.9 Market Condition
A condition upon which the exercise price,
vesting or exercisability of an equity instru-
ment depends that is related to the market
price of the entity’s equity instruments, such as
attaining a specified share price or a specified
amount of intrinsic value of a share option, or
achieving a specified target that is based on
the market price of the entity’s equity instru-
ments relative to an index of market prices of
equity instruments of other entities.
2.10 Measurement Date
The date at which the fair value of the equity
instruments granted is measured for the
purposes of this procedure. For transactions
4
with employees and others providing similar
services, the measurement date is grant
date. For transactions with parties other than
employees (and those providing similar ser-
vices), the measurement date is the date the
entity obtains the goods or the counterparty
renders service.
2.11 Reload Feature
A feature that provides for an automatic grant
of additional share options whenever the
option holder exercises previously granted
options using the entity’s shares, rather than
cash, to satisfy the exercise price.
2.12 Reload Option
A new share option granted when a share is
used to satisfy the exercise price of a previous
share option.
2.13 Share-based Payment Arrangement
An agreement between the entity and another
party (including an employee) to enter into
a share-based payment transaction, which
thereby entitles the other party to receive cash
or other assets of the entity for amounts that
are based on the price of the entity’s shares
or other equity instruments of the entity, or
to receive equity instruments of the entity,
provided the specified vesting conditions, if
any, are met.
2.14 Share-based Payment Transaction
A transaction in which the entity receives
goods or services as consideration for equity
instruments of the entity (including shares or
share options), or acquires goods or services
by incurring liabilities to the supplier of those
goods or services for amounts that are based
on the price of the entity’s shares or other
equity instruments of the entity.
2.15 Share Option
Share options are contracts that give the
holder the right, but not the obligation, to
subscribe to the entity’s shares at a fixed or
determinable price for a specified period of
time.
N° 2200 - Share-Based Payments 5

2.16 Vest

To become an entitlement, under a share-

based payment arrangement, a counterparty’s
right to receive cash, other assets, or equity
instruments of the entity vests upon satisfac-
tion of any specified vesting conditions.

2.17 Vesting Conditions

The conditions that must be satisfied for the

counterparty to become entitled to receive
cash, other assets or equity instruments of
the entity, under a share-based payment
arrangement. Vesting conditions include
service conditions, which require the other
party to complete a specified period of service,
and performance conditions, which require
specified performance targets to be met (such
as a specified increase in the entity’s profit over
a specified period of time).

2.18 Vesting Period

The period during which all the specified

vesting conditions of a share-based payment
arrangement are to be satisfied.
N° 2200 - Share-Based Payments
3 - Guidance
3.1 Scope
An entity shall apply this procedure for all
share-based payment transactions including:
a) Equity-settled share-based payment
transactions, in which the entity receives
goods or services as consideration for equity
instruments of the entity (including shares
or share options),
b) Cash-settled share-based payment
transactions, in which the entity acquires
goods or services by incurring liabilities to
the supplier of those goods or services
for amounts that are based on the price
(or value) of the entity’s shares or other
equity instruments of the entity (there
are no cash-settled share-based payment
transactions within the group), and
c) Transactions in which the entity receives
or acquires goods or services and the
terms of the arrangement provide either
the entity or the supplier of those goods
or services with a choice of whether the
entity settles the transaction in cash
(or other assets) or by issuing equity
instruments (those transactions are not
applicable within the group).
3.2 Recognition
The goods or services received or acquired
in a share-based payment transaction are
recognized when the goods are obtained or as
the services are received.
If the equity instruments vest immediately,
it is presumed that the consideration for the
instruments has been received.
If the equity instruments granted do not vest
until the counterparty completes a specified
period of service, it is presumed that the
service period equals the vesting period.
The services are accounted for as they are
rendered by the counterparty during the
vesting period, with a corresponding increase
in equity (equity-settled) or liability (cash-
settled).
3.3 Measurement
3.3.1 Equity-settled share-based payment
transactions
The goods or services received, and the
corresponding increase in equity, should be
measured at the fair value of goods or services
received, unless the fair value cannot be
estimated reliably.
6
In some cases it might be difficult to
demonstrate that goods or services have been
(or will be) received.
In the absence of specifically identifiable
goods or services, other circumstances
may indicate that goods or services have
been (or will be) received, in which case
this accounting policy applies. The unit shall
measure the unidentifiable goods or services
received (or to be received) as the difference
between the fair value of the share-based
payment and the fair value of any identifiable
goods or services received (or to be received)
(example: the Black Economic Empowerment
in South Africa).
If it is not possible to estimate reliably the fair
value of the goods or services received, the fair
value of the equity instruments granted is used
as a proxy.
Each share-based payment transaction should
be analyzed to see whether it includes market
and/or non-market-based performance
conditions because this will also affect the
accounting treatment and measurement of the
transaction.
N° 2200 - Share-Based Payments
Illustration of difference between Market
based and Non-market based performance
The following are examples of market based
performance conditions:
• Vesting based on achieving a specific share
price of the entity’s equity instruments; or
• Vesting based on achieving a specified target
share price relative to an index of market
prices.
The following are examples of non-market
based performance conditions:
• Vesting based on achieving a specific growth
in revenue;
Methodology for non-market performance conditions
Please refer to section 4 – Example for a complete example for the non-market performance conditions (examples 1 & 2).
3.3.2 Cash Settled transactions
For cash-settled share-based payment
transactions, the goods or services acquired
and the liability incurred are measured at
the fair value of the liability. Until the liability
is settled, the liability is re-measured at
fair value at each reporting date (and the
settlement date). Any changes in fair value
are recognized in statement of operations
of the period. Please note that there is no
Cash settled transactions in ArcelorMittal’s
group. Although the measurement of those
transactions is different from the equity
settled transactions, it will not be covered
in this procedure. Please contact the
Compliance department if you need more
guidance on this subject.
3.4 Measurement date – Equity settled
transactions
- The measurement date for transactions with
employees and providers of similar services is
the grant date. For transactions with parties
other than employees and other providers
of similar services the measurement date is
the date the entity obtains the goods or the
counterparty renders service.
• Vesting based on achieving a specific growth
in profits; (EBITDA...)
• Vesting based on achieving a specific increase
in earnings per share (EPS); or
• Vesting based on achieving non-financial
targets (e.g., number of employees).
Please note that in ArcelorMittal’s group,
the equity-settled share-based payment
transactions always have non-market based
performance conditions (excluding the CEO
Office share- based plans).
- If the goods or services are received on
more than one date, the entity should
measure the fair value of the equity
instruments granted on each date when
goods or services are received.
Please refer to section 4 – Example for a
complete example of measurement date
(example 3) and grant date (example 4).
3.5 Fair value– Equity settled transactions
- When fair value is determined by reference
to the value of goods or services, all fair
value should be measured net of any
volume rebates.
- When fair value is determined by reference
to the fair value of the equity instruments
granted, ideally that fair value should be
determined by reference to the market price.
- It is possible to use an approximation in
some cases. An entity could use the average
share price during the period the services are
received when estimating the fair value of
the equity instruments granted.
- When market prices do not exist for share
options, the fair value should be determined
by applying a valuation technique, usually
7
Non market performance condition
Equity-settle share-based payments with
either no performance features, or only
non-market based performance features, are
accounted for under a “true-up” model.
Ultimately, the total amount expensed will
equal the multiple of the total number of
vested instruments and each instrument’s fair
value determined at the date of the grant.
At each reporting date, the amount expense
should be adjusted to reflect the entity’s best
estimate of the number of shares that will vest.
in the form of an option pricing model.
For stock options, restricted share units
and performance share units, fair value
is measure using the Black-Scholes-
Merton pricing model. Where the fair value
calculation requires modeling of the Group
performance against other market index fair
value is measured using the Monte Carlo
pricing model to estimate the forecasted
target performance goal for the Group and
its peer companies.
- IFRS 2 provides an exemption from fair
value when the fair value of the equity
instruments issued cannot be reasonably
measured. In these cases, the grant is
initially measured at its intrinsic value
(based on the number of equity instruments
that will ultimately vest or are ultimately
exercised) and adjusted at each reporting
date for any change in intrinsic value until
the options are either exercised, forfeited
or laps. After vesting date, the amount
recognized for goods or services received is
reversed if the options are later forfeited, or
lapse at the end of the option life.
Please refer to section 4 – Example for an
example of fair value evaluation (example 5).
N° 2200 - Share-Based Payments
3.6 Vesting conditions – Equity settled
transactions
- Vesting conditions that are market related
reflects the fair value at the grant date,
do not re-estimates number of shares
expected to vest and the charge continues
irrespectively of whether the conditions are
met or not. These vesting conditions should
not be give rise to a re-estimation of shares
that are expected to vest.
- Vesting conditions that are not market
related does not reflects the fair value at the
grant date, re-estimate number of shares
expected to vest and the charge is reversed
if conditions are not met. To apply this
non-market vesting condition, an amount is
recognized for the goods or services received
during the vesting period based on the best
available estimate of the number of equity
instruments expected to vest.
- If the length of the vesting period might
varies depending on when the performance
conditions are met, the length of the vesting
period at grant is estimate based on the most
likely outcome of the performance condition.
This length is settled unless the vesting
conditions are non-market related; in which
case, the vesting period should be revised if
subsequent information indicates that the
length differs from the estimation.
Please refer to section 4 – Example for an
example of fair value evaluation (example 6).
3.7 Others
- Some share options have a “reload features”.
The exercise price of the reload option is
usually set at the market price of the shares
on the date the reload option is granted.
- There are no subsequent adjustments that
should be made to equity after the vesting
date. This requirement does not preclude a
transfer from one component of equity to
another.
3.8 Modifications including cancellation and
settlements
- If the modification occurs during the vesting
period, the incremental fair value granted is
included in the measurement of the amount
recognized for services received over the
period from the modification date until the
date when the modified equity instruments
vest. The amount based on the grant date
fair value of the original equity instruments
continues to be recognized over the
remainder of the original vesting period.
- If the modification occurs after vesting
date, the incremental fair value granted is
recognized immediately. If the employee is
required to complete an additional period
of service before becoming unconditionally
entitled to the modified equity instruments,
the incremental fair value granted will be
recognized over the vesting period.
- If the terms or conditions are modified in a
way that it is not beneficial to the employee,
the amount previously recognized for
services received continues to be measured
based on the grant date fair value of the
instrument originally granted.
- If an equity instrument is cancel or settled,
it is accounted for as an acceleration of
vesting. The amount that would otherwise
have been recognized for services received
over the reminder of the vesting period
is therefore recognized immediately.
Any payment made to the employee on
cancellation or settlement is accounted for
as a repurchase of an equity interest (i.e. as a
deduction from equity) except to the extent
that the payment exceeds the fair value of
the equity instrument granted, measured
at the repurchase date. Any such excess is
recognized as an expense.
- New equity instruments may be granted
to an employee in connection with the
cancellation of existing equity instruments.
If new equity instruments are granted and
they are identified, on the date when they are
granted, as replacement equity instruments
for the cancelled equity instruments, this is
accounted for as a modification of the original
equity instruments.
Please refer to section 4 – Example for an
example of fair value evaluation (example 7).
3.9 Accounting at Unit level
Each year, the ArcelorMittal Appointments,
Remuneration & Corporate Governance
Committee grants some PSU/ RSU/ Special
grant to senior management (see note Equity
of the 20F report for specific details).
The compensation expenses for these plans
and the various group entities involved are
totally recognized in the ArcelorMittal SA BPM
reporting package (code AM1) for group
reporting purposes and in accordance with
IFRS.
This recognition might be also required for
individual statutory financial statements
(annual report, booklet…) under IFRS or local
Gaap (IFRS 2 & IFRIC 11 for IFRS standards if
adopted by the country). In that case, a portion
of the total expense recorded in AM SA should
be included in your local financial statement but
excluded from your reporting to the group.
This calculation is prepared by the Group
Accounting & Performance Management
Department and could be reviewed by group
auditors in Luxembourg (Conso team) before
sending to the units.
8
3.10 Accounting for share-based payment
transactions in the individual IFRS financial
statements
Please note that this paragraph concerns
only units that publish their separate financial
statements in accordance with IFRS.
Employees of a unit are granted rights to
equity instruments of ArcelorMittal as
consideration for the services provided to the
unit. Two types of arrangement can exist:
a) ArcelorMittal grants rights to its equity
instruments direct to the employees of its
unit: ArcelorMittal (not the unit) has the
obligation to provide the employees of the
unit with the equity instruments needed; and
b) a unit grants rights to equity instruments
of ArcelorMittal to its employees: the
subsidiary has the obligation to provide its
employees with the equity instruments
needed. Please note that this type
of arrangement does not exist in the
ArcelorMittal’s Group.
Since the share-based arrangement is
accounted for as equity-settled in the
consolidated financial statements of
ArcelorMittal, the unit shall measure the services
received from its employees in accordance with
the requirements applicable to equity-settled
share-based payment transactions, with a
corresponding increase recognized in equity as a
contribution from the parent.
3.11 Share based transactions with net
settlement features for withholding tax
obligations
In many jurisdictions, tax authorities levy
taxes on share options and other share-based
payment transactions with employees that
give rise to a personal tax liability for the
employee. In some cases, employers are
required to withhold the tax due and to settle
it with the tax authority on behalf of the
employees. This amount is then transferred,
normally in cash, to the tax authorities on
the employee’s behalf. To fulfil this obligation,
the terms of the share-based payment
arrangement may permit or require the entity
to withhold the number of equity instruments
that are equal to the monetary value of the
employee’s tax obligation from the total
number of equity instruments that otherwise
would have been issued to the employee
upon exercise (or vesting) of the share-based
payment (‘net share settlement feature’).
Therefore, as an exception to the requirements
in paragraph 34 of IFRS 2, such transactions
will be classified in their entirety as equity-
settled share-based payment transactions
if they would have been so classified in the
absence of the net share settlement feature
(the payment made will be accounted for as a
deduction from equity for the shares withheld,
except to the extent that the payment exceeds
the fair value at the net settlement date of the
equity instruments withheld).
N° 2200 - Share-Based Payments 9

4 - Examples

Example 1 – Traditional employee share option grant – No performance conditions

Company E issues a total of 100 share options to 10 members of its executive management team (10 options each) on January 1st, 2004. The options
vest at the end of a three-year period. Company E has determined that each option has a fair value at the date of grant equal to 15 €. The company
expects that all 100 options will vest and therefore records the following entry on June 30th, 2004 (the end of 6 months interim reporting period):

Stock option expenses 250 €

((100 x 15 €) * 1/6 period)

Additional Paid-in Capital (APIC) 250 €

If all 100 shares vest, the above entry would be made at the end of each 6-month reporting period.

However, if one member of the executive management team leaves during the second half of 2005 (therefore forfeiting their entire amount of 10
options), the following entry would be made on December 31st, 2005:

Stock option expenses 150 €

((90 x 15 €) * 1/6 period) – ((10 x 15 €) * 3/6 period)

Additional Paid-in Capital (APIC) 150 €

Example 2 - Non-market vesting condition

[IFRS 2 Implementation Guidance (IG Example 1)]

BACKGROUND

An entity grants 100 share options to each of its 500 employees. Each grant is conditional upon the employee working for the entity over the next three
years. The entity estimates that the fair value of each share option is CU 15.
On the basis of a weighted average probability, the entity estimates that 20 per cent of employees will leave during the three-year period and therefore
forfeit their rights to the share options.

APPLICATION OF REQUIREMENTS Scenario 1

If everything turns out exactly as expected, the entity recognizes the following amounts during the vesting period, for services received as consideration
for the share options.

Remuneration expense Cumulative

for period remuneration expense
Year Calculation CU CU

1 50,000 options x 80% x CU15 x 1/3years 200,000 200,000

2 (50,000 options x 80% x CU15 x 2/3 years) - CU200,000 200,000 400,000

3 (50,000 options x 80% x CU15 x 3/3 years) – CU400,000 200,000 600,000

N° 2200 - Share-Based Payments
During year 1, 20 employees leave. The entity revises its estimate of total employee departures over the three-year period from 20 per cent (100
employees) to 15 per cent (75 employees). During year 2, a further 22 employees leave. The entity revises its estimate of total employee depar-
tures over the three-year period from 15 per cent to 12 per cent (60 employees). During year 3, a further 15 employees leave. Hence, a total of 57
employees forfeited their rights to the share options during the three-year period, and a total of 44,300 share options (443 employees x 100 options
per employee) vested at the end of year 3.
Year Calculation
1 50,000 options x 85% x CU15 x 1/3years
2 (50,000 options x 88% x CU15 x 2/3 years) - CU212,500
3 (44,300 options x CU15) – CU440,000
Example 3 - Measurement date for fair
valuation purposes
Company A is a start-up entity that wants to
build a website. Company A contacts Supplier
Z on 15 March and offers 100 shares in A if
Z builds a website to A’s specifications. The
offer is valid for six months. Supplier Z neither
rejects nor accepts A’s offer. On 30 June, Z
agrees to build A’s website for the 100 shares.
On 30 October, the website is delivered to A.
On the same date, A delivers the 100 shares
to Z.
Company A has determined that it cannot
measure reliably the fair value of the services
received and, therefore, measures the share-
based payment by reference to the fair value
of the shares issued.
The measurement date under IFRS 2 will be 30
October. For transactions with parties other
than employees (and those providing similar
services), the measurement date is defined as
“... the date the entity obtains the goods or the
counterparty renders service”. The 100 shares,
therefore, would be valued at 30 October,
based on current market prices. Since no
further action is required by Z and the shares
issued are fully vested, the full fair value should
be expensed or capitalized as an intangible
asset in accordance with IAS 38 Intangible
Assets (see MAP 1100 Intangible assets).
In certain jurisdictions, A may be required to
present interim financial statements at 30
June. Under IFRS 2, there is no requirement
to recognize an interim expense for this
transaction. Therefore, A would need only
to provide the disclosures required for such
commitments (if material).
Example 4 - Grant date
On 1 January 20X1, Company B and each of
its executives enter into an agreement where B
will issue shares to each executive. The number
of shares depends on a formula that considers
growth in revenue and profits for the year to
31 December 20X1. Depending on audited
Remuneration expense
for period
212,500
227,500
224,500
revenue and profit growth, which will be known
at 31 March 20X2, B could issue between
nil and 100 restricted shares. The restricted
shares will vest in the employees if they remain
in B’s employment at the end of a further three
years. Therefore, the earliest each executive
could sell his/ her restricted shares is at the end
of 20X4. The Board has already approved the
formula and no further approvals are needed.
The question that arises is whether the grant
date is 1 January 20X1 or 31 March 20X2.
Grant date is defined as “the date at which the
entity and another party ... agree to a share-
based payment arrangement, being when the
entity and the counterparty have a shared
understanding of the terms and conditions of
the arrangement ...”
At 1 January 20X1, all parties understand the
terms and, therefore, this should be viewed as
the grant date.
An estimate of the number of shares that will
vest is made at 1 January 20X1. A fair value
is assigned to each share. As the formula is
considered a non-market vesting condition
that should be accounted for using the true-
up method in IFRS 2, the number of shares
is adjusted at 31 March 20X2 based on the
amount of restricted shares actually issued to
the executives. The fair value of each share is
based on the value at 1 January 20X1.
Example 5 – Employee share purchase plan
(ESPP)
[IFRS 2 Implementation Guidance (IG Example
11)]
BACKGROUND
An entity offers all its 1,000 employees the
opportunity to participate in an employee
share purchase plan. The employees have
two weeks to decide whether to accept
the offer. Under the terms of the plan, the
employees are entitled to purchase a maximum
of 100 shares each. The purchase price will
10
Cumulative
remuneration expense
CU CU
212,500
440,000
664,500
be 20 per cent less than the market price
of the entity’s shares at the date the offer is
accepted and the purchase price must be paid
immediately upon acceptance of the offer. All
shares purchased must be held in trust for the
employees, and cannot be sold for five years.
The employee is not permitted to withdraw
from the plan during that period. For example,
if the employee ceases employment during the
five-year period, the shares must nevertheless
remain in the plan until the end of the five-year
period. Any dividends paid during the five-year
period will be held in trust for the employees
until the end of the five-year period.
In total, 800 employees accept the offer and
each employee purchases, on average, 80
shares, i.e. the employees purchase a total of
64,000 shares. The weighted-average market
price of the shares at the purchase date is
CU30 per share, and the weighted-average
purchase price is CU24 per share.
APPLICATION OF REQUIREMENTS
For transactions with employees, IFRS
2 requires the transaction amount to be
measured by reference to the fair value of
the equity instruments granted [IFRS 2.11].
To apply this requirement, it is necessary first
to determine the type of equity instrument
granted to the employees. Although the plan is
described as an employee share purchase plan
(ESPP), some ESPPs include option features
and are therefore, in effect, share option
plans. For example, an ESPP might include a
‘lookback feature’, whereby the employee
is able to purchase shares at a discount, and
choose whether the discount is applied to
the entity’s share price at the date of grant or
its share price at the date of purchase. Or an
ESPP might specify the purchase price, and
then allow the employees a significant period
of time to decide whether to participate in the
plan. Another example of an option feature
is an ESPP that permits the participating
employees to cancel their participation before
or at the end of a specified period and obtain
a refund of amounts previously paid into the
plan.
N° 2200 - Share-Based Payments
However, in this example, the plan includes
no option features. The discount is applied to
the share price at the purchase date, and the
employees are not permitted to withdraw from
the plan.
Another factor to consider is the effect of
post-vesting transfer restrictions, if any.
Paragraph B3 of IFRS 2 states that, if shares
are subject to restrictions on transfer after
vesting date, that factor should be taken into
account when estimating the fair value of
those shares, but only to the extent that the
post-vesting restrictions affect the price that
a knowledgeable, willing market participant
would pay for that share. For example, if the
shares are actively traded in a deep and liquid
market, post-vesting transfer restrictions
may have little, if any, effect on the price that
a knowledgeable, willing market participant
would pay for those shares.
In this example, the shares are vested when
purchased, but cannot be sold for five years
after the date of purchase. Therefore, the
entity should consider the valuation effect of
the five-year post-vesting transfer restriction.
This entails using a valuation technique to
estimate what the price of the restricted
share would have been on the purchase
date in an arm’s length transaction between
knowledgeable, willing parties. Suppose that, in
this example, the entity estimates that the fair
value of each restricted share is CU28. In this
case, the fair value of the equity instruments
granted is CU4 per share (being the fair value
of the restricted share of CU28 less the
purchase price of CU24). Because 64,000
shares were purchased, the total fair value of
the equity instruments granted is CU256,000.
In this example, there is no vesting period.
Therefore, in accordance with paragraph 14 of
IFRS 2, the entity should recognize an expense
of CU256,000 immediately.
The amounts recognized in years 1-3 are as follows:
Year Calculation
1 (500 – 110 employees) x 100 options x CU 15 x 1/3
(500 – 105 employees) x 100 options x [(CU15 x 2/3) + (CU3 x ½)]
2 259,250
- CU 195,000
3 (500 – 103 employees) x 100 options x (CU 15 + CU3) – CU 454,250
Example 6 - Grant of share options that are
subsequently repriced
[IFRS 2 Implementation Guidance (IG Example
7)]
BACKGROUND
At the beginning of year 1, an entity grants
100 share options to each of its 500
employees. Each grant is conditional upon the
employee remaining in service over the next
three years. The entity estimates that the fair
value of each option is CU 15. On the basis
of a weighted average probability, the entity
estimates that 100 employees will leave during
the three-year period and therefore forfeit
their rights to the share options.
Suppose that 40 employees leave during year
1. Also suppose that by the end of year 1, the
entity’s share price has dropped, and the entity
reprices its share options, and that the repriced
share options vest at the end of year 3. The
entity estimates that a further 70 employees
will leave during years 2 and 3, and hence the
total expected employee departures over the
three year vesting period is 110 employees.
During year 2, a further 35 employees leave,
and the entity estimates that a further 30
employees will leave during year 3, to bring the
total expected employee departures over the
three-year vesting period to 105 employees.
During year 3, a total of 28 employees leave,
and hence a total of 103 employees ceased
employment during the vesting period. For the
remaining 397 employees, the share options
vested at the end of year 3.
The entity estimates that, at the date of
reprising, the fair value of each of the original
share options granted (i.e. before taking into
account the reprising) is CU5 and that the fair
value of each reprised share option is CU8.
Remuneration
expense for period
11
APPLICATION OF REQUIREMENTS
Paragraph 27 of the IFRS requires the entity
to recognize the effects of modifications
that increase the total fair value of the
share-based payment arrangement or are
otherwise beneficial to the employee. If the
modification increases the fair value of the
equity instruments granted (e.g. by reducing
the exercise price), measured immediately
before and after the modification, paragraph
B43(a) of Appendix B requires the entity to
include the incremental fair value granted (i.e.
the difference between the fair value of the
modified equity instrument and that of the
original equity instrument, both estimated
as at the date of the modification) in the
measurement of the amount recognized for
services received as consideration for the
equity instruments granted. If the modification
occurs during the vesting period, the
incremental fair value granted is included in
the measurement of the amount recognized
for services received over the period from
the modification date until the date when the
modified equity instruments vest, in addition
to the amount based on the grant date fair
value of the original equity instruments, which
is recognized over the remainder of the original
vesting period.
The incremental value is CU3 per share option
(CU8 – CU5). This amount is recognized over
the remaining two years of the vesting period,
along with remuneration expense based on the
original option value of CU 15.
Cumulative
remuneration expense
CU CU
195,000 195,000
454,250
260,350 714,600
N° 2200 - Share-Based Payments
5 - Reporting
An entity shall disclose information that
enables users of the financial statements to
understand the nature and extent of share-
based payment arrangements that existed
during the period.
To give effect to the principle in, the entity
shall disclose at least the following:
1) A description of each type of share-based
payment arrangement that existed at any
time during the period, including the general
terms and conditions of each arrangement,
such as vesting requirements, the maximum
term of options granted, and the method of
settlement (e.g., whether in cash or equity).
An entity with substantially similar types of
share-based payment arrangements may
aggregate this information, unless separate
disclosure of each arrangement is necessary
to enables users of the financial statements
to understand the nature and extent of
share-based payment arrangements that
existed during the period.
2) The number and weighted average exercise
prices of share options for each of the
following groups of options:
(a) Outstanding at the beginning of the
period;
(b) Granted during the period;
(c) Forfeited during the period;
(d) Exercised during the period;
(e) Expired during the period;
(f) Outstanding at the end of the period;
and
(g) Exercisable at the end of the period.
3) For share options exercised during the pe-
riod, the weighted average share price at the
date of exercise. If options were exercised
on a regular basis throughout the period, the
entity may instead disclose the weighted
average share price during the period.
4) For share options outstanding at the end
of the period, the range of exercise prices
and weighted average remaining contractual
life. If the range of exercise prices is wide,
the outstanding options shall be divided into
ranges that are meaningful for assessing the
number and timing of additional shares that
may be issued and the cash that may be
received upon exercise of those options.
5.2 Disclosures of the Fair value
An entity shall disclose information that
enables users of the financial statements to
understand how the fair value of the goods
or services received, or the fair value of the
equity instruments granted, during the period
was determined.
If the entity has measured the fair value of
goods or services received as consideration
for equity instruments of the entity indirectly,
by reference to the fair value of the equity
instruments granted, the entity shall disclose at
least the following:
1) For share options granted during the period,
the weighted average fair value of those
options at the measurement date and infor-
mation on how that fair value was measu-
red, including:
a) The option pricing model used and the
inputs to that model, including the
weighted average share price, exercise
price, expected volatility, option life,
expected dividends, the risk-free interest
rate and any other inputs to the model,
including the method used and the
assumptions made to incorporate the
effects of expected early exercise;
b) How expected volatility was determined,
including an explanation of the extent to
which expected volatility was based on
historical volatility; and
c) Whether and how any other features of
the option grant were incorporated into
the measurement of fair value, such as a
market condition.
2) For other equity instruments granted during
the period (i.e., other than share options),
the number and weighted average fair value
of those equity instruments at the measure-
ment date, and information on how that fair
value was measured, including:
(a) If fair value was not measured on the
basis of an observable market price, how
it was determined;
b) Whether and how expected dividends
were incorporated into the measurement
of fair value; and
c) Whether and how any other features of
the instruments granted (equity) were
incorporated into the measurement of
fair value.
12
3) For share-based payment arrangements
that were modified during the period:
a) An explanation of those modifications;
b) The incremental fair value granted (as a
result of those modifications); and
c) Information on how the incremen-
tal fair value granted was measured,
consistently with the requirements
set out in (a) and (b) above, where
applicable.
If the entity has measured directly the fair
value of goods or services received during the
period, the entity shall disclose how that fair
value was determined, e.g., whether fair value
was measured at a market price for those
goods or services.
5.3 Disclosures in the statement of opera-
tions
An entity shall disclose information that
enables users of the financial statements
to understand the effect of share-based
payment transactions on the entity’s state-
ment of operations for the period and on its
financial position.
The entity shall disclose at least the following:
1) The total expense recognized for the
period arising from share-based payment
transactions in which the goods or services
received did not qualify for recognition
as assets and hence were recognized
immediately as an expense, including
separate disclosure of that portion of the
total expense that arises from transactions
accounted for as equity-settled share-
based payment transactions;
2) For liabilities arising from share-based
payment transactions:
a) The total carrying amount at the end of
the period; and
b) The total intrinsic value at the end of the
period of liabilities for which the coun-
terparty’s right to cash or other assets
had vested by the end of the period
(e.g., vested share appreciation rights).