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Suppose, for reasons specific to an industry, a company sets up an option scheme which vest only on achieving:

- 2 years' completed service from grant
- having left employment, as a good leaver

Scheme ends 5 years after grant, so people who work there throughout the 5 years get nothing (from this scheme).

Ie you can only exercise if (and when) you leave. 'Good leaver' at management discretion, ie not under disciplinary etc.

Let's say the 'ongoing staff' have other continuing benefits, so they want to give a thank you to people who do their time and leave.

Is the requirement to 'have left employment' a service condition? (it seems to be the opposite).

It seems to me this would apply the same way as a 'normal' scheme, ie estimate how many options will vest (having achieved both conditions). Therefore it's forecasting how many people will stay (up to two years) and, of them, how many will leave (from years 2 to 5), every year until scheme expires.

Seem right?

interesting case and great outline of fact pattern, once a question popped up while reading, it found an answer in the sentence that followed

To me, the good leaver condition is more like a non-vesting condition:

https://ifrscommunity.com/knowledge-bas ... conditions

does that make sense to you?

I did consider it but reading the examples they seemed wholly different (albeit only examples).

Revisiting the definition: "non-vesting condition is any condition that does not determine whether the entity receives the services that entitle the counterparty to receive cash, other assets or equity instruments of the entity under a share-based payment arrangement"

In a convoluted way, the 'leaving' condition could be argued to determine whether the services entitling shares are received because if you remain in employment then that means you are not entitled to receive shares.

But assuming it is a non-vesting condition, the condition would be reflected in the fair value at grant. So the only practical difference would be:

- if a non-vesting condition - predict the outcomes at grant date only and spread resulting fair value over 2 years
- if a vesting condition - predict at each reporting date and spread over forecast vesting period

I see it differently, all employees will render services for which they will be eligible to receive shares, but only some of them will satisfy the good leaver condition. But satisfying or not the good leaver condition does not impact the services rendered by employees. That's why I see the good leaver condition as non-vesting.

as to practical differences - you're right, however I'm more inclined into 5-year vesting period, with accelerated vesting for employees who become good leavers earlier

You've convinced me!

Interesting - does the standard indicate spreading the fair value to include the period of non-vesting conditions or is that just a 'sense'?

no, you must use the vesting period, I thought that we would treat the 5-year period as the vesting period

for example, if an employee hands a notice after eg 4.5 years, then his shares are forfeited, right?

I'm not that good at IFRS 2, but to me the good leaver condition sounds like a vesting condition. If not, then two years of service is the only vesting condition and thus all the options are treated as vested in two years, are they? That sounds a little bit odd.

Marek Muc wrote: ↑07 Apr 2021, 13:10 no, you must use the vesting period, I thought that we would treat the 5-year period as the vesting period

for example, if an employee hands a notice after eg 4.5 years, then his shares are forfeited, right?

No, having served the 2 years (first condition), they will be in a position to exercise only once having resigned (let's assume 'good leaver').

pub_acco wrote: ↑07 Apr 2021, 15:40 I'm not that good at IFRS 2, but to me the good leaver condition sounds like a vesting condition. If not, then two years of service is the only vesting condition and thus all the options are treated as vested in two years, are they? That sounds a little bit odd.

The definition of 'vesting' is when the option becomes an 'entitlement', ie the employee doesn't have to do anything else in order to have the right to exercise the option. That's why I felt the 2 years isn't the vesting period. But that might be too straight forward.

To me, the 2-year condition is rather irrelevant. An employee still needs to be employed beyond that period, otherwise they won't be able to become a good leaver. I still think that the vesting period is 5 years, before that the shares are forfeited if employee decides to leave

"before that the shares are forfeited if employee decides to leave"

No, that's not the rule. If they leave after 2 years and 1 day, then they can exercise. The requirements are to work for 2 years, and to leave within 5.

oh, so I misunderstood the scenario, I thought that a 'good leaver' is only someone who is let go by the company
now it's clear to me that the vesting period is 2 years and the good leaver criterion is a non-vesting condition

Oh sorry, yes in the UK 'good leaver' is a common term in contracts and means someone who leaves employment for whatever reasons, though contracts will have different specifics on what is 'good' (though normally on a theme).
thanks!