The IASB identified the need to clarify the definition of 'vesting conditions' in IFRS 2 to ensure the consistent classification of conditions attached to a share-based payment. Previously, this IFRS did not separately define a 'performance condition' or a 'service condition', but instead describes both concepts within the definition of 'vesting conditions'.
The IASB decided to separate the definitions of a 'performance condition' and a 'service condition' from the definition of a 'vesting condition' and thus make the description of each condition clearer.
In response to the comments received on the Exposure Draft Annual Improvements to IFRSs 2010-2012 Cycle (Proposed amendments to International Financial Reporting Standards) the IASB addresses the following concerns that have been raised about the definitions of a 'performance condition', 'service condition' and 'market condition':
- whether a performance target can be set by reference to the price (or value) of another entity included within the group;
- whether a performance target that refers to a longer period than the required service period may constitute a performance condition;
- whether the specified period of service that the counterparty is required to complete can be either implicit or explicit;
- whether a performance target needs or not to be influenced by an employee;
- whether a share market index target may constitute a performance condition or a non-vesting condition;
- whether the definition of 'performance condition' should indicate that it includes a 'market condition';
- whether a definition of 'non-vesting condition' is needed; and
- whether the employee's failure to complete a required service period is considered to be a failure to satisfy a service condition.