Employees: the fair value of the instruments at grant date

Learning objectives

• Explain why employee services are measured by reference to the fair value of the equity instruments granted rather than the fair value of the services.L1
• Determine the measurement date and basis for an award to employees.L2

Normative references

• IFRS 2Grant date (Appendix A): the date at which the entity and another party, including an employee, agree to a share-based payment arrangement, both having a shared understanding of its terms and conditions; the entity then confers the right to cash, other assets or its equity instruments, subject to any vesting conditions. If the agreement is subject to an approval process (for example by shareholders), the grant date is the date of that approval.
• IFRS 2 §11For employees and others providing similar services, the fair value of the services received is measured by reference to the fair value of the equity instruments granted, because it is typically not possible to estimate it reliably (equity instruments are granted in addition to salary and other benefits); the fair value of the instruments is measured at the grant date.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• Services received from employees in exchange for equity instruments are measured by reference to the fair value of the instruments granted, because the fair value of those services generally cannot be estimated reliably.L1
• A management controller writes: "For our employee option plan, settled in shares, we measure the fair value of the options at each closing date and adjust the cumulative expense accordingly." What is the error?L2
• Orsay SA grants its employees options on top of their salary. A director proposes measuring the services received from an estimate of the market pay for those roles. Write a short note stating the measurement basis used for employees, justifying that choice and specifying the measurement date.L2