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Chapter 4 — Measurement

4.6 Conditions That Affect Factors Other Than Vesting or Excercisability

4.6 Conditions That Affect Factors Other Than Vesting or Exercisability

ASC 718-10
Market, Performance, and Service Conditions That Affect Factors Other Than Vesting or Exercisability
30-15 Market, performance, and service conditions (or any combination thereof) may affect an award’s exercise price, contractual term, quantity, conversion ratio, or other factors that are considered in measuring an award’s grant-date fair value. A grant-date fair value shall be estimated for each possible outcome of such a performance or service condition, and the final measure of compensation cost shall be based on the amount estimated at the grant date for the condition or outcome that is actually satisfied. Paragraphs 718-10-55-64 through 55-66 provide additional guidance on the effects of market, performance, and service conditions that affect factors other than vesting or exercisability. Examples 2 (see paragraph 718-20-55-35); 3 (see paragraph 718-20-55-41); 4 (see paragraph 718-20-55-47); 5 (see paragraph 718-20-55-51); and 7 (see paragraph 718-20-55-68) provide illustrations of accounting for awards with such conditions.
Market, Performance, and Service Conditions That Affect Factors Other Than Vesting and Exercisability
55-64 Market, performance, and service conditions may affect an award’s exercise price, contractual term, quantity, conversion ratio, or other pertinent factors that are relevant in measuring an award’s fair value. For instance, an award’s quantity may double, or an award’s contractual term may be extended, if a company-wide revenue target is achieved. Market conditions that affect an award’s fair value (including exercisability) are included in the estimate of grant-date fair value (see paragraph 718-10-30-15). Performance or service conditions that only affect vesting are excluded from the estimate of grant-date fair value, but all other performance or service conditions that affect an award’s fair value are included in the estimate of grant-date fair value (see that same paragraph). Examples 3, 4, and 6 (see paragraphs 718-20-55-41, 718-20-55-47, and 718-20-55-61) provide further guidance on how performance conditions are considered in the estimate of grant-date fair value.
55-65 An award may be indexed to a factor in addition to the entity’s share price. If that factor is not a market, performance, or service condition, that award shall be classified as a liability for purposes of this Topic (see paragraphs 718-10-25-13 through 25-14A). An example would be an award of options whose exercise price is indexed to the market price of a commodity, such as gold. Another example would be a share award that will vest based on the appreciation in the price of a commodity, such as gold; that award is indexed to both the value of that commodity and the issuing entity’s shares. If an award is so indexed, the relevant factors shall be included in the fair value estimate of the award. Such an award would be classified as a liability even if the entity granting the share-based payment instrument is a producer of the commodity whose price changes are part or all of the conditions that affect an award’s vesting conditions or fair value.