What is Non-Market Vesting Condition?
A non-market vesting condition is a condition for a share-based payment award that is not tied to the share price, such as completing a service period or hitting an internal profit target. Under IFRS 2, non-market conditions affect the number of awards expected to vest but not the grant date fair value.
How It Works
- Identify which vesting conditions are market based and which are not.
- Adjust the expected number of awards each period as non-market conditions are reassessed.
- Do not adjust grant date fair value for changes in non-market conditions.
- Disclose the conditions and the basis of estimation.
Saudi Context
Saudi long-term incentive plans frequently combine service-based vesting with internal financial targets such as cumulative net profit, both of which are non-market conditions.
Example
An award vests only if an employee stays for three years and the company achieves SAR 1 billion in cumulative profit. Both conditions are non-market and affect the count of vesting awards, not their grant date value.