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Value Added Incentives: Accounting for Share-Based Payments

By Tobias Schreiber, nbs partners

Adding value to a company is one of the most important strategic achievements from a shareholder or management perspective. An effective employee incentive programme sends employees a clear message that management understands what truly motivates them to do their best work and is willing to provide it.

The change in the equity value or market cap of a company seems to be the key performance indicator benchmarking companies and calculating the value added within a period. In practice, companies frequently implement different kinds of share-based payments. One of the most common examples are share appreciation rights (SARs), an arrangement between the entity and the employee to receive cash or other assets of the entity for amounts that are based on the development of a price or value of equity instruments of the entity as a performance criteria. There are often specific vesting or non-vesting conditions included in these arrangements. From an economic perspective, these employees get paid for their effort in raising the value of the company.

Under IFRS 2, share-based payments are treated like long-term employee benefits and the expense is recognised in the period in which the benefit is earned by the employee. The sharebased payments can be cash settled or equity settled. Sometimes the employees may have the choice as to whether settlement occurs in equity instruments or cash (e.g., phantom stocks). The different settlements result in a liability (cash) or capital reserve (equity) on the balance sheet.

The measurement of the sharebased payments under IFRS 2 is based on the fair value of the instrument. Often, widely accepted valuation models are used to determine the fair value at grant date and at the measurement dates with respect to all the assumptions and conditions.

There is a huge variety of different share-based payments and the underlying calculation schemes. Even though the accounting for share-based payments is quite complex, world leading companies like Google, Facebook, and Apple have implemented models. Please contact us if you need specific details for your client or your company.


Tobias Schreiber

Tobias Schreiber

GGI member firm
nbs partners
Auditing & Accounting, Tax, Law Firm Services
Hamburg, Germany
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nbs partners is a multidisciplinary association of certified public accountants, lawyers, and certified tax advisors with a focus on the audit and advisory of small, mid-size and large entities, as well as international groups and high-net-worth individuals.

Tobias Schreiber is a partner at nbs partners and has a major focus on IFRS. He joined nbs partners in 2011, after two years in an audit firm which was the legal auditor of PWC. As a US CPA and German public auditor, he is involved in the audit and advisory of clients, from start-ups to listed clients.


Published: Auditing, Reporting & Compliance Newsletter, No. 02, Autumn 2019 l Photo: Marco2811 - stock.adobe.com

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