BC353 The Board analysed the case in which a share-based payment is conditional on a share market index target and whether it would be considered a performance condition or a non-vesting condition. For example, a grant might be conditional on a stock exchange index (of which the entity’s shares are a part) reaching a specified target and the employee remaining in service up to the date that the target is met.

BC354 The Board observed that some might argue that the share market index target with the implicit service requirement constitutes a performance condition, because an employee is required to provide service to the entity, and that the time estimated to affect the share market index target implicitly determines how long the entity receives the required service. Others might argue that the share market index target is a non-vesting condition because it is not related to the performance of the entity (ie instead it is related to, or based on, not only the entity’s share price but also the share price of other unrelated entities).

BC355 In the ED the Board observed that the share market index target would be considered   a non-vesting condition because it is not related to the performance of the entity or of another entity in the same group, even if the shares of the entity or of another entity in the same group form part of that index. The Board also observed that a share market index target may be predominantly affected by many external variables or factors involved in its determination, including macroeconomic factors such as the risk-free interest rate or foreign exchange rates and, consequently, it is remote from the influence of the employee.