Share-Based

Compensation
Share Options
Share-based compensation is a compensation arrangement established
by the entity whereby the entity’s employee shall receive shares of capital
in exchange for their services or the entity incurs liabilities to the
employees in amounts based on the price of its shares.

Equity settled
The entity issues instruments in consideration for services received, for
example, share options.
Cash settled
The entity incurs a liability for services received and the liability is based
on the entity’s equity instruments, for example, share appreciation rights.
Share options are granted to officers and key employees to enable
them to acquire shares of the entity during a specified period
upon fulfillment of certain conditions at a specified price.
MEASUREMENT OF COMPENSATION
Fair value method
The compensation is equal to the fair value of the share options on
the date of grant.
Intrinsic value method
The compensation is equal to the intrinsic value of the share
options.
RECOGNITION OF COMPENSATION

A. If the share options vest immediately, the employee is not

required to complete a specified period of service before
unconditionally entitled to share options.

B. If the share options do not vest until the employee

completes s specified service period, the compensation is
recognized as expense over the service period or vesting
period, meaning, from the date of grant to the date on
which the options can first be exercised.
ILLUSTRATION-NO VESTING PERIOD
On January 1, 2020, share options are granted to employees to purchase 100,000 ordinary
shares of P50 par value at P60 per share. On this date, the fair value of each share option is
P20.
The options are exercisable immediately. The employees exercised all their share options
on December 31, 2020.
Since the options are exercisable immediately, the compensation is recognized in full on
January 1, 2020.
Salaries-share options (100,000*20) 2,000,000
Share options outstanding 2,000,000
The exercise of the share options on December 31, 2020 is recorded as:
Cash (100,000*60) 6,000,000
Share options outstanding 2,000,000
Ordinary share capital (100,000*50) 5,000,000
Share premium 3,000,000
ILLUSTRATION-WITH VESTING PERIOD
On January 1, 2020, share options are granted to officers to purchase 100,000
ordinary shares of P50 par value at P60 per share. The fair value of each share option
is P15. The officers are entitled by the share options only after completing two years of
service.
The options can be exercised starting January 1, 2022 and expire one year after.
All share options are exercised on December 31, 2022.

Total compensation or fair value of share options 1,500,000

(100,000*15)
Annual compensation (1,500,000/2) 750,000
Cash (100,000 * P60) 6M
Share options outstanding 1.5M
Ordinary share capital 5M
Share premium 2.5M
ILLUSTRATION-SOME EMPLOYEES LEFT
On January 1, 2020, an entity granted 100 share options each to 500
employees, conditional upon the employees' remaining in the
entity’s employ during the vesting period.
The share options vest at the end of a three-year period. On grant
date, each share option has a fair value of P30.
By December 31, 2020, 30 employees have left and it is expected that
on the basis of a weighted average probability, a further 30
employees will leave during the vesting period.
By December 31, 2021, 28 employees have left and the entity expects
that a further 25 employees will leave during 2022.
By December 31, 2022, 22 employees have left and therefore, 420
employees shall receive share options at the end of 2022.
ILLUSTRATION-WITH CONDITION AND SHARE OPTIONS VARY
On January 1, 2020, an entity granted share options to each of the 300 employees
working in the sales department. The share options vest at the end of a three-year
period provided that the employees remain in the entity’s employ and provided the
volume of sales will increase by an average of 10% per year.
The fair value of each share option on grant date is P20.
If the sales increase by an average of 10%, each employee will receive 200 share
option. If the sales increase by an average of 15%, each employee will receive 300 share option.
During 2020, the sales increased by 10% and the entity expects this rate of increase to continue
in the next two years.
During 2021, the sales increased by 20% resulting in an average of 15% for the two years to date
(10%plus 20% divided 2 equals 15%)
During 2022, the sales increased by an average of 16% over three years.
By the end of 2022, 20 employees left the entity.
ILLUSTRATION-WITH CONDITION AND EXERCISE PRICE VARIES
On January 1, 2020, an entity granted to a senior executive 20,000 share options,
conditional upon the executive’s remaining in the entity’s employ until December
31, 2022.
The par value per share is P50.
The exercise price is P100.
However, the exercise price drops to P80 if the entity’s earnings increase by at
least an average of 10% per year over the three-year period.
On grant date, the entity estimates that the fair value of the share option is P30 if
the exercise price is P80.
If the exercise price is P100, the fair value of the share option is P25.
During 2020 and 2021, the earnings increased by 12% and 11% respectively.
However, during 2022, the earnings increased only by 4%.
ILLUSTRATION-INTRINSIC VALUE METHOD
On January 1, 2020, an entity granted 10,000 share options to employees. The share
options vest on December 31, 2021 provided the employees remain in service until
then.
The fair value of the share option cannot be estimated reliably. The par value per
ordinary share is P100.
The option price is P125 and the market value of the ordinary share is also P125 at the
date of grant.
All share options vested on December 31,2021 and no employees left the entity.
The share options can be exercised starting January 1, 2022 and expire two years
after. All share options are exercised on December 31, 2022.
The share market prices are P150 on December 31, 2020, P180 on December 31, 2021
and P200 on December 31, 2022.
ILLUSTRATION-ACCELERATION OF VESTING
On January 1, 2020, an entity granted 50,000 share options to the employees. The
option price is P60 and the par value of each share is P50. The vesting period is 4
years.
The fair value of the share options or total compensation expense to the vesting date
on December 31, 2023 has been calculated at P4,000,000. The entity has decided to
settle the award early on December 31, 2022. The compensation expense charged in
the income statement since the date of grant is as follows:
2020 1,000,000
2021 1,050,000
IFRIC 11
Share-based payment transactions in which the employees of a subsidiary are granted
rights to the equity instrument of the parent shall also be accounted for equity settled.
The subsidiary shall measure the services received from its employees on the basis of
the fair value of the share options at grant date.
An increase in equity is recognized as contribution from the parent in the financial
statements of the subsidiary.
ILLUSTRATION
On January 1, 2020, a parent entity granted 500 share options to each of 100
employees of a subsidiary, conditional upon the completion of two years of service
with the subsidiary.
The fair value option is P50 on January 1, 2020.
At grant date, the subsidiary estimated that 80% of the employees will complete the
two-year service period.
At the end of the vesting period, 90% of the employees completed the required two
years of service.
The parent entity did not require the subsidiary to pay the shares needed to settle the
grant of share options.
The share options were exercised in January 2022.
The exercise price is P120 and the par value is P100 per share.
ILLUSTRATION-MODIFICATION OF CONDITION
On January 1, 2020, an entity granted 100 share options to each of 500 employees. The
options are exercisable after a three-year vesting period. The fair value of each share
option is P15 on grant date.
On December 31, 2020, 40 employees left the entity and based on weighted average
probability, 70 employees are expected to leave by the end of the vesting period.
On January 1, 2021, the entity repriced the share options by lowering the exercise
price. The options still vest after three years.
The entity estimated that on the date of repricing the increase in the fair value of the
share option is P6.
During 2021, 35 employees left the entity and a further 30 employees are expected to
leave in 2022.
During 2022, 45 employees actually left the entity.
ANOTHER ILLUSTRATION-MODIFICATION OF CONDITION
On January 1, 2020, an entity granted 500 share options to each member of the sales
team composed of 20 employees. The vesting period is three years and that the sales
team must sell at least 50,000 units during the three-year vesting period.
The fair value of the share option is P30 on grant date.
On December 31, 2021, the entity increased the sales target to 100,000 units and by
December 31, 2022, the sales team only sold 55,000 units and the share options did
not vest based on the modified condition.
Thank you!