# Share-Based Payment Memo: [Plan name and grant]

> Technical accounting memo for one share-based payment plan or grant:
> plan terms, classification as equity- or cash-settled, grant date,
> fair value and inputs, vesting and attribution, forfeitures,
> modifications and cancellations, income tax and employer taxes, and
> disclosure. Structure aligned with IFRS 2 Share-based Payment (as
> amended, last substantive amendment June 2016) and FASB ASC Topic 718
> Compensation, Stock Compensation, cited by paragraph or section number
> only. Obtain the standards for the normative text. Replace every
> `[bracketed]` value and every row marked *Example*. This is a
> documentation format, not accounting, tax, legal or financial advice:
> check the current official text and a qualified professional.

<!--
Guidance: How to use this template
- Purpose: keep the evidence for the grant-date fair value and the
  expense schedule in one place, so payroll, HR, tax and the auditor
  see the same facts.
- Write one memo per plan, with a section per grant, and re-open it for
  every modification, cancellation, settlement and year-end estimate
  change.
- The worked example uses the fictional Brindlecote Software plc (IFRS
  reporter, GBP, calendar year), granting share options on 2027-01-01.
  The option value uses Black-Scholes-Merton with inputs marked
  *Example*; every number is recomputed.
- Related templates: Technical Accounting Memo (`finance/technical-accounting-memo`),
  Valuation Report (`finance/valuation-report`) for unlisted share
  prices, Income Tax Provision (`finance/income-tax-provision`),
  Journal Entry Support (`finance/journal-entry-support`), Segment
  Reporting Memo (`finance/segment-reporting-memo`) when share-based
  payment cost is excluded from the segment measure.
-->

## Document control

<!-- Guidance: Identify the plan rules version and the board resolution that approved the grant; the grant date usually depends on them. -->

| Field | Value |
|---|---|
| Document ID | [SBP-YYYY-NN] *Example:* SBP-2027-01 |
| Plan | [Plan name and rules version] *Example:* Brindlecote 2026 Executive Share Option Plan, rules v1.2 |
| Grant | [Grant ID and date] *Example:* GR-2027-01, 2027-01-01 |
| Framework | [IFRS 2 / ASC 718 / both] *Example:* IFRS 2; ASC 718 differences in section 9 |
| Valuation source | [Internal or external valuer, report reference] |
| Version | [0.1] |
| Status | [Draft / In review / Final] |
| Owner | [@technical-accounting] |
| Approvers/reviewers | [@group-controller], [@head-of-reward], [@tax] |
| Last updated | YYYY-MM-DD |
| Classification | [Confidential] |

### Approvals

| Role | Name | Decision | Date |
|---|---|---|---|
| Preparer | [@name] | [Prepared] | YYYY-MM-DD |
| Head of reward | [@name] | [Confirmed plan facts] | YYYY-MM-DD |
| Group controller | [@name] | [Approved] | YYYY-MM-DD |

### Revision history

| Version | Date | Author | Change summary |
|---|---|---|---|
| 0.1 | YYYY-MM-DD | [@name] | Draft at grant |
| 1.0 | YYYY-MM-DD | [@name] | *Example:* 2027 year-end estimate |
| 1.1 | YYYY-MM-DD | [@name] | *Example:* Repricing on 2028-12-31 (section 7) |

## 1. Summary and conclusion

<!-- Guidance: State classification, grant date, fair value per award and total expected expense in a few lines. -->

*Example:* GR-2027-01 grants 300,000 share options to 60 employees with
an exercise price of GBP 20.00, equal to the share price on the grant
date, vesting after three years of service (cliff) and expiring after
ten years. The award is equity-settled. Grant-date fair value is GBP
7.21 per option. Expense recognised over 2027 to 2029 is GBP 1,816,920
for the original award plus GBP 408,240 incremental fair value from the
repricing on 2028-12-31, a total of GBP 2,225,160.

## 2. Plan terms

<!-- Guidance: Summarise the terms that drive accounting. Attach the rules and the grant letters. -->

| Term | Value |
|---|---|
| Instrument | [Options / RSUs / performance shares / SARs / phantom units] |
| Number granted | *Example:* 300,000 options |
| Exercise price | *Example:* GBP 20.00 |
| Service condition | *Example:* employment for three years from grant |
| Performance condition | [Non-market (EPS, revenue) / market (TSR, share price) / none] *Example:* none |
| Contractual term | *Example:* ten years |
| Settlement | [Shares / cash / choice of holder or entity] *Example:* new shares |
| Leaver terms | *Example:* unvested options lapse on leaving; good leavers keep a time-apportioned number |
| Net settlement for withholding tax | [Yes / No] |

## 3. Classification and scope

<!-- Guidance: Decide equity- versus cash-settled. Pitfall: a plan that is equity-settled on paper but routinely settled in cash in practice. -->

| Question | Answer and evidence |
|---|---|
| Is this a share-based payment in scope (IFRS 2 paras. 2 to 6; ASC 718-10-15)? | *Example:* Yes, goods or services (employee service) received for equity instruments |
| Who settles: the entity, its parent or a shareholder? | *Example:* Parent issues shares to subsidiary employees; subsidiary recognises equity-settled expense with a capital contribution |
| Equity- or cash-settled (IFRS 2 paras. 10, 30, 34)? | *Example:* Equity-settled, no past practice of cash settlement |
| Any choice of settlement? | *Example:* No |
| Liability classification triggers under ASC 718-10-25 (puttable shares, indexed to other factors) | *Example:* None |

## 4. Grant date and fair value

<!-- Guidance: Grant date is when both parties agree the terms and the employee understands them, after any required approval. Record every input with its source. -->

Grant date: *Example:* 2027-01-01, when the board approved the grant
and award letters were accepted (IFRS 2 Appendix A; ASC 718-10-20).

Model: [Black-Scholes-Merton / binomial / Monte Carlo for market
conditions] *Example:* Black-Scholes-Merton, because there are no market
conditions and expected early exercise is captured through the expected
term.

| Input | Value | Source |
|---|---|---|
| Share price at grant | *Example:* GBP 20.00 | Closing price, 2026-12-31 |
| Exercise price | *Example:* GBP 20.00 | Plan rules |
| Expected term | *Example:* 6 years | Historical exercise behaviour |
| Expected volatility | *Example:* 35% | Historical volatility over six years, peer check |
| Risk-free rate | *Example:* 3.5% (continuous) | Government bond yield for the expected term |
| Expected dividend yield | *Example:* 1.0% | Dividend policy |

The model, with d1 = 0.6036 and d2 = -0.2537, gives:

$$
C = S e^{-qT} N(d_1) - K e^{-rT} N(d_2) \approx 7.21
$$

where S is the share price, K the exercise price, T the expected term,
q the dividend yield and r the risk-free rate. Market conditions and
non-vesting conditions are reflected in this value and never trued up
later (IFRS 2 paras. 21 and 21A). Non-market performance and service
conditions are not in the value; they adjust the number of awards
expected to vest.

## 5. Vesting and expense attribution

<!-- Guidance: Show the true-up arithmetic year by year. Pitfall: reversing expense for a missed market condition. -->

Expense is recognised over the vesting period based on the best
estimate of options expected to vest, revised at each reporting date
(IFRS 2 paras. 19 and 20). Graded vesting is accounted for as separate
tranches under IFRS 2; this grant vests in one tranche.

*Example*, GBP:

| Year end | Options expected or actually vesting | Cumulative expense | Expense in the year |
|---|---|---|---|
| 2027-12-31 | 270,000 (90% retention) | 270,000 x 7.21 x 1/3 = 648,900 | 648,900 |
| 2028-12-31 | 255,000 (85% retention) | 255,000 x 7.21 x 2/3 = 1,225,700 | 576,800 |
| 2029-12-31 | 252,000 (actual) | 252,000 x 7.21 = 1,816,920 | 591,220 |

Journal each year: debit employee benefit expense, credit equity
(share-based payment reserve). On exercise, the cash received and the
reserve are transferred within equity under local company law.

## 6. Forfeitures, leavers and cancellations

<!-- Guidance: Separate a forfeiture (service or non-market condition not met) from a cancellation (entity or employee choice), because the accounting differs. -->

| Event | IFRS 2 | ASC 718 |
|---|---|---|
| Employee leaves before vesting | Reverse cumulative expense for those awards through the true-up | Same, or account for forfeitures as they occur if that policy is elected (ASC 718-10-35-3) |
| Market condition not met | No reversal (para. 21) | No reversal |
| Cancellation by entity or employee during vesting | Accelerate the remaining unrecognised expense (para. 28) | Unrecognised cost recognised at cancellation unless a replacement award is granted |

## 7. Modifications

<!-- Guidance: Measure the incremental fair value at modification date (fair value of the modified award less fair value of the original award just before modification). Never reduce the original grant-date cost for a beneficial modification. -->

*Example:* On 2028-12-31 the share price was GBP 14.00 and the board
repriced the options to an exercise price of GBP 14.00, with no other
change. Fair values at that date (remaining expected term 4 years,
volatility 38%, other inputs unchanged) are GBP 2.84 before and GBP 4.46
after, an increment of GBP 1.62 per option. The increment is recognised
over the remaining vesting period, 2029, for options that vest (IFRS 2
para. 27 and Appendix B paras. B42 to B44; ASC 718-20-35-3):

| Item | Calculation | GBP |
|---|---|---|
| Original grant-date cost in 2029 | From section 5 | 591,220 |
| Incremental fair value in 2029 | 252,000 x 1.62 | 408,240 |
| Total 2029 expense | | 999,460 |
| Total over life of the award | 1,816,920 + 408,240 | 2,225,160 |

A modification that changes classification from cash-settled to
equity-settled follows IFRS 2 paras. B44A to B44C.

## 8. Income taxes and employer taxes

<!-- Guidance: Tax deductions often follow intrinsic value at exercise, not the accounting expense; the difference creates deferred tax and an equity or profit and loss effect. -->

IFRS (IAS 12 paras. 68A to 68C): measure the deferred tax asset on the
estimated future deduction (for options, usually intrinsic value at the
reporting date) for the portion of service received. If the estimated
deduction exceeds cumulative expense, the excess tax effect goes to
equity.

*Example:* at 2027-12-31 the share price is GBP 22.00, intrinsic value
GBP 2.00, tax rate 25%. Deferred tax asset = 2.00 x 270,000 x 1/3 x 25%
= GBP 45,000, credited to profit or loss because the estimated deduction
(GBP 180,000) is below cumulative expense (GBP 648,900).

US GAAP (ASC 718-740): the deferred tax asset follows cumulative
recognised cost (648,900 x 25% = GBP 162,225 on the same facts); excess
tax benefits and shortfalls at settlement go to income tax expense.

Employer social security or payroll taxes on exercise or vesting are
accounted for separately as a liability, for example under IAS 19 or
IAS 37 policies. Net settlement to meet the employee's withholding tax
follows IFRS 2 paras. 33E to 33H, or ASC 718-10-25 for US GAAP.

## 9. US GAAP differences (ASC 718)

<!-- Guidance: Complete if you also report under US GAAP. -->

| Topic | IFRS 2 | ASC 718 |
|---|---|---|
| Graded vesting, service only | Each tranche separately | Policy choice: straight-line over the whole award or tranche by tranche |
| Forfeitures | Estimate | Policy choice: estimate or account as they occur |
| Non-employee awards | Measured at fair value of goods or services where reliable | Aligned with employee model since ASU 2018-07 |
| Nonpublic entities | Fair value | Practical expedients (calculated value, intrinsic value for liabilities) |
| Deferred tax | Based on estimated deduction | Based on cumulative recognised cost |
| Profits interests | Analyse terms | Scope illustration added by ASU 2024-01; check effective date |

## 10. Disclosure checklist

<!-- Guidance: Map each disclosure to the note and the evidence. -->

| Disclosure | Reference | Note |
|---|---|---|
| Description of each plan, vesting and settlement | IFRS 2 para. 45(a) | [Note X] |
| Number and weighted average exercise price of options by movement | IFRS 2 para. 45(b) | [Note X] |
| Fair value measurement and inputs | IFRS 2 paras. 46 and 47 | [Note X] |
| Effect of modifications | IFRS 2 para. 47(c) | [Note X] |
| Total expense and liabilities | IFRS 2 paras. 50 and 51 | [Note X] |
| ASC 718 disclosures | ASC 718-10-50 | [Note X] |

## 11. Glossary and references

<!-- Guidance: Short definitions in your own words. -->

| Term | Meaning in this memo |
|---|---|
| Grant date | Date on which the entity and employee share an understanding of the terms, after approvals |
| Vesting condition | Service or performance condition that decides whether the employee earns the award |
| Market condition | Performance condition linked to share price or shareholder return |
| Incremental fair value | Value added by a modification, measured on the modification date |
| Intrinsic value | Share price less exercise price |

| Reference | Version or date | URL |
|---|---|---|
| IFRS 2 Share-based Payment | Issued 2004, amended June 2016 and by consequential amendments | https://www.ifrs.org/issued-standards/list-of-standards/ifrs-2-share-based-payment/ |
| IAS 12 Income Taxes | As amended | https://www.ifrs.org/issued-standards/list-of-standards/ias-12-income-taxes/ |
| FASB ASC Topic 718 | As amended, including ASU 2016-09, 2018-07, 2024-01 | https://asc.fasb.org/ |

## Standard and licence note

Structure aligned with IFRS 2 Share-based Payment, IAS 12 and FASB ASC
Topic 718. Standards are cited by name and paragraph or section number
only; no text from the IFRS Foundation or FASB is reproduced. Official
text: IFRS Foundation (licensed access at https://www.ifrs.org/) and
FASB (Accounting Standards Codification at https://asc.fasb.org/). The
Black-Scholes-Merton formula is a public mathematical model. Check later
amendments and effective dates. Brindlecote Software and all figures are
fictional. The text is original and is not accounting, tax or financial
advice. Template licence: MIT.