Increased retention requirements – effect on IFRS2 fair valuing
Research published by Tapestry indicates that 88% of FTSE100 companies operate some form post vesting holding period. The most common period is two years. This could have implications for IFRS2 fair value calculations.
For example, does the vesting period increase as a result? Will the fair value change?
In our experience the vesting period is unlikely to change as the two year holding requirement does not usually include any further performance conditions and is not a period during which forfeiture could occur (e.g. as a result of cessation of employment). If either of these are the case, further analysis will be required.
It is more likely that the fair value calculation will change (reduce). For many years valuers have applied discounts for lack of marketability (DLoMs) where holding periods apply. This has typically been in the unquoted market – private companies, but would seem to apply equally in this case. In the quoted sector there are a number of strategies available to account for the value drag created by a DLoM.