Incentive plans: still getting enough bang for your buck?

Soon IFRS2 will no longer be an academic exercise for the finance teams of UK companies operating share incentive plans for employees. The standard comes into force for listed companies for periods beginning on or after 1 January 2005, and comparatives will be required for the previous year.

While this development creates a level playing field between different types of employee share incentives (they will now all generate a profit and loss charge), the extent to which the standard will affect the profits of a business depends on the type and number of awards made, as well as the performance conditions attached.

Ignoring performance conditions, the value of a performance share award (one where the participant is promised a number of shares for no or negligible payment, if performance criteria are met) is usually very close to that of the underlying shares when the award is granted. Typically the only adjustment is to reflect the effect of dividends