When estimating the fair value of shares or share options at the grant date, the following conditions are considered:
-
Service conditions: These refer to the requirement for employees to provide a certain amount of service, typically a minimum period of employment, before they can vest in the shares or share options.
-
Market conditions: Market conditions, such as the price of the underlying shares, volatility, risk-free interest rates, and dividend yields, are also factored in when estimating the fair value of share options. These factors influence the value that a market participant would place on the share option.
-
Non-market performance conditions: Although non-market conditions, such as achieving specific financial targets or other performance metrics, are not directly considered when estimating the fair value of the share options at the grant date, they do impact the estimate of the expected number of options that will vest, which in turn affects the valuation.
Therefore, the fair value estimation primarily takes into account service conditions and market conditions, while non-market performance conditions affect the expected number of options that will ultimately vest, but do not directly impact the initial fair value calculation.
