234
Annual Report -
2013
-
Vivendi
4
Financial Report | Statutory Auditors’ Report on the Consolidated Financial Statements |
Consolidated
Financial Statements
| Statutory Auditors’ Report on the Financial Statements | Statutory Financial Statements
Note 1. Accounting policies and valuation methods
1.3.10.
Share-based compensation
With the aim of aligning the interests of its executive management and
employees with its shareholders’ interests by providing them with an
additional incentive to improve the Company’s performance and increase
its share price on a long-term basis, Vivendi maintains several share-
based compensation plans (share purchase plans, performance share
plans, and bonus share plans) or other equity instruments based on the
value of the Vivendi share price (stock options), which are settled either
in equity instruments or in cash. Grants under these plans are approved
by the Management Board and the Supervisory Board. In addition, the
definitive grant of stock options and performance shares is contingent
upon the achievement of specific performance objectives fixed by the
Management Board and the Supervisory Board. Moreover, all granted
plans are conditional upon active employment at the vesting date.
In addition, Universal Music Group maintains Equity Long-Term Incentive
Plans. Under these plans, certain key executives are awarded equity
units, which are settled in cash. These equity units are phantom stock
units whose value is intended to reflect the value of Universal Music
Group.
Please refer to Note 22 for details of the features of these plans.
Share-based compensation is recognized as a personnel cost at the fair
value of the equity instruments granted. This expense is spread over
the vesting period, i.e. 3 years for stock option plans and 2 years for
performance shares and bonus share plans at Vivendi, other than in
specific cases.
Vivendi use a binomial model to assess the fair value of such
instruments. This method relies on assumptions updated at the
valuation date such as the computed volatility of the relevant shares,
the discount rate corresponding to the risk-free interest rate, the
expected dividend yield, and the probability of relevant managers and
employees remaining employed within the group until the exercise of
their rights.
However, depending on whether the equity instruments granted are
equity-settled or cash-settled, the valuation and recognition of the
expense will differ:
Equity-settled instruments:
the expected term of the option granted is deemed to be the mid-
point between the vesting date and the end of the contractual term;
the value of the instruments granted is estimated and fixed at grant
date; and
the expense is recognized with a corresponding increase in equity.
Cash-settled instruments:
the expected term of the instruments granted is deemed to be equal
to one-half of the residual contractual term of the instrument for
vested rights, and to the average of the residual vesting period at
the remeasurement date and the residual contractual term of the
instrument for unvested rights;
the value of instruments granted is initially estimated at grant date
and is then re-estimated at each reporting date until the payment
date and the expense is adjusted pro rata taking into account the
vested rights at each such reporting date;
the expense is recognized as a provision; and
moreover, as plans settled in cash are primarily denominated
in US dollars, the value fluctuates based on the EUR/USD exchange
rate.
Share-based compensation cost is allocated to each operating segment,
pro rata the number of equity instruments or equivalent instruments
granted to their managers and employees.
The dilutive effect of stock options and performance shares settled in
equity through the issuance of Vivendi shares which are in the process
of vesting is reflected in the calculation of diluted earnings per share.
In accordance with IFRS 1, Vivendi elected to retrospectively
apply IFRS 2 as of January 1, 2004. Consequently, all share-based
compensation plans for which rights remained to be vested as of
January 1, 2004 were accounted for in accordance with IFRS 2.
