How should be treated shares that are bought and specifically affected to hedge equity-settled share-based payments (payments in equity instruments) ?

From an accounting perspective, share-based payments systematically give rise to an operating expense recognized as “Personnel expenses” in the amount of the fair value of the share-based payments granted to employees and according to their terms of settlement. The fair value of these instruments, measured at the vesting date, is spread over the vesting period and recorded in shareholders’ equity. At each accounting date, the number of these instruments is revised to take into account performance and service conditions and adjust the overall cost of the plan as originally determined. Expenses recognised under “Personnel expenses” from the start of the plan are then adjusted accordingly.
The question refer to situations where the hedging shares are specifically monitored and can’t be delivered for any other purpose than be delivered to employees. Consequently, there is a real contractual obligation to grant performance shares to its employees:

• Legal framework of the performance shares plan:
- It is governed and regulated by the local law
- It is validated by the Extraordinary General Shareholders’ Meeting and the Board of Directors.
• The shares are specifically affected to employees. For example:
- The number of shares granted to each beneficiary can’t be modified during the vesting period.
- In the event of death of the beneficiary, the Beneficiary's heirs or assigns may request the immediate delivery of the shares
• The beneficiaries ‘ rights are protected : in the event that during the vesting period, the institution carries out a restructuring, a merger, de-merger, a partial contribution of assets, a consolidation or division of shares, an exchange of shares, or any other similar transaction that could potentially have an impact on the rights the performance shares confer to Beneficiaries, the institution shall take all appropriate actions for the purpose of preserving the rights of Beneficiaries.

Please note that as part of adjustments to the Single Rulebook Q&A process, agreed by the EBA and the European Commission, it has been decided to reject outstanding questions submitted before 1 January 2020, when the Q&A process was updated as part of the last ESAs Review. In particular, the question that you have submitted has now regrettably been rejected and will not be addressed.

If you believe your question would still benefit from clarification, you are invited to resubmit your question, adapting it to reflect any legislative, regulatory or other relevant developments that may have occurred since the initial date of submission. The EBA will aim to address resubmitted questions as a matter of priority. When considering to resubmit, you are kindly requested to observe the updated admissibility criteria agreed in the context of the adjustment of the Q&A process, available in the Additional background and guidance for asking questions. We hope for your understanding.

For further information please refer to the press release and the updated Q&A page.