OTHER

Note 33. Share-based payments

Accounting policy

The Group enters into various share-based payment arrangements with its employees as a component of overall compensation for services provided. Share-based payment arrangements comprise rights to receive shares for free (share rights) and restricted shares (issued at no cost). Share-based payment arrangements typically require a specified period of continuing employment (the service period or vesting period) and may include performance targets (vesting conditions). Specific details of each arrangement are provided below.

Share-based payments must be classified as either cash-settled or equity-settled arrangements. The Group’s significant arrangements are equity-settled, as the Group is not obliged to settle in cash.

Share rights

Share rights are equity-settled arrangements. The fair value is measured at grant date and is recognised as an expense over the service period, with a corresponding increase in the share-based payment reserve in equity.

The fair value of share rights are estimated at grant date using a binomial/Monte Carlo simulation pricing model which incorporates the vesting and market-related performance targets of the grants. The fair value of share rights excludes non-market vesting conditions such as employees’ continuing employment by the Group. The non-market vesting conditions are instead incorporated in estimating the number of share rights that are expected to vest and are therefore recognised as an expense. At each reporting date the non-market vesting assumptions are revised and the expense recognised each year takes into account the most recent estimates. The market-related assumptions are not revised each year as the fair value is not re-estimated after the grant date.

Restricted share plan (RSP)

The RSP is accounted for as an equity-settled arrangement. The fair value of shares allocated to employees for nil consideration is recognised as an expense over the vesting period with a corresponding increase in the share-based payments reserve in equity. The fair value of ordinary shares issued to satisfy the obligation to employees is measured at grant date and is recognised as a separate component of equity.

Employee share plan (ESP)

The value of shares expected to be allocated to employees for nil consideration is recognised as an expense over the financial year and provided for as other employee benefits. The fair value of any ordinary shares issued to satisfy the obligation to employees is recognised in equity. Alternatively, shares may be purchased on market to satisfy the obligation to employees.

Scheme name	Westpac Long Term Variable Reward Plan (LTVR)	Westpac Performance Plan (WPP)	Restricted Share Plan (RSP)	Employee Share Plan (ESP)
Type of share-based payment	Share rights (allocated at no cost).	Share rights (allocated at no cost).	Westpac ordinary shares (allocated at no cost).	Westpac ordinary shares (allocated at no cost) of up to $1,000 per employee per year.
How it is used	Aligns executive remuneration and accountability with shareholder interests over the long term.	Primarily used for mandatory deferral of a portion of short-term incentives for New Zealand employees and key employees based outside Australia.	Primarily used to reward key employees.	To reward eligible Australian employees (unless they have already been provided instruments under another scheme for the previous year).
Shares rights	Nil	Nil	n/a	n/a
Performance hurdles	Relative Total Shareholder return (TSR) over a four year performance period and average cash Return on Equity (cash ROE) over a three year performance period plus one year holding lock, each applying to half of the award (commencing with the 2016 LTVR award)1.	None	None	None
Service conditions	Continued employment throughout the vesting period or as determined by the Board.	Continued employment throughout the vesting period or as determined by the Board.	Continued employment throughout the restriction period or as determined by the Board.	Shares must normally remain within the ESP for three years from granting unless the employee leaves Westpac.
Vesting period (period over which expenses are recognised)	4 years1	Defined period set out at time of grant.	Defined period set out at time of grant.	1 year
Treatment at end of term	Automatically exercised at the end of the term.	Automatically exercised at the end of the term.	Vested shares are released from the RSP at the end of the vesting period.	Shares are released at the end of the restriction period or when the employee leaves Westpac.
Does the employee receive dividends and voting rights during the vesting period?	No	No	Yes	Yes

^1.

For the 2015 LTVR awards, the relative TSR is subject to a four year performance period and cash EPS compound annual growth rate (CAGR) over a three year performance period plus one year holding lock. For awards granted for the periods 2011 to 2014 both the relative TSR and cash EPS CAGR hurdles are subject to a three year performance and vesting period.

Each share-based payment scheme is quantified below:

(i) Westpac Long Term Variable Reward Plan (LTVR)


	Outstanding at		Granted	Exercised		Lapsed			Outstanding
	1 October		during	during		during	Outstanding at		and exercisable at
2020	2019		the year	the year		the year	30 September 2020		30 September 2020
Share rights		4,554,589	779,581		—	2,267,844		3,066,326		3,719
Weighted average remaining contractual life		12.3 years						12.4 years
2019		1 October 2018						30 September 2019
Share options		52,350	—		37,831	14,519		—		—
Weighted average exercise price	$	23.40	—	$	23.40	—		—		—
Share rights		4,712,843	1,169,704		—	1,327,958		4,554,589		3,719

The weighted average fair value at grant date of LTVR share rights issued during the year was $28.44 (2019: $15.62).

(ii) Westpac Performance Plan (WPP)


									Outstanding
	Outstanding at		Granted during	Exercised		Lapsed during	Outstanding at		and exercisable at
2020	1 October 2019		the year	during the year		the year	30 September 2020		30 September 2020
Share rights
One-year vesting period		197,888	120,562		75,417	36,792		206,241		90,451
Two-year vesting period		289,909	113,649		79,568	31,049		292,941		55,846
Three-year vesting period		95,249	18,357		20,972	15,786		76,848		17,922
Four-year vesting period		203,420	186,290		-	8,605		381,105		-
Total share rights		786,466	438,858		175,957	92,232		957,135		164,219
Weighted average remaining contractual life		12.8 years						12.8 years
2019		1 October 2018						30 September 2019
Share rights		673,889	385,646		184,043	89,026		786,466		130,946

The weighted average fair value at grant date of WPP share rights issued during the year was $24.68 (2019: $23.08).

(iii) Restricted Share Plan (RSP)



	Outstanding at	Granted during		Forfeited	Outstanding at
Allocation date	1 October 2019	the year	Released	during the year	30 September 2020
Total 2020	4,773,171	2,100,030	2,081,545	402,495	4,389,161
Total 2019	4,189,644	2,861,262	2,214,509	63,226	4,773,171

The weighted average fair value at grant date of RSP shares issued during the year was $23.88 (2019: $25.20).

(iv)Employee Share Plan (ESP)


			Average
			number
			of shares	Total number
	Allocation	Number of	allocated per	of shares	Market		Total
	date	participants	participant	allocated	price per share1		fair value
2020	21 November 2019	25,725	38	977,550	$	26.20	$	25,611,810
2019	23 November 2018	27,245	39	1,062,555	$	25.35	$	26,935,769

^1.

The market price per share for the allocation is based on the five day volume-weighted average price up to the grant date.

The 2019 ESP award was satisfied through the purchase of shares on market.

The liability accrued for the ESP at 30 September 2020 is $28 million (2019: $26 million) and is provided for as other employee benefits.

(v) Other plans

Westpac also provides plans for small, specialised parts of the Group. The benefits under these plans are directly linked to growth and performance of the relevant part of the business. The plans, individually and in aggregate, are not material to the Group in terms of expenses and dilution of earnings.

The names of all persons who hold share options and/or rights currently on issue are entered in Westpac’s register of option holders which may be inspected at Link Market Services, Level 12, 680 George Street, Sydney, New South Wales.

(vi) Fair value assumptions

The fair values of share rights have been independently calculated at their respective grant dates.

The fair value of share rights with performance targets based on relative TSR takes into account the average TSR outcome determined using a Monte Carlo simulation pricing model.

The fair values of share rights without TSR based performance targets (i.e. share rights with cash EPS CAGR, economic profit and cash ROE performance targets) have been determined with reference to the share price at grant date and a discount rate reflecting the expected dividend yield over their vesting periods.

Other significant assumptions include:

▪ a risk free rate of return of 0.8%, applied to TSR-hurdled grants;

▪ a dividend yield on Westpac shares of 6.5%, applied to TSR and ROE-hurdled grants;

▪ volatility in Westpac’s TSR of 21%, applied to TSR-hurdled grants; and

▪ volatilities of, and correlation factors between, TSR of the comparator group and Westpac for TSR-hurdled grants.