Share-based payments

12 Months Ended

Sep. 30, 2021

Share-based payments

Share-based payments

OTHER

Note 32. 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 values 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 variable reward for New Zealand employees and key employees based outside Australia.	Primarily used to reward key employees and for mandatory deferral of a portion of short-term variable reward for Australian employees and some other offshore jurisdictions.	To reward eligible Australian employees (unless they have already been provided instruments under another scheme for the previous year).
Exercise price	Nil	Nil	n/a	n/a
Performance hurdles	For the 2020 and 2021 awards: relative Total Shareholder return (TSR) over a four-year performance period.	None	None	None
	For the 2017, 2018 and 2019 awards: 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.

Note 32. Share-based payments (continued)

Scheme name	Westpac Long Term Variable Reward Plan (LTVR)	Westpac Performance Plan (WPP)	Restricted Share Plan (RSP)	Employee Share Plan (ESP)
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 years	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

Each share-based payment scheme is quantified below.

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

	Outstanding								Outstanding
	as at beginning		Granted during	Exercised		Lapsed during	Outstanding as at		and exercisable
	of year		the year	during the year		the year	end of year		as at end of year
2021
Share rights		3,066,326	1,383,986		1,571	788,911		3,659,830		2,148
Weighted average remaining contractual life		12.4 years						12.7 years
2020
Share rights		4,554,589	779,581		-	2,267,844		3,066,326		3,719

The weighted average fair value at grant date of LTVR share rights issued during the year was $6.56 (2020: $28.44).

(ii)    Westpac Performance Plan (WPP)

	Outstanding								Outstanding
	as at beginning		Granted during	Exercised		Lapsed during	Outstanding as at		and exercisable
	of year		the year	during the year		the year	end of year		as at end of year
2021
Share rights
One-year vesting period		206,241	33,145		83,204	36,041		120,141		86,996
Two-year vesting period		292,941	34,352		85,090	40,433		201,770		63,704
Three-year vesting period		76,848	9,281		29,179	630		56,320		9,796
Four-year vesting period		381,105	164,742		42,724	14,783		488,340		11,065
Total share rights		957,135	241,520		240,197	91,887		866,571		171,561
Weighted average remaining contractual life		12.8 years						12.6 years
2020
Share rights		786,466	438,858		175,957	92,232		957,135		164,219

The weighted average fair value at grant date of WPP share rights issued during the year was $18.27 (2020: $24.68).

Note 32. Share-based payments (continued)

(iii)  Restricted Share Plan (RSP)

	Outstanding				Outstanding
	as at beginning	Granted during		Forfeited	as at end
Allocation date	of year	the year	Released	during the year	of year
2021	4,389,161	2,165,046	2,012,519	226,613	4,315,075
2020	4,773,171	2,100,030	2,081,545	402,495	4,389,161

The weighted average fair value at grant date of RSP shares issued during the year was $20.63 (2020: $23.88).

(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
2021	20 November 2020	27,078	52	1,408,056	$	19.20	$	27,034,675
2020	21 November 2019	25,725	38	977,550	$	26.20	$	25,611,810

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 2020 ESP award was satisfied through the purchase of shares on-market.

The liability accrued for the ESP at 30 September 2021 is $28 million (2020: $28 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 compound annual growth rate (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 0.2%, applied to TSR-hurdled grants;

● a dividend yield on Westpac shares of 6.0%, applied to TSR and ROE-hurdled grants;

● volatility in Westpac’s TSR of 25%, applied to TSR-hurdled grants; and

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