Equity compensation benefit

During the year 5,947,453 (2018: 1 809 711) forfeitable shares were granted to Executive Directors and qualifying employees (participant). The participant will forfeit the forfeitable shares if he/she ceases to be an employee of an employer company before the vesting date or if the specified performance conditions have not been met, unless otherwise specified by the rules or determined by the Board. In the event that the participant is not in the employ of the Group, or the performance conditions are not met, the shares allocated to the participant will be forfeited and will either be sold on the open market by the escrow agent and the proceeds will be returned to the participating employer, or may be retained by the Group for future awards.

Dividends declared in respect of these forfeitable shares are held in escrow until such time as the performance conditions are met and the shares have vested. Shares forfeited during the vesting period will forfeit any dividends pertaining to such shares. No dividend was declared on 21 August 2018. (A dividend of 40 cents per ordinary share was declared on 23 August 2017.)

The performance condition of the forfeitable shares for the eighth award vested on 31 August 2018 is as follows:

• 40% of the awards are allocated towards retention. In order to receive this portion of the allocation the employee is required to be employed within the Group at the vesting date.
• 60% of the awards are allocated on the basis of 50% for growth in core headline earnings per share and 10% for shareholder returns.

The 50% for growth in core headline earnings will be based on the following achievements:

• If growth is 5% above CPI over three years, 20% of the 50% will vest.
• If growth is 10% above CPI over three years, an additional 50% (i.e. a total of 70%) of the 50% will vest.
• If growth is 25% above CPI over three years, a further 30% (i.e. a total of 100%) of the 50% will vest.

The 50% for growth in core headline earnings in respect of the eighth awards was amended to include growth in core headline earnings at subsidiary level with regards to qualifying employees.

The 10% for shareholder return will be based on a 10% compounded growth in the share price over the three-year vesting period measured with reference to the weighted average price per share during the month of the commencement of the allocation and the weighted average share price for the month during which the vesting takes place, plus dividends over the three-year period.

The performance condition for Executive Directors for the ninth, tenth and eleventh award grant vesting on 31 August 2019, 31 August 2020 and 31 August 2021 respectively are as follows:

• 33.33% for retention (three years from date of award); and
• 66.67% financial (33.34% for growth in core headline earnings per share and 33.33% based on shareholder returns).

The 33.34% for growth in core headline earnings per share is based on the following achievements:

• If growth is 5% above CPI compounded annually over three years, then 20% of the 33.33% will vest.
• If growth is 10% above CPI compounded annually over three years, then an additional 50% (i.e. a total of 70%) of the 33.33% would vest. If growth is between 5% and 10% above CPI over the three years then the additional 50% will be reduced on a pro-rata basis.
• If growth is 25% above CPI compounded annually over three years, then a further 30% (i.e. a total of 100%) of the 33.33% will vest. If growth is between 10% and 25% above CPI over the three years then the additional 30% will be reduced on a pro-rata basis.

The 33.33% for shareholder return is based on a 10% compounded growth in the share price over the three-year vesting period, measured with reference to the weighted average price per share during the month of the commencement of the allocation plus dividends over the three-year period against the weighted average share price for the month during which the vesting takes place.

The performance condition for senior managers for the ninth, tenth and eleventh award grant vesting on 31 August 2019, 31 August 2020 and 31 August 2021 respectively are as follows:

• 40% for retention (three years from date of award); and
• 60% financial (30% for growth in core headline earnings per share and 30% based on shareholder returns).

The 30% for growth in core headline earnings per share is based on the following achievements:

• If growth is 5% above CPI compounded annually over three years, then 20% of the 30% will vest.
• If growth is 10% above CPI compounded annually over three years, then an additional 50% (i.e. a total of 70%) of the 30% would vest. If growth is between 5% and 10% above CPI over the three years then the additional 50% will be reduced on a pro-rata basis.
• If growth is 25% above CPI compounded annually over three years, then a further 30% (i.e. a total of 100%) of the 30% will vest. If growth is between 10% and 25% above CPI over the three years then the additional 30% will be reduced on a pro-rata basis.

The performance criteria for senior managers will be measured at subsidiary level.

The 30% for shareholder return is based on a 10% compounded growth in the share price over the three-year vesting period, measured with reference to the weighted average price per share during the month of the commencement of the allocation plus dividends over the three-year period against the weighted average share price for the month during which the vesting takes place.

Critical accounting estimates and assumptions

In determining the number of forfeitable shares that will vest due to performance conditions being met, management assesses the attrition rates of staff based on the grades of staff that have been granted awards as well as the historic staff turnover.

Movements in the number of forfeitable shares outstanding during the year are as follows:

	Grant date	Vesting date	Number  of shares	Fair value  of grant  R’000
At 31 May 2017			6 341 490	75 964
Seventh award			2 432 743	21 652
Eighth award			2 532 490	25 755
Ninth award			1 376 257	28 557
Granted during the year			1 809 711	33 462
Tenth award	1 September 2017	31 August 2020	1 809 711	33 462
Shares forfeited during the year			(456 379)	(6 432)
Eighth award			(287 044)	(2 919)
Ninth award			(169 335)	(3 513)
Shares vested during the year			(2 432 743)	(21 652)
Seventh award		31 August 2017	(2 432 743)	(21 652)
At 31 May 2018			5 262 079	81 342
Eighth award			2 245 446	22 836
Ninth award			1 206 922	25 044
Tenth award			1 809 711	33 462
Granted during the year			5 947 453	42 584
Eleventh award	1 September 2018	31 August 2021	5 947 453	42 584
Shares forfeited during the year			(473 121)	(7 080)
Eighth award			(224 545)	(2 284)
Ninth award			(88 243)	(1 831)
Tenth award			(160 333)	(2 965)
Shares vested during the year			(2 020 901)	(20 552)
Eighth award		31 August 2018	(2 020 901)	(20 552)
At 31 May 2019			8 715 510	96 294
Ninth award			1 118 679	23 213
Tenth award			1 649 378	30 497
Eleventh award			5 947 453	42 584

Refer to note 5.2 for the expense recognised in the income statement relating to the equity compensation benefits.

The fair value of the shares is based on the open market closing price at grant date.

The total number of forfeitable shares issued to Executive Directors during the period is 1 135 411 (2018: 414 785).

The share-based payment expense in relation to these Executive Directors is -R0.9 million (2018: R7.2 million). Refer to note 5.3 for details of awards per Director.