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32. Share-based payment plans

AGL operates the following share-based payment plans:

  • The share reward plan; and
  • The long-term incentive plan.

AGL has the following other equity arrangements:

  • The share purchase plan; and
  • The restricted equity plan.

Share Reward Plan (SRP)

The SRP is AGL’s complying broad-based employee share plan that enables eligible employees to be granted up to $1,000 of ordinary shares in AGL for no consideration each financial year. The SRP is governed by the AGL General Employee Share Plan Rules. The grant of shares is subject to the achievement of performance metrics and can therefore be scaled down in years where all objectives are not met. Shares granted pursuant to the SRP are subject to a trading restriction of the earlier of three years or the participant’s cessation of employment.

Eligible participants include all AGL employees with at least 12 months service at the eligibility date (generally 1 September following the financial year end). Participants in the long-term incentive plan are excluded from any SRP grant.

Details of share movements in the SRP during the year are set out below:

Grant date

Balance at
1 July
Number

Granted
during the
year
Number

Fair Value
per share
$

Released
during the
year
Number

Balance at
30 June
Number

2020

28 September 2019

-

145,277

$19.08

(7,802)

137,475

28 September 2018

138,424

-

-

(10,348)

128,076

29 September 2017

81,586

-

-

(4,750)

76,836

30 September 2016

95,452

-

-

(95,452)

-

Total share reward plan shares

315,462

145,277

(118,352)

342,387

2019

28 September 2018

-

154,024

$19.20

(15,600)

138,424

29 September 2017

96,444

-

-

(14,858)

81,586

30 September 2016

111,818

-

-

(16,366)

95,452

30 September 2015

120,231

-

-

(120,231)

-

Total share reward plan shares

328,493

154,024

(167,055)

315,462

The expense recognised in profit or loss, as part of employee benefits expense during the year in relation to the SRP, was $3 million (2019: $3 million).

Long-Term Incentive (LTI) Plan

The LTI plan provides for a grant of performance rights to eligible participants subject to AGL’s performance against pre-determined metrics over a four-year performance period (prior to FY20, a three-year performance period applied). The LTI is governed by the AGL Employee Share Plan Rules. Participation is determined annually at the discretion of the Board.

Generally, performance rights are forfeited on cessation of employment. The Board has discretion with reference to the relevant facts and circumstances of the cessation to vest all or part of the balance, or to authorise a portion of the award to be retained and assessed post-employment.

LTI Transitional Arrangements

In FY20, the LTI performance period was extended from three years to four years to better reflect the business planning cycle. To ensure executives a smooth transition to the extension of the performance period, a Bridging Grant was made at the same quantum as the FY20 LTI to supplement the new four-year grant by providing an opportunity for LTI vesting every year. The Bridging Grant will be tested after three years. The Bridging Grant is a one-off grant; in FY21, no further bridging arrangements will be made. The Bridging Grant is not applicable for new/incoming executives.

Current LTI Plans

The performance rights are subject to two performance hurdles, weighted equally, based on:

  • Relative Total Shareholder Return (Relative TSR); and
  • Return on Equity (ROE).

Relative TSR is calculated by ranking AGL’s TSR on a relative basis against the peer group, being S&P/ASX100 companies.

ROE measures the amount of Underlying Profit returned as a percentage of average monthly shareholders equity.

The performance period for the outstanding LTI plans as at 30 June 2020 are as follows:

  • FY20: Four years from 1 July 2019 to 30 June 2023
  • FY20 Bridging grant: Three years from 1 July 2019 to 30 June 2022
  • FY19: Three years from 1 July 2018 to 30 June 2021
  • FY18: Three years from 1 July 2017 to 30 June 2020

The number of shares vested are determined by the vesting schedules detailed in the tables below.

Relative TSR vesting schedule

AGL's TSR ranking against comparator group

Percentage of performance rights which vest

LTI Plan

FY20

FY20 Bridging Grant

FY19

FY18

Below 50th percentile

Nil

Nil

Nil

Nil

50th – 75th percentile

50 – 100%

50 – 100%

50 – 100%

50 – 100%

At or above 75th percentile

100%

100%

100%

100%

ROE vesting schedule

Percentage of performance rights which vest

AGL's average ROE per LTI plan

LTI plan

FY20

FY20 Bridging Grant

FY19

FY18

Nil

Below 8.5%

Below 8.5%

Below 10%

Below 11.5%

50 – 90%

8.5% – 10.5%

8.5% – 10.5%

10% – 12%

N/A

50 – 100%

N/A

N/A

N/A

11.5% – 14%

90 – 100%

10.5% – 12.5%

10.5% – 12.5%

12% – 14%

N/A

100%

At or above 12.5%

At or above 12.5%

At or above 14%

At or above 14%

Details of performance rights movements in the FY20 LTI Plan during the year are set out below:

Grant date

Performance hurdle

Balance at 1 July Number

Granted during the year Number

Fair value per SPR at grant date
$

Vested during the year Number

Forfeited during the year Number

Balance at 30 June Number

2020

FY20 LTI – 18 Oct 2019

Relative TSR

-

227,408

$8.63

-

(4,360)

223,048

FY20 LTI – 18 Oct 2019

ROE

-

227,389

$16.81

-

(4,359)

223,030

Total share rights

-

454,797

$12.72

-

(8,719)

446,078

Details of performance rights movements in the FY20 Bridging Grant LTI Plan during the year are set out below:

Grant date

Performance hurdle

Balance at 1 July Number

Granted during the year Number

Fair value per SPR at grant date
$

Vested during the year Number

Forfeited during the year Number

Balance at 30 June Number

2020

FY20 Bridging Grant – 18 Oct 2019

Relative TSR

-

301,573

$8.76

-

(3,628)

297,945

FY20 Bridging Grant – 18 Oct 2019

ROE

-

301,544

$16.02

-

(3,627)

297,917

Total share rights

-

603,117

$12.39

-

(7,255)

595,862

Details of performance rights movements in the FY19 LTI Plan during the year are set out below:

Grant date

Performance hurdle

Balance at 1 July Number

Granted during the year Number

Fair value per SPR at grant date
$

Vested during the year Number

Forfeited during the year Number

Balance at 30 June Number

2020

FY19 LTI – 24 Oct 2018

Relative TSR

164,230

-

$7.18

-

(17,685)

146,545

FY19 LTI – 24 Oct 2018

ROE

164,205

-

$16.12

-

(17,685)

146,520

FY19 LTI – 14 December 2018

Relative TSR

2,779

-

$9.78

-

(1,387)

1,392

FY19 LTI – 14 December 2018

ROE

2,779

-

$17.13

-

(1,387)

1,392

Total share rights

333,993

-

$11.68

-

(38,144)

295,849

2019

FY19 LTI – 24 Oct 2018

Relative TSR

-

188,694

$7.18

-

(24,464)

164,230

FY19 LTI – 24 Oct 2018

ROE

-

188,668

$16.12

-

(24,463)

164,205

FY19 LTI – 14 December 2018

Relative TSR

-

2,779

$9.78

-

-

2,779

FY19 LTI – 14 December 2018

ROE

-

2,779

$17.13

-

-

2,779

Total share rights

-

382,920

$11.68

-

(48,927)

333,993

Details of performance rights movements in the FY18 LTI Plan during the year are set out below:

Grant date

Performance
hurdle

Balance at
1 July
Number

Granted
during the
year
Number

Fair value
per SPR at
grant date
$

Vested
during the
year
Number

Forfeited
during the
year
Number

Balance at
30 June
Number

2020

FY18 LTI – 28 Sep 2017

Relative TSR

140,103

-

$10.05

-

(5,730)

134,373

FY18 LTI – 28 Sep 2017

ROE

140,089

-

$20.86

-

(5,729)

134,360

Total share rights

280,192

-

$15.46

-

(11,459)

268,733

2019

FY18 LTI – 28 Sep 2017

Relative TSR

206,891

-

$10.05

-

(66,788)

140,103

FY18 LTI – 28 Sep 2017

ROE

206,871

-

$20.86

-

(66,782)

140,089

Total share rights

413,762

-

$15.46

-

(133,570)

280,192

Performance rights grant

The fair value of performance rights granted are measured by reference to the fair value. The estimate of the fair value is measured based on the Monte Carlo simulation method. The contractual life of the performance rights is used as an input into this model. Expected volatility is based on the historical share price volatility over the past three years.

2020

2019

FY20 LTI

FY20 Bridging Grant

FY19 LTI

Grant date

18 Oct 2019

18 Oct 2019

24 Oct 2018

14 Dec 2018

Weighted average fair value at grant date

$12.72

$12.39

$11.65

$13.45

Share price at grant date

$19.13

$19.13

$18.48

$19.50

Expected volatility

21.0%

21.0%

20.0%

20.0%

Expected dividend yield

4.8%

4.8%

5.1%

5.1%

Risk free interest rate (based on government bonds)

0.8%

0.8%

2.0%

2.0%

The expense recognised in profit or loss as part of employee benefits expense during the year in relation to performance rights granted to executives under the LTI Plan was $6 million (2019: $3 million).

Shares purchased on-market

During the financial year ended 30 June 2020, 345,413 (2019: 237,116) AGL shares were purchased on-market at an average price of $19.06 (2019: $20.01) per share, for a total consideration of $6,584,566 (2019: $4,744,676), to satisfy employee entitlements pursuant to the SRP and the LTI Plan.

Other equity arrangements

Share Purchase Plan (SPP)

The SPP is AGL’s salary sacrifice plan that enables eligible employees to contribute up to $5,000 per financial year from their ongoing fixed remuneration and/or short-term incentive (STI) award into acquiring ordinary shares in AGL. The SPP is governed under the AGL General Employee Share Plan Rules. Shares granted pursuant to the SPP are subject to a trading restriction of the earlier of four years (from the start of the financial year in which they are acquired) or the participant’s cessation of employment. The holding lock is in place to provide for a deferral of income tax for participants.

Eligible participants include all permanent AGL employees. Non-Executive Directors, the Managing Director and Chief Executive Officer, and members of the executive team are excluded from SPP participation.

Details of share movements in the SPP during the year are set out below:

Share movements

Balance at
1 July
Number

Granted
during the
year
Number

Fair Value
per share
$

Released
during the
year
Number

Balance at
30 June
Number

2020

Employees

220,272

141,479

$19.14

(29,767)

331,984

Total share purchase plan shares

220,272

141,479

(29,767)

331,984

2019

Employees

141,286

116,253

$20.26

(37,267)

220,272

Total share purchase plan shares

141,286

116,253

(37,267)

220,272

Restricted Equity Plan (REP)

The REP provides for a grant of restricted shares, either as the deferral component of STI awards for executives, or for other purposes (for example, sign-on or retention awards).

Generally, restricted shares are forfeited on cessation of employment. The Board has discretion with reference to the relevant facts and circumstances of the cessation to vest all or part of the balance, or to authorise a portion of the award to be retained and vest post-employment.

Details of share movements in the REP during the year are set out below:

Share movements

Balance at
1 July
Number

Granted
during the
year
Number

Weighted average fair value
per share
$

Released
during the
year
Number

Balance at
30 June
Number

2020

Current Managing Director and Chief Executive Officer1

3,476

21,378

$19.03

(3,476)

21,378

Employees

33,945

14,588

$18.41

(20,468)

28,065

Total restricted equity plan shares

37,421

35,966

(23,944)

49,443

2019

Current Managing Director and Chief Executive Officer2

3,571

3,476

$21.49

(3,571)

3,476

Former Managing Director and Chief Executive Officer3,4

152,692

71,603

$21.51

(224,295)

-

Employees

64,395

22,228

$20.37

(52,678)

33,945

Total restricted equity plan shares

220,658

97,307

(280,544)

37,421

  1. 1 Mr Redman was granted 21,378 restricted share awards on 20 August 2019 as part of the FY19 STI plan. The restricted shares vest after a period of twelve months, subject to continued service and forfeiture conditions.
  2. 2 Mr Redman, in his former role as CFO, was granted 3,476 restricted share awards on 21 August 2018 as part of the FY18 STI plan. The restricted shares vest after a period of twelve months, subject to continued service and forfeiture conditions.
  3. 3 Mr Vesey was granted 55,931 restricted share awards on 21 August 2018 as part of the FY18 STI plan. The restricted shares vested on cessation of employment.
  4. 4 Mr Vesey was granted 15,672 restricted share awards on 15 February 2019 as part of the FY19 STI plan. The restricted shares immediately vested.

Shares purchased on-market

During the financial year ended 30 June 2020, 177,445 (2019: 213,560) AGL shares were purchased on-market at an average price of $19.06 (2019: $20.71) per share, for a total consideration of $3,381,877 (2019: $4,423,559), to satisfy employee entitlements pursuant to the SPP and REP.

ACCOUNTING POLICY

Share-based payments

The fair value of performance rights granted to eligible employees pursuant to the AGL Long-Term Incentive Plan is recognised as an employee benefits expense, with a corresponding increase in the employee equity benefits reserve. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the performance rights. The fair value at grant date is determined by an independent valuer.

At the end of each reporting period, AGL revises its estimate of the number of performance rights expected to vest. The amount previously recognised as an expense is only adjusted when the performance rights do not vest due to non-market related conditions.

Pursuant to the AGL Share Reward Plan, shares are issued to eligible employees for no consideration and vest immediately on grant date. On this date, the market value of the shares issued is recognised as an employee benefits expense, with a corresponding increase in the employee equity benefits reserve.

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