29. Employee Share Incentive Schemes
Massmart Holdings Limited Employee Share Trust
Massmart introduced a new share incentive scheme in the prior financial period referred to as the Employee Share Awards Scheme. Massmart Holdings Limited’s shareholders approved the scheme at the Annual General Meeting held on 22 May 2013. The new scheme entails participation through a Retention Share Grant and/or a Performance Share Award, further explained below. The first grant of retention and performance awards under the new scheme was made on 16 September 2013. The purpose of the new scheme is to replace the existing Employee Share Option Awards Scheme which had its last grant date on 1 May 2013. The Employee Share Option Award Scheme will continue to give rise to an equity-settled share-based payment expense until the end of the December 2018 financial year. The final options of this scheme will expire in the 2023 financial year. Both Employee Share Incentive Schemes are administered through the Massmart Holdings Limited Employee Share Trust.
Shares to Satisfy Awards and Options
It is Massmart’s practice to satisfy awards and options granted under the Employee Share Incentive Scheme through shares purchased in the market and held by the Massmart Holdings Limited Employee Share Trust, which was established for the purpose of satisfying awards under the Employee Share Incentive Scheme, and is funded by the Company.
Employee Share Option Scheme (Old Scheme)
Massmart granted share options entitling certain employees within the Group to its shares under the Employee Share Incentive Scheme. The options were granted by Massmart in its own shares resulting in them being accounted for as equity-settled share-based payments. Employees are required to be employed up to the date of vesting in order to receive the share options earned by them. The share-based payment valuation was performed by Alexander Forbes for all periods with respect to the share options.
Vesting occurs over a five-year period as follows:
- 25% two years after the offer date;
- 50% three years after the offer date;
- 75% four years after the offer date;
- 100% five years after the offer date; and
- expires ten years after the offer date.
The following options granted to employees and Executive Directors in terms of the Massmart Employee Share Option Scheme (Old Scheme) have not yet been exercised:
2014
Offer date Expiry date Exercise price (R) No of options at December 2013 No of options forfeited and expired No of options exercised New options granted No of options closing balance
1 April 2005 31 March 2015  41.91  47,000  47,000 -
27 May 2005 26 May 2015  42.97  13,303  639  12,664
1 November 2005 31 October 2015  51.91  996  996 -
30 November 2005 29 November 2015  51.19  3,618  3,618
1 April 2006 31 March 2016  58.74  7,665  4,892  2,773
23 May 2006 22 May 2016  54.13  22,863  3,256  19,607
25 August 2006 24 August 2016  51.93  4,724  4,724
15 November 2006 14 November 2016  62.04  14,700  14,700
23 February 2007 22 February 2016  67.79  32,152  4,119  28,033
2 April 2007 1 April 2017  82.67  5,573  5,573
24 May 2007 23 May 2017  94.25  239,073  46,678  192,395
24 August 2007 23 August 2017  80.75  41,216  41,216
30 November 2007 29 November 2017  71.58  12,854  12,854
1 April 2008 31 March 2018  66.91  228,602  37,435  191,167
26 May 2008 25 May 2018  72.86  590,590  84,356  506,234
1 September 2008 31 August 2018  79.86  120,164  31,700  88,464
27 October 2008 26 October 2018  72.42  129,126  23,109  106,017
15 November 2008 14 November 2018  79.91  32,549  32,549
1 March 2009 28 February 2019  70.71  107,694  10,498  97,196
27 May 2009 26 May 2019  77.55  624,089  4,419  111,384  508,286
1 September 2009 31 August 2019  79.15  39,661  6,453  33,208
1 October 2009 30 September 2019  87.60  17,923  8,318  9,605
16 November 2009 15 November 2019  88.71  18,820  8,548  10,272
1 March 2010 28 February 2020  90.49  113,775  4,017  20,629  89,129
1 April 2010 31 March 2020  108.95  19,092  4,370  14,722
1 May 2010 30 April 2020  110.00  32,748  2,606  30,142
1 September 2010 31 August 2020  120.42  199,615  9,470  190,145
1 September 2011 31 August 2021  153.84  3,318,101  209,214  3,108,887
1 November 2011 31 October 2021  157.27  432,365  51,874  380,491
1 March 2012 28 February 2022  174.88  421,478  421,478
1 April 2012 31 March 2022  164.09  122,954  122,954
16 May 2012 15 May 2022  159.62  377,779  44,465  333,314
1 September 2012 31 August 2022  168.03  1,235,157  129,248  1,105,909
15 October 2012 14 October 2022  167.06  321,729  321,729
01 March 2013 28 February 2023  186.05  739,384  40,292  699,092
01 May 2013 30 April 2023  187.53  33,907  33,907
 9,723,039  483,529  466,456 -  8,773,054
2013
Offer date Expiry date Exercise price (R) No of options at December 2012 No of options forfeited and expired No of options exercised New options granted No of options closing balance
1 April 2005 31 March 2015  41.91  47,000 - - -  47,000
1 May 2005 30 April 2015  43.42 - - - - -
27 May 2005 26 May 2015  42.97  16,753 -  3,450 -  13,303
31 May 2005 30 May 2015  42.88  12,570 -  12,570 - -
1 October 2005 30 September 2015  52.48 - - - - -
1 November 2005 31 October 2015  51.91  1,240 -  244 -  996
30 November 2005 29 November 2015  51.19  8,622 -  5,004 -  3,618
1 April 2006 31 March 2016  58.74  16,093 -  8,428 -  7,665
23 May 2006 22 May 2016  54.13  36,196 -  13,333 -  22,863
25 August 2006 24 August 2016  51.93  5,547 -  823 -  4,724
1 October 2006 30 September 2016  56.42  3,674 -  3,674 - -
15 November 2006 14 November 2016  62.04  16,905 -  2,205 -  14,700
23 February 2007 22 February 2016  67.79  60,918 -  28,766 -  32,152
2 April 2007 1 April 2017  82.67  6,432 -  859 -  5,573
24 May 2007 23 May 2017  94.25  315,046 -  75,973 -  239,073
24 August 2007 23 August 2017  80.75  50,657 -  9,441 -  41,216
30 November 2007 29 November 2017  71.58  49,392 -  36,538 -  12,854
1 April 2008 31 March 2018  66.91  356,000 -  127,398 -  228,602
26 May 2008 25 May 2018  72.86  916,631  683  325,358 -  590,590
1 September 2008 31 August 2018  79.86  170,570 -  50,406 -  120,164
27 October 2008 26 October 2018  72.42  129,126 - - -  129,126
15 November 2008 14 November 2018  79.91  32,549 - - -  32,549
1 March 2009 28 February 2019  70.71  117,833 -  10,139 -  107,694
27 May 2009 26 May 2019  77.55  884,547  11,790  248,668 -  624,089
1 September 2009 31 August 2019  79.15  53,426  3,776  9,989 -  39,661
1 October 2009 30 September 2019  87.60  23,038 -  5,115 -  17,923
16 November 2009 15 November 2019  88.71  27,365 -  8,545 -  18,820
1 March 2010 28 February 2020  90.49  133,028 -  19,253 -  113,775
1 April 2010 31 March 2020  108.95  79,423  21,989  38,342 -  19,092
1 May 2010 30 April 2020  110.00  43,995 -  11,247 -  32,748
1 September 2010 31 August 2020  120.42  243,172  8,030  35,527 -  199,615
1 September 2011 31 August 2021  153.84  3,543,023  169,830  55,092 -  3,318,101
1 November 2011 31 October 2021  157.27  468,863  36,498 - -  432,365
1 March 2012 28 February 2022  174.88  437,786  16,308 - -  421,478
1 April 2012 31 March 2022  164.09  122,954 - - -  122,954
16 May 2012 15 May 2022  159.62  377,779 - - -  377,779
1 September 2012 31 August 2022  168.03  1,271,853  36,696 - -  1,235,157
15 October 2012 14 October 2022  167.06  377,819  56,090 - -  321,729
01 March 2013 28 February 2023  186.05 -  31,497 -  770,881  739,384
01 May 2013 30 April 2023  187.53 - - -  33,907  33,907
 10,457,825  393,187  1,146,387  804,788  9,723,039
December 2014 December 2013
Reconciliation of the number of shares options issued 000s 000s
Total shares and options available to the scheme  39,500  39,500
Shares and treasury shares issued to the scheme  (16,493)  (16,493)
Remaining capacity for issue in terms of the JSE practice  23,007  23,007
Opening balance of shares and options issued  10,554  11,579
New shares and options offered to employees and Executive Directors -  805
Shares and options sold by employees and Executive Directors  (678)  (1,437)
Shares repurchased from/ forfeited by employees and options lapsed/ forfeited  (484)  (393)
Closing balance of shares and options issued  9,392  10,554
The closing balance includes 619,443 (December 2013: 830,973) shares and 8,773,054 (December 2013: 9,723,039) options. Shares and options previously issued to employees who then subsequently left the Group are excluded from the figures above.
Once the options have vested they may be exercised at any time, up to ten years, from the offer date. Once exercised, the relevant shares can be sold at the discretion of the participants. In terms of the scheme rules, share trust loans have been raised on offers made to Executive Directors and Executive Committee members. Refer to note 17 on Employee Share Trust loans to Executive Directors and Executive Committee members.
Movement in the Year
The following options granted to employees and Executive Directors in terms of the Massmart Employee Share Option Scheme (Old Scheme) have not yet been exercised:
December 2014 December 2013
Number of share options Weighted average exercise price Number of share options Weighted average exercise price
Rand Rand
Outstanding at the beginning of the year  9,723,039  139.4  10,457,825  130.0
Granted during the year - -  804,788  186.1
Exercised during the year  (466,456)  75.5  (393,187)  154.5
Forfeited or expired during the year  (483,529)  160.0  (1,146,387)  81.4
Outstanding at the end of the year  8,773,054  141.6  9,723,039  139.4
Exercisable at the end of the year  4,470,023  3,073,096
In December 2014, the weighted average share price at the date of exercise for share options exercised during the year was R123.96. The options outstanding at the end of the year had a weighted average remaining contractual life of 6.3 years. No options were granted in the current financial year.
In December 2013, the weighted average share price at the date of exercise for share options exercised during the year was R184.24. The options outstanding at the end of the year had a weighted average remaining contractual life of 7.2 years. Options were granted on 1 March 2013 and 1 May 2013. The estimated fair values of the options granted on these dates were R52.69 and R49.48.
Fair Value of Employee Share Options granted during the year
These fair values were calculated using the Black Schöles Model. The inputs into the model at grant date were as follows: December 2014 December 2013
Weighted average share price (Rand) at grant dates -  189.3
Expected volatility - 27.57% – 28.53%
Expected life - 5 – 6 years
Risk-free rate - 5.66% – 6.11%
Expected dividend yield - 2.5% – 5.0%
There were no grants issued during the current financial year.
Employee Share Awards Scheme (New Scheme)
Massmart granted share awards entitling certain employees within the Group to fully-paid shares under the Employee Share Incentive Scheme. The awards were granted by Massmart in its own shares resulting in the awards being treated as equity-settled share-based payments. The Employee Share Award Scheme is split into two incentive structures, mainly, retention and performance awards. Retention shares require the employee to remain employed at the date of vesting in order to receive the shares earned by them. In determining the spot price at grant date its fair market value is the volume weighted average price of a share on the Johannesburg Stock Exchange (JSE) over the 10 (ten) trading days immediately prior to the day in question. Performance shares are subject to non-market conditions in years 1, 2 and 3 based 50% on Group Return of Investment (ROI) and 50% on Group nominal sales against the budgeted equivalent for that year. The share-based payment valuation was performed using a valuation system acquired by the Group with the necessary model inputs having been determined by management. Management derived these inputs through consultation with various financial institutions, and they are representative of the market data available for Massmart Holdings Limited’s share at the reporting date. Vesting occurs over a five-year period for retention awards and over a three-year period for performance awards as follows:
Retention Awards Performance Awards
- Three years after the offer date 33% 100%
- Four years after the offer date 33% N/A
- Five years after the offer date 33% N/A
The following awards granted to employees and Executive Directors in terms of the Massmart Employee Share Award Scheme (New Scheme) have not yet been exercised:
December 2014 December 2013
Retention awards Number of share awards Vesting Period Number of share awards Vesting Period
16 September 2013  344,624 2016 to 2018  379,863 2016 to 2018
15 September 2014  779,689 2017 to 2019 - -
Performance awards
16 September 2013  761,903 2016  841,951  2,016
17 March 2014  1,110,418 2017 - -
Total awards  2,996,634 -  1,221,814 -
Exercisable at the end of the year - -
Movement in the Year
December 2014 December 2013
Number of share options Weighted average exercise price Number of share options Weighted average exercise price
Rand Rand
Outstanding at the beginning of the year  1,221,814 - - -
Granted during the year  1,890,107 -  1,221,814 -
Forfeited or expired during the year  (115,287) - - -
Outstanding at the end of the year  2,996,634 -  1,221,814 -
Exercisable at the end of the year - -
The estimated fair values of the retention awards at grant date was R121.66 (December 2013:R32.19) and the performance awards was R132.71 (December 2013:R31.46).
Fair Value of Employee Share Awards granted during the year
These fair values were calculated using the Lattice Model. The inputs into the model at grant date were as follows:
Retention awards December 2014 December 2013
10 day volume weighted average share price (Rand)  126.3  171.5
Expected volatility 27.74% – 28.43% 19.92% – 26.19%
Expected life 2.75 – 4.75 years 2.75 – 4.75 years
Risk-free rate 7.19% – 7.62% 6.61% – 7.33%
Expected dividend yield 3.55% 3.52%
Performance awards
10 day volume weighted average share price (Rand)  129.4  171.5
Expected volatility 22.7% 19.92%
Expected life 2.25 years 2.75 years
Risk-free rate 7.46% 6.61%
Expected dividend yield 3.08% 3.52%
Exercise price - -
Expected volatility was determined by calculating the historical volatility of the Company’s share price over the number of previous years corresponding with the share awards vesting period. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations. The risk-free rate used was the swap rate over the vesting period of the share award.
Massmart Black Scarce Skills Trust
The Black Scarce Skills Trust is a share-scheme used to attract and retain African, Coloured and Indian employees. The Executive Committee of each of the divisions and the Massmart Remuneration Committee submit their nominations to the Black Scarce Skills Trust trustees for approval, upon which allocations are made bi-annually in April and October of each year. A beneficiary can only receive one allocation.
Vesting occurs over a five-year period as follows:
- 25% two years after the offer date;
- 50% three years after the offer date;
- 75% four years after the offer date;
- 100% five years after the offer date; and
- expires five years after the offer date.
The following options granted to eligible employees in terms of the Massmart Black Scarce Skills Trust have not yet been exercised:
Offer date Expiry date Exercise price (R) No of options opening balance No of options forfeited and expired No of options exercised New options granted No of options closing balance
December 2014
1 April 2009 31 March 2014  71.96  10,873  918  9,955 - -
27 May 2009 26 May 2014  77.56  4,290 -  4,290 - -
1 April 2010 31 March 2015  108.95  76,582  2,043  14,775 -  59,764
1 October 2011 30 September 2016  143.74  571,491  36,670 - -  534,821
1 April 2012 31 March 2017  164.09  369,388  24,579 - -  344,809
1 October 2012 30 September 2017  166.91  223,878  5,064 - -  218,814
1 April 2013 30 March 2018  189.13  182,133  13,067 - -  169,066
1 October 2013 30 September 2018  170.31  909,444  20,021 - -  889,423
1 April 2014 30 March 2019  136.69 -  9,201 -  305,657  296,456
1 October 2014 30 September 2019  120.29 -  10,690 -  507,407  496,717
 2,348,079  122,253  29,020  813,064  3,009,870
December 2013
1 April 2008 31 March 2013  66.97  177,607  8,799  168,808 - -
1 October 2008 30 September 2013  75.52  139,187  4,717  134,470 - -
1 April 2009 31 March 2014  71.96  15,601  306  4,422 -  10,873
27 May 2009 26 May 2014  77.56  5,064 -  774 -  4,290
1 April 2010 31 March 2015  108.95  97,076  2,135  18,359 -  76,582
1 October 2011 30 September 2016  143.74  669,336  61,118  36,727 -  571,491
1 April 2012 31 March 2017  164.09  406,705  31,360  5,957 -  369,388
1 October 2012 30 September 2017  166.91  244,609  20,731 - -  223,878
1 April 2013 31 March 2018  189.13 -  2,500 -  184,633  182,133
1 October 2013 30 September 2018  170.31 - - -  909,444  909,444
 1,755,185  131,666  369,517  1,094,077  2,348,079
December 2014 December 2013
000s 000s
Movement in the Year  3,979  3,979
Reconciliation of options
Opening balance of share options  2,348  1,755
New share options offered to employees  814  1,094
Share options sold by employees  (29)  (369)
Share options repurchased from/forfeited by employees and options lapsed/forfeited  (123)  (132)
Closing balance of share options  3,010  2,348
Number of options exercisable  428  146
In December 2014, the weighted average share price at the date of exercise for share options exercised during the year was R132.68 The options outstanding at the end of the year had a weighted average remaining contractual life of 3.27 years. Options were granted on 1 April 2014 and 1 October 2014. The estimated fair values of the options granted on these dates were R23.45 and R19.48.
In December 2013, the weighted average share price at the date of exercise for share options exercised during the year was R179.30. The options outstanding at the end of the year had a weighted average remaining contractual life of 3.8 years. Options were granted on 1 April 2013 and 1 October 2013. The estimated fair values of the options granted on this date were R37.21 and R37.03.
Fair Value of Employee Share Options granted during the year
These fair values were calculated using the binomial model. The inputs into the model were as follows: December 2014 December 2013
Weighted average share price (Rand) at granting dates  127.8  175.9
Expected volatility 22.57% – 23.13% 19.66% – 28.03%
Expected life 3 – 5 years 3 – 5 years
Risk-free rate 7.1% – 7.8% 5.5% – 7.0%
Expected dividend yield 2.5% – 2.7% 2.3% – 2.4%
Expected volatility was determined by calculating the historical volatility of the Company’s share price over the number of previous years corresponding with the option lifetime. The expected life used in the model has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Expense Charged to Profit or Loss
The expense recognised for employee services received during the year on equity-settled share-based payment transactions is shown in the following table:
Rm December 2014 December 2013
Expense arising from Employee Share Option Scheme  52.5  105.7
Expense arising from Employee Share Awards Scheme  54.2  3.3
Expense arising from Black Scarce Skills Trust  21.2  17.3
Total expense arising from equity-settled share-based payment transactions  127.9  126.3