Share Based Compensation | 24. Share based compensation (a) Share-based compensation plans of the Company The Group has adopted three share-based compensation plans, namely, the 2014 Share Incentive Plan, the 2017 Restricted Share Scheme and the 2017 Option Plan. (i) 2014 Share Incentive Plan 2014 Share Incentive Plan was approved by the then board of directors of the Company in October 2014 prior to the Merger. According to the 2014 Share Incentive Plan, 96,704,847 ordinary shares have been reserved to be issued to any qualified employees, directors, non-employee directors, and consultants as determined by the board of directors of the Company. The options will be exercisable only if option holder continues employment or provides services through each vesting date. The maximum term of any issued stock option is ten years from the grant date. Some granted options follow the first category vesting schedule, one-fourth (1/4) of which shall vest and become exercisable upon the first anniversary of the date of grant and one-eighth (1/8) of which shall vest and become exercisable on each half of a year anniversary thereafter. Some granted options follow the second category vesting schedule, one-fourth (1/4) of which shall vest upon the first anniversary of the grant date and one-sixteenth (1/16) of which shall vest on each three months thereafter. Under the second category vesting schedule, in the event of the Company’s completion of an IPO or termination of the option holder’s employment agreement by the Company without cause, the vesting schedule shall be accelerated by a one-year period (which means that the whole vesting schedule shall be shortened from four years to three years). For the third category vesting schedule, all options shall vest upon the first anniversary of the grant date, and in the event of the Company’s completion of an IPO. The option holders may elect at any time to exercise any part or all of the vested options before the expiry date. Number of Weighted- Weighted- options (US$) (US$) Outstanding as at January 1, 2020 13,897,304 0.23 1.92 Exercised ( 7,866,422 ) 0.23 1.91 Forfeited ( 46,982 ) 0.27 1.91 Outstanding as at December 31, 2020 5,983,900 0.23 1.93 Vested and expected to vest as at December 31, 2020 5,983,900 0.23 1.93 Exercisable as at December 31, 2020 5,983,900 0.23 1.93 Non vested as at December 31, 2020 - - - Outstanding as at January 1, 2021 5,983,900 0.23 1.93 Exercised ( 2,992,122 ) 0.24 1.92 Outstanding as at December 31, 2021 2,991,778 0.22 1.94 Vested and expected to vest as at December 31, 2021 2,991,778 0.22 1.94 Exercisable as at December 31, 2021 2,991,778 0.22 1.94 Non vested as at December 31, 2021 - - - Outstanding as at January 1, 2022 2,991,778 0.22 1.94 Exercised ( 1,579,006 ) 0.23 1.94 Outstanding as at December 31, 2022 1,412,772 0.22 1.93 Vested and expected to vest as at December 31, 2022 1,412,772 0.22 1.93 Exercisable as at December 31, 2022 1,412,772 0.22 1.93 Non vested as at December 31, 2022 - - - The weighted average price of the shares at the time these options were exercised was US$ 6.76 per share (equivalent to approximately RMB 43.08 ), US$ 9.90 per share (equivalent to approximately RMB 63.07 ) and US$ 2.85 per share (equivalent to approximately RMB 19.63 ) during the years ended December 31, 2020, 2021 and 2022. Share options outstanding at the end of the year have the following expiry date and exercise prices: Expiry date Exercise price December 31, 2021 December 31, 2022 10 years commencing from the date of grant of options US$ 0.000076 485,544 256,210 US$ 0.27 2,506,234 1,156,562 Total 2,991,778 1,412,772 Weighted average remaining contractual life of options 3.97 2.91 (ii) 2017 Restricted Share Scheme and 2017 Option Plan Followed the completion of the Merger, the Company has reserved certain ordinary shares to be issued to any qualified employees of Tencent Music Business transferred to the Group. Pursuant to the RSUs agreements under the 2017 Restricted Share Scheme, subject to grantee’s continued services to the Group through the applicable vesting date, some RSUs follow the first category of vesting schedule, one-fourth (1/4) of which shall vest eighteen months after grant date, and one-fourth (1/4) every year after. Some granted RSUs shall follow the second vesting schedule, half (1/2) shall vest six months after grant date, and the other half shall vest six months thereafter. Other granted RSUs shall follow the third vesting schedule, which were divided into range of half, one to third and one to fourth tranches on an equal basis as at their grant dates, and the tranches will become exercisable in each subsequent year. Movements in the number of RSUs for the years ended December 31, 2020, 2021 and 2022 are as follows: Number of awarded shares Year ended December 31, 2020 2021 2022 Outstanding as at January 1 26,659,516 41,011,362 43,728,098 Granted 24,156,236 19,136,384 35,601,446 Vested ( 7,732,794 ) ( 13,096,270 ) ( 14,787,382 ) Forfeited ( 2,071,596 ) ( 3,323,378 ) ( 5,078,812 ) Outstanding as at December 31 41,011,362 43,728,098 59,463,350 Expected to vest as at December 31 37,672,420 39,425,569 53,009,743 The fair value of the restricted shares was calculated based on the fair value of ordinary shares of the Company. The weighted average fair value of restricted shares granted during the years ended December 31, 2020, 2021 and 2022 was US$ 6.68 per share (equivalent to approximately RMB 42.57 per share), US$ 5.82 per share (equivalent to approximately RMB 37.06 per share) and US$ 2.15 per share (equivalent to approximately RMB 14.83 per share), respectively. Share options granted are generally subject to a four-batch vesting schedule as determined by the board of directors upon the grant. One-fourth (1/4) of which shall vest nine months or eighteen months after grant date, respectively, as provided in the grant agreement, and one-fourth (1/4) of which vest upon every year thereafter. Number of Weighted- Weighted- Outstanding as at January 1, 2020 26,640,508 3.43 2.39 Granted 4,992,390 6.44 2.70 Exercised ( 10,026,018 ) 2.64 1.92 Forfeited ( 455,694 ) 6.27 3.01 Outstanding as at December 31, 2020 21,151,186 4.45 2.68 Vested and expected to vest as at December 31, 2020 20,097,190 4.44 2.68 Exercisable as at December 31, 2020 4,762,058 3.05 2.74 Non vested as at December 31, 2020 16,389,128 4.86 2.66 Outstanding as at January 1, 2021 21,151,186 4.45 2.68 Granted 8,543,982 5.54 2.81 Exercised ( 4,360,740 ) 1.92 2.26 Forfeited ( 541,488 ) 5.70 2.90 Outstanding as at December 31, 2021 24,792,940 5.24 2.79 Vested and expected to vest as at December 31, 2021 23,552,634 5.21 2.79 Exercisable as at December 31, 2021 9,580,612 4.00 2.64 Non vested as at December 31, 2021 15,212,328 6.03 2.88 Outstanding as at January 1, 2022 24,792,940 5.24 2.79 Granted 24,957,454 2.05 1.02 Exercised ( 566,612 ) 0.68 2.67 Forfeited ( 1,079,240 ) 4.78 2.25 Outstanding as at December 31, 2022 48,104,542 3.65 1.89 Vested and expected to vest as at December 31, 2022 45,601,007 3.68 1.91 Exercisable as at December 31, 2022 14,272,122 4.93 2.75 Non vested as at December 31, 2022 33,832,420 3.11 1.52 The weighted average price of the shares at the time these options were exercised was US$ 7.66 per share (equivalent to approximately RMB 48.81 ), US$ 9.52 per share (equivalent to approximately RMB 60.68 ) and US$ 3.13 per share (equivalent to approximately RMB 21.59 ) during the years ended December 31, 2020, 2021 and 2022, respectively. The fair value of share options were valued using the Binomial option-pricing model. Assumptions used in the Binomial option-pricing model are presented below: Year ended December 31, 2020 2021 2022 Risk free interest rate 0.71 %- 0.91 % 1.22 %- 1.63 % 2.15 %- 2.92 % Expected dividend yield 0 % 0 % 0 % Expected volatility 40 %- 42.5 % 43.5 %- 50 % 55 %- 60 % Exercise multiples 2.2 - 2.8 2.2 - 2.8 2.2 - 2.8 Contractual life 10 years 10 years 10 years Share options outstanding at the end of the year have the following expiry date and exercise prices: Expiry date Exercise price December 31, December 31, 2021 2022 10 years commencing from the date of grant of options US$ 0.27 1,271,442 818,024 US$ 1.93 - 15,952,792 US$ 2.24 ~US$ 2.32 4,270,392 12,871,384 US$ 3.32 307,792 307,792 US$ 4.04 ~ US$ 4.24 579,952 579,952 US$ 5.29 6,327,742 5,803,160 US$ 6.20 ~ US$ 6.37 4,241,962 4,015,280 US$ 7.05 ~ US$ 7.61 7,624,578 7,587,078 US$ 9.53 169,080 169,080 Total 24,792,940 48,104,542 Weighted average remaining contractual life of options outstanding at end of year: 7.84 8.12 (b) Share-based compensation plans of Tencent Tencent operates a number of share-based compensation plans (including share option scheme and share award scheme) and granted certain share options and shares awards to the employees of the Group prior to the Merger in July 2016 or any employees of Tencent Group transferred to the Group. No new grant to the employees of the Group by Tencent occurred during the years ended December 31, 2020, 2021 and 2022. As at December 31, 2022, there was no share options exercisable or RSUs under share-based compensation plans of Tencent. (c) Expected retention rate of grantees The Group has to estimate the expected yearly percentage of grantees that will stay within the Group at the end of the vesting periods of the options and awarded shares (the “Expected Retention Rate”) in order to determine the amount of share-based compensation expenses charged to the consolidated income statement. As at December 31, 2021 and 2022, the Expected Retention Rate of the Group was assessed to be 87 %- 95 %. |