Note 5

Share Capital - Employee Plans

Details of the Directors’ and Specified Executives’ remuneration, interests in long term incentive plans, shares, options and loans are included in the Remuneration section of the Directors’ Report.

Employee Share Plans

The Bank has in place the following employee share plans:

The ESAP and ERP were each approved by Shareholders at the Annual General Meeting (‘AGM’) on 26 October 2000. Shareholders’ consent was not required for either the EPP or NEDSP but details were included in the Explanatory Memorandum to the meeting to ensure Shareholders were fully informed.

Employee Share Acquisition Plan

The ESAP was introduced in 1996 and provides employees with up to $1,000 worth of free shares per annum subject to a performance target being met. The performance target is growth in annual profit of the greater of 5% or the consumer price index (CPI change) plus 2%. Whenever annual profit growth exceeds CPI change, the Board may use its discretion in determining whether any grant of shares will be made.

Under ESAP, shares granted are restricted for sale for three years or until such time as the participating employee ceases employment with the Group, whichever is earlier. Shares granted under the ESAP receive full dividend entitlements, voting rights and there are no forfeiture or vesting conditions attached to the shares granted.

Effective from 1 July 2002, shares granted under ESAP offers have been expensed through the profit and loss. In the current year, 699,918 shares were granted to eligible employees in respect of the 2004 grant.

The Bank has determined to allocate each eligible employee shares up to a value of $1,000 in respect of the 2005 grant. As a result, an amount of $27 million has been accrued in respect of the year ended 30 June 2005. The shares will be purchased on-market at the then market price.

From 1 July 2000 to 30 June 2002, details of issues under ESAP were:

Issue Date	Bonus Ordinary Shares Issued1	No. of Participants	Shares issued to Each Participant	Issue Price2
13 October 2000	872,620	24,932	35	$27.78
20 December 2000	805	23	35	$27.78
31 October 2001	893,554	26,281	34	$28.95
3 December 2001	3,876	114	34	$28.95
31 January 2002	1,938	57	34	$28.95

 

From 1 July 2002, details of shares purchased under ESAP were:

 

Purchase Date	Ordinary Shares Purchased	No. of Participants	Shares Allocated to Each Participant	Allocation Price3
31 October 2002	830,874	25,178	33	$29.71
22 January 2003	1,584	48	33	$29.71
31 October 2003	683,617	23,573	29	$27.53
29 October 2004	699,918	22,578	31	$31.52

Equity Participation Plan

The EPP facilitates the voluntary sacrifice of both fixed remuneration and annual short term incentives (STI) to be applied in the acquisition of shares. The plan previously also facilitated the mandatory sacrifice of 50% of STI payments for some employees. However the mandatory component of EPP ceased for the year ending 30 June 2005 and was replaced with a separate cash STI deferral arrangement for eligible employees. Shares previously granted under the mandatory component of the EPP remain subject to their vesting conditions.

All shares acquired by employees under this plan are purchased on-market at the current market price. A total number of 7,952,277 shares have been acquired under the EPP since the plan commenced in 2001.

Details of purchases under the EPP from 1 July 2004 to 30 June 2005 were as follows:

Allotment Date	Participants	Shares Purchased	Average Purchase Price
24 September 2004	1,449	1,858,984	$29.85
30 September 2004	756	259,890	$30.05
30 December 2004	80	12,274	$32.11
22 April 2005	57	8,704	$35.97

Under the voluntary component of the EPP, shares purchased are restricted for sale for two years or when a participating employee ceases employment with the Bank, whichever is earlier. Shares purchased under the voluntary component of the EPP carry full dividend entitlements, voting rights and there are no forfeiture or vesting conditions attached to the shares.

Under the mandatory component of the EPP, fully paid ordinary shares were purchased and held in trust until such time as the vesting conditions were met. The vesting condition attached to the shares specifies that participants must remain employees of the Bank until the vesting date (generally a period of one and two years after the STI award period).

Each participant of the mandatory component of the EPP for whom shares are held by the Trustee on their behalf has a right to receive dividends. Once the shares vest, dividends which have accrued during the vesting period are paid to participants. The participant may also direct the Trustee on how the voting rights attached to the shares are to be exercised during the vesting period.

Where participating employees do not satisfy the vesting conditions, shares and dividend rights are forfeited.

The movement in shares purchased under the mandatory component of the EPP has been as follows:

Details of Movements	July 2004 - June 2005	July 2003 - June 2004
Shares held under the Plan at the beginning of the year	2,790,353	2,497,184
Shares allocated during year	2,067,281	2,121,075
Shares vested during year	(2,016,790)	(1,715,807)
Shares forfeited during year	(224,073)	(112,099)
Shares held under the Plan at end of the year	2,616,771	2,790,353

Shares acquired under both the voluntary and mandatory components of the EPP have been expensed through the profit and loss. In the current year, $2.5 million was expensed through the profit and loss to reflect the cost of allocations under the plan. The expense through the profit and loss for the current year is lower than previous years due to the discontinuation of the mandatory component of the EPP.

Equity Reward Plan

The Board has envisaged that up to a maximum of 500 employees would participate each year in the ERP.

Previous grants under the ERP were in two parts, comprising grants of options and grants of shares. Since 2001/2002, no options have been issued under the ERP. From 2002/2003, Reward Shares only have been issued under this plan.

The exercise of previously granted options and the vesting of employee legal title to the shares is conditional on the Bank achieving a prescribed performance hurdle. The ERP performance hurdle is based on relative Total Shareholder Return (‘TSR’) with the Bank’s TSR performance being measured against a comparator group of companies.

The prescribed performance hurdle for options and Reward Shares issued prior to 2002/2003 which has now been met was:

• The Bank’s TSR (broadly, growth in share price plus dividends reinvested) over a minimum three year period, must equal or exceed the index of TSR achieved by the comparator group of companies. The comparator group (previously companies represented in the ASX ‘Banks and Finance Accumulation Index’ excluding the Bank) was widened in 2001/2002 to better reflect the Bank’s business mix; and
• If the performance hurdle is not reached within that three years the options may nevertheless be exercisable or the shares vest, only where the hurdle is subsequently reached within five years from the grant date.

For Reward Shares granted from 2002/2003 onwards, a tiered vesting scale was introduced so that 50% of the allocated shares vest if the Bank’s TSR is equal to the 50th percentile return, 75% vest at the 67^th percentile and 100% when the Bank’s return is in the top quartile.

Where the rating is at least at the 50^th percentile on the third anniversary of the grant, the shares will vest at a time nominated by the executive, within half yearly windows, over the next two years. The vesting percentage will be the higher of the rating determined at the third year anniversary of the grant and the rating determined at the half yearly measurement point at which the executive nominates that the shares will vest.

Where the rating is below the 50^th percentile on the third anniversary of grant, the shares can still vest if the rating reaches the 50^th percentile at one of the half yearly measurements points prior to the fifth anniversary, but the maximum vesting will be 50%.

Reward Shares acquired under the share component of the ERP are purchased on-market at the current market price. The cost of shares acquired is expensed through the profit and loss over a three year period, reflecting the minimum vesting period. In the current year, $12 million has been expensed through the profit and loss.

Executive options issued up to September 2001 have not been recorded as an expense by the Group.

Details of options issued and shares acquired under ERP as well as movements in the options and shares are as follows:

Options

Year of Grant	Commencement Date	Issue Date	Options Issued	Options Outstanding1	Participants	Exercise Price	Exercise Period
2000	13 September 2000	7 February 01	577,500	247,500	16	$26.972	14 September 2003 to 13 September 20103
	13 September 2000	31 October 01	12,500	—	1	$26.972	14 September 2003 to 13 September 20103
2001	3 September 2001	31 October 01	2,882,000	1,689,100	61	$30.122	4 September 2004 to 3 September 20114
	3 September 2001	31 January 02	12,500	12,500	1	$30.122	4 September 2004 to 3 September 20114
	3 September 2001	15 April 02	100,000	100,000	1	$30.122	4 September 2004 to 3 September 20114

Options – Details of Movements

	July 2003 - June 2004		July 2004 - June 2005
Year of Grant	2000	2001	2000	2001
Total options:
Held by participants at the start of year	427,500	2,336,400	402,500	2,235,200
Granted during year	—	—	—	—
Exercised during year	—	—	155,000	403,900
Lapsed during year	—	101,200	—	29,700
Outstanding at the end of year	427,500	2,235,200	247,500	1,801,600
Granted from 30 June to date of report	—	—	—	—
Exercised from 30 June to date of report	25,000	—	—	50,000
Lapsed from 30 June to date of report	—	—	—	—
Outstanding as at the date of report	402,500	2,235,200	247,500	1,751,600

 

Reward Shares

Year of Grant	Purchase Date	Shares Purchased	Shares Allocated	Participants	Vesting Period	Average Purchase Price
2000	20 Feb 2001	361,100	361,100	61	14 Sept 2003 to 13 Sept 20055	$29.72
	31 Oct 2001	2,000	2,000	1	14 Sept 2003 to 13 Sept 20055	$29.25
2001	31 Oct 2001	652,100	661,5001	241	4 Sept 2004 to 3 Sept 20066	$29.25
2002	22 Nov 2002	357,500	545,5002	195	3 Sept 2005 to 2 Sept 20077	$28.26
2003	12 Nov 2003	285,531	595,6003	255	2 Sept 2006 to 1 Sept 20087	$28.33
2004	11 Nov 2004	225,934	522,2904	259	23 Aug 2007 to 23 Aug 20097	$29.87

Reward Shares — Details of Movements

	July 2003 - June 2004				July 2004 - June 2005
Year of Grant	2000	2001	2002	2003	2001	2002	2003	2004
Total reward shares:
Held by participants at the start of year	217,100	518,500	515,300	—	437,000	445,825	557,500	—
Granted during year	—	—	—	597,100	—	—	—	597,975
Vested during year	195,700	—	—	—	423,500	—	—	—
Lapsed during year	21,400	59,000	43,225	10,725	13,500	68,975	94,650	53,075
Outstanding at the end of year	—	459,500	472,075	586,375	—	376,850	462,850	544,900
Granted from 30 June to date of report	—	—	—	—	—	—	—	—
Vested from 30 June to date of report	—	—	—	—	—	—	—	—
Lapsed from 30 June to date of report	—	22,500	26,250	28,875	—	11,400	8,950	8,750
Outstanding as at the date of report	—	437,000	445,825	557,500	—	365,450	453,900	536,150

During the vesting period, Reward Shares are held in trust. Each participant on behalf of whom Reward Shares are held by the Trustee has a right to receive dividends. Once the shares vest dividends are paid in relation to those accrued during the vesting period. The participant may also direct the Trustee on how the voting rights attached to the shares are to be exercised during the vesting period.

For a limited number of executives including overseas based staff and those approved by the Chief Executive Officer and ratified by the Board, a cash based ‘share replicator’ ERP scheme is operated by way of grants of performance units. The performance unit grants are subject to the same vesting conditions as the Reward Share component of the ERP. On meeting the vesting condition, a cash payment is made to executives whereby the value is determined based on the current share price on vesting plus an accrued dividend value. An amount of $3.1 million has been expensed through the profit and loss in respect of the year ended 30 June 2005 to reflect future payments which may be required under the ‘share replicator’ plan.

Executive Option Plan

As previously notified to Shareholders, this plan was discontinued in 2000/2001.

Under the EOP, the Bank granted options to purchase ordinary shares to those key executives who, being able by virtue of their responsibility, experience and skill to influence the generation of Shareholder wealth, were declared by the Board of Directors to be eligible to participate in the plan. Non-Executive Directors were not eligible to participate in the plan.

Options cannot be exercised before each respective exercise period and the ability to exercise is conditional on the Bank achieving a prescribed performance hurdle. The option plan did not grant rights to the optionholders to participate in a share issue of any other body corporate.

The performance hurdle is the same TSR comparator hurdle as outlined above for the ERP grants prior to 2002/2003.

The last grant under EOP was made in September 2000. The performance hurdles for the August 1999 grant and the September 2000 grant were met in 2004.

Details of issues made under EOP as well as movements for 2003/2004 and 2004/2005 are as follows:

EOP

Commencement Date	Issue Date	Options Issued	Options Outstanding	Participants	Exercise Price1	Exercise Period
3 Nov 1997	11 Dec 1997	2,875,000	—	27	$15.532	4 Nov 00 to 3 Nov 02
25 Aug 1998	30 Sep 1998	3,275,000	—	32	$19.582	26 Aug 01 to 25 Aug 03
24 Aug 1999	24 Sep 1999	3,855,000	450,000	38	$23.842	25 Aug 02 to 24 Aug 093
13 Sep 2000	13 Oct 2000	2,002,500	637,300	50	$26.972	14 Sep 03 to 13 Sep 104

Details of Movements

	1 July 2003 to 30 June 20041			1 July 2004 to 30 June 20051
Year of Grant	1998	1999	2000	1999	2000
Total options:
Held by participants at the start of year	312,500	3,221,000	1,336,200	1,875,000	1,144,600
Exercised during year	312,500	1,271,000	129,100	1,425,000	507,300
Lapsed during year	—	25,000	12,500	—	—
Outstanding at the end of year	—	1,925,000	1,194,600	450,000	637,300
Exercised from 30 June to date of report	—	50,000	50,000	—	75,400
Lapsed from 30 June to date of report	—	—	—	—	—
Outstanding as at the date of report	—	1,875,000	1,144,600	450,000	561,900

Summary of shares issued during the period 1 July 2004 to the date of the report as a result of options being exercised are:

Option Issue Date	Shares Issued	Price Paid per Share	Total Consideration Paid
24 Sept 1999	1,475,000	$23.84	$35,164,000
13 Oct 2000	632,700	$26.97	$17,063,919
7 Feb 2001	180,000	$26.97	$4,854,600
3 Sept 2001	453,900	$30.12	$13,671,468

No amount is unpaid in respect of the shares issued upon exercise of the options during the above period.

Under the Bank’s EOP and ERP an optionholder generally has no right to participate in any new issue of securities of the Bank or of a related body corporate as a result of holding the option except that if there is a pro rata issue of shares to the Bank’s Shareholders by way of bonus issue involving capitalisation (other than in place of dividends or by way of dividend reinvestment) an optionholder is entitled to receive additional shares upon exercise of the options being the number of bonus shares that the optionholder would have received if the options had been exercised and shares issued prior to the bonus issue.

Non-Executive Directors Share Plan

The NEDSP provides for the acquisition of shares by Non-Executive Directors through the mandatory sacrifice of 20% of their annual fees. Shares purchased are restricted for sale for 10 years or when the Director leaves the Board, whichever is earlier. In addition, Non-Executive Directors can voluntarily elect to sacrifice up to a further 50% of their annual fees for the acquisition of shares.

Shares acquired under the Plan receive full dividend entitlements and voting rights. There are no forfeiture or vesting conditions attached to shares granted under the NEDSP.

Shares are purchased on-market at the current market price and a total of 41,943 shares have been purchased under the NEDSP since the plan commenced in 2001. Since March 2005, shares are now acquired under the plan on a six monthly basis.

Details of grants under the NEDSP from 1 July 2004 to 30 June 2005 were as follows:

Period Ending	Total Fees Sacrificed	Participants	Shares Purchased	Average Purchase Price
30 September 2004	$74,406	11	2,475	$30.05
31 December 2004	$76,218	9	2,373	$32.11
31 March 2005	$110,958	9	3,086	$35.97

The trading restrictions on shares were lifted for two Non-Executive Directors as they ceased to be Non-Executive Directors during the period 1 July 2004 to the date of this report.

For the current year, $262,000 was expensed through the profit and loss reflecting shares purchased and allocated under the NEDSP.