Under the FSP, awards of performance shares are granted to executive directors and selected employees of the Group. The vesting of these shares is subject to continued employment, and is conditional upon achievement of performance targets, measured over a three-year period, for directors, senior management and other selected employees.

The fair value of the share awards on grant date were measured using the quoted market price of a Vodacom Group Limited share without adjusting for expected dividends and non-market performance conditions. Market conditions are adjusted for.

Executives who have a conditional benefit in terms of their previous service contract have the option to convert a portion or all of their benefit to restricted shares for the purpose of meeting the shareholding guidelines. These shares are subject to the same conditions as those of the underlying conditional benefit.

The fair value of the share awards on grant date were measured using the quoted market price of a Vodacom Group Limited share without adjusting for expected dividends and performance conditions.

Under this plan, awards of shares are granted to executive directors and prescribed officers and certain executive management of the Group. During the current year 1 000 411 (2016: 669 842) shares were granted to Group employees, assignees and co-investment participants and 339 889 of the shares issued in prior years, vested. The vesting of these shares is subject to continued employment, and, for some awards, is conditional upon achievement of performance targets, measured over a three-year period. A charge is recognised based on the fair value of the award on the grant date.

Employees participated in the transaction by being allocated units in the Trust based on a varying percentage of their guaranteed total cost of employment per annum taking into account their employment level and racial and gender classification.

As at 31 March 2017, all units were allocated and are 100.0% vested. The total forfeited units available as at 31 August 2015 (18.96%) were allocated effective 14 March 2016 with a grant date of 14 March 2016 to employees in proportion to the number of units held on this date.

The cash-settled share-based payment liability as at 31 March 2017 is R118 million (2016: R103 million) and the equity-settled share based payment reserve as at 31 March 2017 is R386 million (2016: R389 million).

All share rights vested in the prior financial year

No share rights are currently exercisable through the notional funding mechanism. Since the funded portion of the fair value is repaid through notional dividends on the ‘A’ ordinary shares issued, the exercise price at the date the share rights become exercisable can vary depending to what extent the notional amounts outstanding have been recouped.

The Strategic Partners will not be able to trade their shares during the first seven years of the 10-year lock-in period. After the seventh anniversary and until the expiry of the lock-in period, the Strategic Partners will be entitled to trade their shares subject to Vodacom SA having a first pre-emptive right to repurchase, and other Strategic Partners, if introduced with Vodacom SA’s approval, having a second ranking pre-emptive right to purchase the shares. If none of the parties exercise their right, the Strategic Partners will be entitled to sell their shares to any other party with a similar or higher BBBEE rating than themselves, subject to Vodacom SA approval. After the expiry of the 10 year lock-in period the Strategic Partners will be entitled to freely trade their shares. The equity-settled share-based payment reserve remained unchanged.

The BBBEE participants receive a notional dividend on the ‘A’ ordinary shares, which is used as a notional payment against the notional loan. If the notional loan has not been fully repaid by the notional dividends, Vodacom SA has the right to repurchase a variable number of shares from the BBBEE participants at par value. The variable number of shares will be calculated based on a specified formula which takes into account the outstanding balance of the notional loan and the underlying value of the shares held in Vodacom SA. This repurchase feature is a mechanism to redeem any outstanding notional loan balances and therefore results in an in-substance option in terms of IFRS 2, to issue a variable number of shares to the BBBEE participants in the future. Since there is no obligation on Vodacom SA to repurchase any shares, it does not render the share-based payment to be cash-settled, nor does it impact the vesting rights.

The notional funding closing balance for employees amounted to R1 559 million (2016: R1 620 million), for Black Public and Business Partners R1 284 million (2016: R1 385 million) and for Strategic Partners R1 926 million (2016: R2 077 million).

To compensate current employees and employees previously employed (collectively employees) for the reduced liquidity as a result of the extension of the notional loan maturity date to 30 September 2018, the Group provided employees with the option to subscribe for an interest-free loan, repayable 1 March 2019.

The funding does not give rise to a legal obligation but only facilitates a share repurchase mechanism.

The employees pledge the interest held in units as security for the interest-free loan. The value of the interest-free loan available to the employees is 50.0% of the amount which the Group determined as a bona fide estimate of what the after tax value of the borrower’s participation rights are in relation to the underlying value of the units in the Trust, adjusted on an annual basis. If an employee elects to receive the funding, the Group will pay the employee the fringe benefit tax that is levied on the employee arising from the interest-free loans. The same will apply if the Group decides to waive the loan. The provision of interest-free loans resulted in a change in classification of a portion of the awards to employees from an equity settled to a cash-settled share-based payment (i.e. a compound instrument with a liability for the loan component and a residual equity element). The employees could elect funding in the month of March 2016 with R39.9 million (2016: R27 million) paid out in loans to employees.

The ability of the Innovator Trust to purchase YeboYethu shares provides the Group with a choice of settlement to the BBBEE shareholders, for up to 34.0% of the YeboYethu shares. The Group can either settle the award in YeboYethu shares or repurchase the equity instruments and thereby settle the transaction in cash. With the first purchase of YeboYethu shares by the Innovator Trust in the prior year, the Group created a past practice of settling the awards in cash and recognised its present obligation to settle in cash as a deduction from equity.

The cash-settled share-based payment liability as at 31 March 2017 is R296 million (2016: R234 million).

BBBEE credentials are not separable and cannot be valued other than by reference to the fair value of the equity instruments granted. The share-based payment expense was calculated using the Monte-Carlo option pricing model, which is reflective of the underlying characteristics of the BBBEE transaction. The final grant took place in the 2016 financial year, and the following assumptions were used at the time to determine the fair value of the final grant.

Cash-settled share based payment transaction

The transaction represents an in-substance option for the BBBEE shareholders to acquire a variable number of shares in the future. The option falls into the scope of IFRS 2 as the BBBEE shareholders receive shares in Stortech at a discount to fair value in exchange for BEE credentials. The scheme is an equity-settled share-based payment arrangement. The IFRS 2 charge and related equity-settled share-based payment reserve recognised at grant date amounted to R32 million and was recognised as an expense immediately on grant date. An option pricing model has been used to value the option on grant date. There are no subsequent measurement considerations as this is an equity-settled scheme. The option pricing model used the following assumptions: