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Share-Based Compensation

12 Months Ended

Dec. 31, 2023

Share-Based Compensation

Share-Based Compensation

18.Share-Based Compensation

A summary of share-based compensation expense recognized related to share options granted, RSUs granted, and ordinary shares transfers is as follows:


		Year ended December 31,
		2021		2022		2023
		RMB		RMB		RMB
Sales and marketing expenses		10,853		16,120		35,352
General and administrative expenses		190,252		80,448		85,335
Research and development expenses		25,056		15,458		13,182
		226,161		112,026		133,869

As of December 31, 2023, unrecognized compensation cost related to unvested RSUs granted, share option awards granted to employees of the Group was RMB166,855. As of December 31, 2023, such cost was expected to be recognized over a weighted average period of 2.3 years.

Share Option granted by the Company

In 2019, the Group adopted the 2018 share incentive plan (the “2018 Plan”), which permits the grant of three types of awards: options, restricted shares, and restricted share units. Persons eligible to participate in the 2018 Plan includes employees (including members of management) of the Group or any of its affiliates, which include the Group’s parent company, subsidiaries and the Group. Upon the adoption of the 2018 Plan, the maximum ordinary shares available for issuance were 62,504,000. According to the resolutions of the board of director in 2019, the Group reserved additional 321,655,746 ordinary shares for the 2018 Plan, and the maximum ordinary shares available for issuance were increased to 384,159,746.

During the year ended December 31, 2022, the Group granted 800,000 options under the 2018 Plan with a weighted average exercise prices of US$ 0.08 (RMB0.54). During the year ended December 31, 2023, the Group granted 281,250 options under the 2018 Plan with a weighted average exercise prices of US$ 0.08 (RMB0.57). The term of the option is fixed and does not exceed 10 years from the date of the grant. The options will vest in accordance with the vesting schedules set out in the respective share option agreements with vesting period ranging from 1 to 4 years.

In 2021, the Group adopted the 2021 share incentive plan (the “2021 Plan”), the maximum aggregate number of shares which may be issued pursuant to all awards under the 2021 Plan shall initially be 80,508,501 shares, plus an annual increase on the first day of each year during the ten-year term of the 2021 Plan commencing with the year beginning January 1, 2022, by an amount equal to the lesser of (i) 2% of the total number of shares issued and outstanding on an as-converted fully diluted basis on the last day of the immediately preceding year and (ii) such number of shares as may be determined by the board. The annual increase shall cease to occur upon expiry of the ten-year term of the 2021 Plan. There are no options granted under the 2021 Plan as of December 31, 2023.

The vesting of the share options granted during the years ended December 31, 2022 and 2023 are only subject to service condition.

18.	Share-Based Compensation (continued)

Share Option granted by the Company (continued)

The following table sets forth the share options activities under the 2018 Plan for the years ended December 31, 2022 and 2023:


						Weighted		Weighted
				Weighted		Average		Average
				Average		remaining		Grant-		Aggregate
		Number of		Exercise		contractual		date Fair		Intrinsic
		Options		Price		life		Value		Value
				RMB		RMB		RMB		RMB
Outstanding as of December 31, 2021		247,008,342		0.29		7.94		2.10		543,248
Granted		800,000		0.54		—		0.70		—
Exercised		(27,750,770)		0.39		—		1.20		—
Forfeited		(30,645,015)		0.31		—		3.52		—
Outstanding as of December 31, 2022		189,412,557		0.28		6.95		2.14		452,543
Granted		281,250		0.57		—		0.57		—
Exercised		(72,294,940)		0.14		—		1.52		—
Forfeited		(11,127,905)		0.46		—		4.11		—
Outstanding as of December 31, 2023		106,270,962		0.36		6.19		2.56		276,835
Exercisable as of December 31, 2023		82,741,404		0.33		5.92		2.03		172,009

The total intrinsic value of options exercised during the years ended December 31, 2022 and 2023 was RMB20,428 and RMB112,499, respectively.

The Group calculated the estimated fair value of the share options on the respective grant dates using the binomial option pricing model with the assistance from an independent valuation firm, with the following assumptions.


		Year Ended			Year Ended
		December 31			December 31
		2022			2023
Risk free rate of interest			2.79%‑2.85	%		2.55%‑2.94	%
Volatility			27	%		28	%
Dividend yield			—			—
Exercise multiples			2.2			2.2
Life of options (years)			10			10
Fair value of underlying ordinary shares		$	0.13~$0.31		$	0.11~$0.29

(1)	Risk free rate of interest

Based on the daily treasury long term rate of U.S. Department of the treasury with a maturity period close to the expected term of the option.

(2)	Volatility

The volatility factor estimated was based on the annualized standard deviation of the daily return embedded in historical share prices of the selected guideline companies with a time horizon close to the expected expiry of the term.

(3)	Dividend yield

The Company has never declared or paid any cash dividends on the Company’s ordinary shares, and does not anticipate any dividend payments on the Company’s ordinary shares in the foreseeable future.

18.	Share-Based Compensation (continued)

Share Option granted by the Company (continued)

(4)	Exercise multiples

The expected exercise multiple was estimated as the average ratio of the stock price as at the time when employees would decide to voluntarily exercise their vested options. As the Group did not have sufficient information of past employee exercise history, it was estimated by referencing to academic research publications. For key management grantee and non-key management grantee, the exercise multiple was estimated to be 2.8 and 2.2 respectively.

(5)	Fair value of underlying ordinary shares

The estimated fair value of the ordinary shares underlying the options as of the respective grant dates was determined based on market value of the Company’s shares on each date of grant.

There was repurchase feature which has expired upon the initial public offering in May 2021, and no repurchase occurred since then. For the repurchase feature before the initial public offering, upon the termination of the grantee’s continuous services during the vesting period, the Company has a right (but not the obligation) to repurchase the vested award at a price no more than the fair value of the awards which is to be determined by the board of directors of the Company. The Company reclassified vested awards held by employees as liability in the consolidated balance sheets upon the termination of the employees’ service as the repurchase price is below fair value. Such liability classified awards are remeasured at fair value subsequently at each reporting date, with the changes in fair value recorded as compensation expenses. During the years ended December 31, 2021, RMB42,154 related share based compensation expenses were recognized. The repurchase feature expired upon the initial public offering in May 2021, thus the awards were reclassified from liability to equity, an RMB68,567 corresponding increase in additional paid-in capital upon the initial public offering.

Restricted share units granted by the Company

During the year ended December 31, 2022 and 2023, the Group granted 112,336,970 and 69,910,980 restricted share units to certain employees and senior management under the 2018 Plan, which vest over 1 to 4 years. The estimated fair value of each RSU granted is based on market value of the Company’s shares on each date of grant. A summary of the restricted share units activities under the 2018 Plan for the year ended December 31,2022 and 2023 is presented as follow:


				Weighted Average
				Grant-date
		Number of RSUs		Fair Value
				RMB
As of December 31, 2021		—		—
Granted		112,336,970		0.83
Vested		(10,141,620)		0.74
Forfeited or cancelled		(425,000)		0.75
Unvested as of December 31, 2022		101,770,350		0.84
Granted		69,910,980		1.41
Vested		(22,617,630)		0.91
Forfeited or cancelled		(44,548,350)		0.94
Unvested as of December 31, 2023		104,515,350		1.22

The total fair value of RSU vested during the years ended December 31, 2022 and 2023 was RMB14,524 and RMB31,872, respectively.

During the years ended December 31, 2022 and 2023, no RSUs were granted under the 2021 Plan.

18.Share-Based Compensation (continued)

Share Option granted by Shenlanbao

Shenlanbao has the following active share incentive plans: 2019 SLB share incentive plan,2020 SLB share incentive plan, 2021 SLB share incentive plan and 2022 SLB share incentive plan (collectively referred to as the “SLB plans”). The SLB plans permit the grant of option to the directors and employees to purchase Shenlanbao’s shares. Pursuant to the above plan, a maximum aggregate of 1,000,000 registered capital of Shenlanbao may be issued. The term of the option is fixed and does not exceed 5 years from the date of the grant. The options will vest ratably over a 4-year vesting period from the grant date and are only subject to service condition.

In September 2023, the board of Shenlanbao approved the amended and restated SLB plan(the “New SLB Plan”), which adjusted the number of shares to a maximum aggregate of 577,121 registered capital. The New SLB Plan also reduced the exercise price of the option and extended the term of option to 10 years. The Group accounted for the reduction of the exercise price of the options as a modification which requires the re-measurement of the fair value of these share options. This remeasurement resulted in a total incremental share-based compensation of RMB4,794, RMB2,018 of which is recognized on the modification date in 2023, and the remaining will be amortized through the vesting period of the option.

The following table summarizes the option activity for the year ended December 31, 2023:


						Weighted		Weighted
				Weighted		Average		Average
				Average		remaining		Grant-		Aggregate
		Number of		Exercise		contractual		date Fair		Intrinsic
		Options		Price		life		Value		Value
				RMB		RMB		RMB		RMB
Outstanding as of the acquisition date		450,246		15.90		7.68		24.81		7,162
Forfeited		(19,438)		23.57		—		21.41		—
Outstanding as of December 31, 2023		430,808		15.55		7.69		24.96		6,921
Exercisable as of December 31, 2023		187,200		16.28		7.16		21.12		2,165

The Group calculated the estimated fair value of the share options on the respective grant dates using the binomial option pricing model with the assistance from an independent valuation firm, with the following assumptions.


		Year Ended December 31
		2023
Risk free rate of interest		2.64%-3.01	%
Volatility		29.8%-44.2	%
Dividend yield		—
Exercise multiples		2.2-2.8
Life of options (years)		10
Fair value of underlying ordinary shares		13.37~36.29

Employee Benefit Trust

In October 2020, the Company established ARK Trust (Hong Kong) Limited, a company controlled by the Company as a vehicle to hold shares that will be used to provide incentives and rewards to management team members who contribute to the success of the Company’s operations (the “Shareholding Platform”). The Shareholding Platform has no activities other than administrating the incentive programs and does not have any employees. Mr. Guo Nanyang, vice president of the Company, was appointed as the authorized representative of the Company to instruct the trustee to process the eligible participants to whom awards will be granted to.

18.	Share-Based Compensation (continued)

Employee Benefit Trust (continued)

In October 2020, the board of the Company approved to grant 102,762,450 restricted shares to certain management (the “Selected Management”) to replace options previously granted under the 2018 Plan. The Selected Management paid the purchase price of the restricted shares of US$0.003 per share, which is lower than the exercised price of the original options. The vesting and other requirements imposed on the restricted shares were the same as those under the original option granted. As a result, the Group accounted for the reduction of the exercise price of the options and the issuance of restricted shares in exchange of the options of the Selected Management as a modification which requires the re-measurement of the fair value of these share options. This remeasurement resulted in a total incremental share-based compensation of RMB26,330, RMB5,702 of which is recognized on the modification date in 2020, and the remaining will be amortized through the vesting period of the restricted shares.

Restricted shares owned by the management

In March 2020, several shareholders who are members of the management team (the “Restricted Shareholders”) entered into share restriction agreements with the Company and the Founder. Pursuant to these agreements, all or a portion of ordinary shares held by these Restricted Shareholders were converted into restricted shares (“Restricted Shareholders Shares”) which will vest in a maximum of 3 years provided that those Restricted Shareholders remain full-time employees of the Group. According to the share restriction agreements, the Founder obtained a right to repurchase the unvested Restricted Shareholders Shares at par value, the Company or the Founder has the right to repurchase the vested Restricted Shareholders Shares below fair value, upon termination of the employment of the Restricted Shareholders during the vesting period. The share restriction described above was accounted for as a grant of restricted stock award under a share-based compensation plan. Accordingly, the Group measured the fair value of the Restricted Shareholders Shares at the grant date and recognized the amount as compensation expense over the service period.

A summary of non-vested Restricted Shareholders Shares activity for the year ended December 31, 2021 is presented below:


		Number of shares
Outstanding as of December 31, 2020		12,554,722
Vested		12,554,722
Outstanding as of December 31, 2021		—

The Group determined that the nonvested Restricted Shareholders Shares are participating securities as the nonvested Restricted Shareholders Shares have a nonforfeitable right to receive dividends but do not have a contractual obligation to fund or otherwise absorb the Group’s losses. The weighted-average grant date fair value of the Restricted Shareholders Shares is US$0.20 per share.

During the year ended December 31, 2021, the Group recorded share-based compensation expense of RMB16,403 related to the Restricted Shareholders Shares.

Upon the termination of the Restricted Shareholders’ continuous services during the vesting period, the Company has a right (but not the obligation) to repurchase the vested Restricted Shareholders Shares at a price below fair value of the Restricted Shareholders Shares which is to be determined by the board of directors of the Company. The Company reclassified vested Restricted Shareholders Shares as liability in the consolidated balance sheets upon the termination of the managements’ service as the repurchase price is below fair value. No repurchase occurred during the year ended December 31, 2021. Such liability classified awards are remeasured at fair value subsequently at each reporting date until initial public offering, with the changes in fair value recorded as compensation expenses. The repurchase feature expired upon the initial public offering, thus the awards were reclassified from liability to equity, and an RMB67,505 corresponding increase in additional paid-in capital, upon the initial public offering. During the year ended December 31, 2021, an RMB36,786 related share based compensation expenses was recognized.