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Share-Based Payment Arrangements

12 Months Ended

Dec. 31, 2023

28.	SHARE-BASED PAYMENT ARRANGEMENTS

Equity-settled share-based payment-RSAs

The

RSAs

in each year are as follows:


	2021 RSAs	2022 RSAs	2023 RSAs

Resolution Date of TSMC’s shareholders in its meeting	July 26, 2021	June 8, 2022	June 6, 2023
Resolution Date of TSMC’s Board of Directors in its meeting	February 15, 2022	February 14, 2023	February 6, 2024
Issuance of stocks (in millions)	1.4	2.1	3.0
Eligible employees	Executive officers	Executive officers	Executive officers
Grant date/Issuance date	March 1, 2022	March 1, 2023	March 1, 2024

Vesting conditions of the aforementioned arrangement are as follow:

The RSAs granted to eligible employees can only be vested if

●

the employee remains employed by the Company on the last date of each vesting period;

●

during the vesting period, the employee may not breach any agreement with the Company or violate the Company’s work rules; and

●

certain employee performance metrics and TSMC’s business performance metrics are met.

The maximum percentage of granted RSAs that may be vested each year shall be as follows: one-year anniversary of the grant: 50%; two-year anniversary of the grant: 25%; and three-year anniversary of the grant: 25%; provided that the actual percentage and number of the RSAs to be vested in each year will be calculated based on the achievement of TSMC’s business performance metrics.

For eligible executive officers of TSMC: The maximum number of RSAs that may be vested in each year will be set as 110%, among which 100% will be subject to a calculation based on TSMC’s relative Total Shareholder Return (“TSR”, including capital gains and dividends) achievement to determine the number of RSAs to be vested; this number will be further subject to a modifier to increase or decrease up to 10% based on the Compensation and People Development Committee evaluation of TSMC’s Environmental,

Social

, and Governance (“ESG”) achievements. The number of shares so calculated should be rounded down to the nearest integral.


TSMC’s TSR relative to the TSR of S&P 500 IT Index		Ratio of Shares to be Vested
Above the Index by X percentage points		50% + X * 2.5%, with the maximum of 100%
Equal to the Index		50%
Below the Index by X percentage points		50% - X * 2.5%, with the minimum of 0%

Restrictions imposed on the employees’ rights in the RSAs before

the

vesting

conditions

are fulfilled:

●

During each vesting period, no employee granted RSAs, except for

inheritance

, may sell, pledge, transfer, give to another person, create any encumbrance on, or otherwise dispose of, any shares under the unvested RSAs.

●

Before the vesting conditions are fulfilled, the attendance, proposal rights, speech rights, voting rights and etc. shall be exercised by the engaged trustee/custodian on the employee’s behalf. Any other shareholder rights including but not limited to the entitlement to any

distribution

regarding dividends, bonuses and capital reserve, and the subscription right of the new shares issued for any capital increase, are the same as those of holders of common shares of TSMC.

Details of granted RSAs in each year are as follows:


	2021 RSAs				2022 RSAs
	Number of Shares (In Millions)				Number of Shares (In Millions)

Balance, beginning of year			1.4			-
Issuance of stocks			-			2.1
Vested shares			(0.3	)		-
Canceled shares			(0.4	)		-


Balance, end of year			0.7			2.1


Weighted-average fair value of RSAs (NT$ in dollars)		$	325.81		$	277.71

The RSAs in each year are measured at fair value at grant date by using the binominal tree approach. Relevant information is as follows:


	2021 RSAs		2022 RSAs
	March 1, 2022		March 1, 2023

Stock price at measurement date (NT$ in dollars)	$	604	$	511
Expected price volatility		25.34%-28.28%		29.34%-32.11%
Expected life		1-3 years		1-3 years
Risk-free interest rate		0.57%		1.06%

Refer to Note 29 for the compensation costs of the RSAs recognized by TSMC.

On February 6, 2024, TSMC’s Board of Directors approved the issuance of RSAs for year 2024 of no more than 4.2 million common shares. The grants will be made free of charge. The actual number of shares to be issued will be resolved by the Board of Directors after the RSAs is approved at the shareholders’ meeting and by the competent authority.

Cash-settled share-based payment arrangements

The cash-settled share-based payment arrangements in each year are as follows:


	2021 Plan	2022 Plan	2023 Plan

Resolution Date of TSMC’s Board of Directors in its meeting	February 15, 2022	February 14, 2023	February 6, 2024
Issuance of units (in millions) (Note)	0.2	0.4	0.6
Grant date	March 1, 2022	March 1, 2023	March 1, 2024

Note:

One unit of the right represents a right to the market value of one TSMC’s common share when vested.

The vesting conditions and the ratio of units to be vested for key management personnel of the plan are the same as the aforementioned RSAs.

The fair value of compensation costs for the cash-settled share-based payment was measured by using binominal tree approach and will be measured at each reporting period until settlement. Relevant information is as follows:


	Years Ended December 31
	2022		2023
	2021 Plan		2021 Plan		2022 Plan

Stock price at measurement date (NT$ in dollars)		$ 451		$ 593		$ 593
Expected price volatility		28.80%-32.19%		24.76%-29.05%		24.76%-29.05%
Residual life		1-3 years		1-2 years		1-3 years
Risk-free interest rate		1.09%		1.14%		1.15%

Refer to Note 29 for the compensation costs of the cash-settled share-based payment recognized by TSMC. As of December 31, 2022 and 2023, the liabilities under cash-settled share-based payment arrangement amounted to NT$30.8 million and NT$62.7 million, respectively.