Notes to the accounts
27. Share options
The Group operates several share option schemes which can be categorised as “Saving Share Schemes”, “Executive Schemes”, and “Long Term Incentive Plans”.
Saving Share Schemes
Three all-employee share option schemes comprising a savings related share option scheme for UK employees (the “Sharesave Scheme”), a US Section 423 Plan (the “Employee Stock Savings Plan”) and a savings related share option scheme for Republic of Ireland employees (the “Irish Sharesave Scheme”) are together referred to as “Saving Share Schemes”. Options granted under the Sharesave Scheme and the Irish Sharesave Scheme are generally only exercisable between 36 and 42 months from commencement of the related savings contract. Options granted under the Employee Stock Savings Plan are generally only exercisable between 24 and 27 months of the grant date.
Executive Schemes
Executive Schemes are subject to performance conditions requiring compound annual growth in earnings per share above inflation. Under the 1993 Scheme, the performance condition is measured over a consecutive three year period. Under the 2003 Scheme the performance condition is measured over three years from the start of the financial period in which the award is made, and may then be measured from the last month of the year in which the award is made to the end of the fourth or fifth years, if not previously satisfied. For all grants beginning with those awarded in 2006/07, and all subsequent grants made to executive directors, the performance will only be measured over the three years from the start of the financial year in which the award is made. Additionally, for UK executives, the personal performance of participants will be assessed on each occasion that the share grant takes place, whilst for US executives there is a pre-grant test based on both personal and corporate performance. Grants beginning with those awarded in 2007/08 (other than for executive directors) are not subject to performance conditions.
Long Term Incentive Plans
The Long Term Incentive Plan 2000, which was replaced by the Long Term Incentive Plan 2005, are together referred to as “Long Term Incentive Plans” (“LTIPs”). LTIPs are subject to performance conditions, requiring compound annual growth in profit before tax at constant exchange rates of the Group or, for divisional executives, growth in divisional operating profit, and in ROCE of the Group or related division as appropriate. The exercise price of the total share option grant under the Long Term Incentive Plan 2000 is a nominal amount of £1 or $1 as appropriate and under the Long Term Incentive Plan 2005 there is no exercise price.
Option scheme status
| Saving share schemes | Executive schemes | LTIPs | ||||||
|---|---|---|---|---|---|---|---|---|
| No. of shares | WAEP(1) | No. of shares | WAEP(1) | No. of shares | WAEP(1) | |||
| millions | pence | millions | pence | millions | pence | |||
| At 29 January 2005 | 7.1 | 78 | 35.5 | 85 | 3.3 | – | ||
| Movements in period | ||||||||
| Granted | 3.1 | 81 | 9.7 | 112 | 0.9 | – | ||
| Exercised | (2.6) | 68 | (3.3) | 61 | (0.2) | – | ||
| Lapsed | (0.9) | 82 | (1.1) | 103 | (0.2) | – | ||
| At 28 January 2006 | 6.7 | 84 | 40.8 | 97 | 3.8 | – | ||
| Movements in period | ||||||||
| Granted | 2.2 | 95 | 9.8 | 112 | 1.8 | – | ||
| Exercised | (1.6) | 84 | (4.3) | 88 | (1.6) | – | ||
| Lapsed | (1.0) | 84 | (1.6) | 103 | (0.4) | – | ||
| At 3 February 2007 | 6.3 | 86 | 44.7 | 103 | 3.6 | – | ||
| Movements in period | ||||||||
| Granted | 3.8 | 76 | 8.6 | 124 | 1.5 | – | ||
| Exercised | (0.4) | 85 | (5.4) | 86 | (0.5) | – | ||
| Lapsed | (2.0) | 84 | (0.8) | 117 | (0.4) | – | ||
| At 2 February 2008 | 7.7 | 82 | 47.1 | 109 | 4.2 | – | ||
| Options exercisable | 1.0 | 86 | 20.3 | 99 | 0.1 | – | ||
(1)Weighted Average Exercise Price
The weighted average share price at the date of exercise for share options exercised during the period was 119p.
The following tables summarise the information about share options outstanding at the close of business on 2 February 2008, and the inputs used in a binomial model for Saving Share and Executive option schemes, and in a Black-Scholes model for LTIP option schemes, for the calculation of the fair value of options granted in the 2005/06, 2006/07 and 2007/08 financial periods:
| Saving share schemes | Executive schemes | LTIPs | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Exercise price range | Shares millions |
WACL(2) years |
WAEP(1) pence |
Shares millions |
WACL(2) years |
WAEP(1) pence |
Shares millions |
WACL(2) years |
WAEP(1) pence |
||
| 75p to 95p | 7.7 | 1.2 | 82 | – | – | – | – | – | – | ||
| 33p to 76p | – | – | – | 2.8 | 2.5 | 64 | – | – | – | ||
| 76p to 125p | – | – | – | 44.3 | 7.1 | 112 | – | – | – | ||
| Nil | – | – | – | – | – | – | 4.2 | 8.3 | – | ||
| Nil to 125p | 7.7 | 1.2 | 82 | 47.1 | 6.9 | 109 | 4.2 | 8.3 | – | ||
(1)Weighted Average Exercise Price
(2)Weighted Average Remaining Contractual Life
| Saving share schemes | Executive schemes | LTIPs | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | 2008 | 2007 | 2006 | |||
| Share price at grant date(3) | 90p | 120p | 99p | 122p | 110p | 112p | 122p | 110p | 114p | ||
| Exercise price(3) | 76p | 95p | 81p | 124p | 112p | 112p | nil | nil | nil | ||
| Risk free interest rate | 4.49% | 4.91% | 4.00% | 4.56% | 4.72% | 4.15% | 4.61% | 4.80% | 4.10% | ||
| Expected life of options | 2.8 years | 2.6 years | 2.7 years | 4.3 years | 4.3 years | 4.3 years | 3.5 years | 3.5 years | 3.5 years | ||
| Expected volatility | 26% | 31% | 38% | 28% | 34% | 38% | 28% | 34% | 38% | ||
| Dividend yield | 3.3% | 3.2% | 2.2% | 2.9% | 2.8% | 2.3% | 2.9% | 2.8% | 2.3% | ||
| Grant date fair value(2) | 45c | 68c | 59c | 53c | 55c | 63c | 220c | 188c | 190c | ||
(3)Weighted averageM.
The expected volatility is determined by calculating the historical volatility of the Group’s share price over the previous five years. The expected life used in the model is based on the historical exercise behaviour of the main categories of option recipients. The Group recognised total share-based payment expense of $0.4 million in the financial period ending 2 February 2008 (2007: $6.7 million; 2006: $8.1 million).