Notes to the accounts
for the year ended 31 December 2007
37. Awards to employees of rights to share-based payments
The Group has the following share-based payment arrangements:
Share Option Plan 20001: Under this Plan, the Group grants market value share options over non-voting ordinary shares to executive Directors and other key employees. Options usually become exercisable if the option holder remains with the Group for at least three years and, for executive Directors, the performance target has been met. The performance target, in line with market practice, is that the Company's earnings per share growth (defined as the earnings per ordinary share before any exceptional items, as derived from the Company's Annual Report and Accounts) must be at least four per cent. per annum above the increase in the Retail Price Index over the initial three-year period.
Senior Executive Share Option Scheme 1986 and the Share Option Plan 19991: Options over non-voting ordinary shares were granted to executive Directors and other key employees. In line with market practice at the time the Senior Executive Share Option Scheme 1986 was introduced, the vesting of these awards was not subject to performance conditions. Under the Share Option Plan 1999 the performance target of all option holders, including executive Directors, was that the Company's earnings per share growth must be at least two per cent. per annum above the increase in the Retail Price Index over a minimum five-year period. This performance condition was in line with market practice at the time of the award. The Group no longer grants awards under these former plans.
Equity Compensation Plan 20001: Under this Plan, executive Directors and other key employees receive deferred bonus awards over either ordinary or non-voting ordinary shares, normally structured as rights to acquire shares at nil cost. These awards are subject to forfeiture and will vest on the third anniversary provided the participant continues to be employed within the Group. Further details are given in the remuneration report.
All of the above share-based payment arrangements involve a maximum term of ten years for each option granted and are settled through the transfer of assets of the Company, being the equity instruments of its ultimate parent, Schroders plc, to its employees.
Share Incentive Plan: Under this scheme approved by HM Revenue & Customs, eligible employees can purchase shares in the Company each month up to £1,500 per taxation year from their gross salary. In April 2006, the Group began to match employee share purchases up to £50 per month. These matching shares are effectively free shares awarded to the employee subject to their remaining in employment for one year.
1Certain employees have been awarded cash-settled equivalents to these share-based awards. The fair value of these awards is determined using the same methods and models used to value the equivalent equity-settled awards. The fair value of the liability is remeasured at each balance sheet date and at settlement date.
(a) Share option plans
Movements in the number of share options outstanding and their relative weighted average exercise prices are as follows:
| 2007 | 2006 | |||
|---|---|---|---|---|
| Weighted average exercise price per share | Options | Weighted average exercise price per share | Options | |
| At 1 January | 726p | 11,056,393 | 715p | 16,318,802 |
| Granted | - | - | 1085p | 36,866 |
| Forfeited | - | - | 492p | (38,079) |
| Exercised | 740p | (3,866,560) | 668p | (4,154,782) |
| Lapsed | 856p | (33,878) | 805p | (1,106,414) |
| At 31 December | 718p | 7,155,955 | 726p | 11,056,393 |
| Outstanding options immediately exercisable | 716p | 6,968,956 | 714p | 8,833,078 |
The weighted average share price, at exercise date, of options exercised during the year was £11.73 (2006: £10.78).
At 31 December 2007 options to subscribe for non-voting ordinary shares, with the weighted average contractual life remaining of 4.0 years (2006: 4.9 years), were outstanding:
(i) Under the terms of the Share Option Plan 1999:
| Exercise periods | Exercise price per share | 2007 Number |
2006 Number |
|---|---|---|---|
| 7 May 2004 to 6 May 2009 | 822p | 84,719 | 133,426 |
| 13 March 2005 to 12 March 2010 | 800p | 784,779 | 1,684,286 |
| 869,498 | 1,817,712 |
(ii) Under the terms of the Share Option Plan 2000:
| Exercise periods | Exercise price per share | 2007 Number |
2006 Number |
|---|---|---|---|
| 13 March 2006 to 12 March 2011 | 987p | 1,330,223 | 2,075,862 |
| 12 November 2006 to 11 November 2011 | 706p | 500,000 | 500,000 |
| 22 April 2005 to 21 April 2012 | 800p | 1,825,000 | 2,798,350 |
| 3 May 2005 to 2 May 2012 | 756p | - | 50,000 |
| 6 November 2005 to 30 April 2009 | 453p | 300,000 | 300,000 |
| 6 November 2005 to 5 November 2012 | 541p | 842,500 | 1,427,500 |
| 9 December 2005 to 8 December 2012 | 483p | 250,000 | 250,000 |
| 10 March 2006 to 9 March 2013 | 398p | 891,000 | 1,364,500 |
| 6 October 2006 to 5 October 2013 | 660p | - | 15,000 |
| 27 October 2006 to 26 October 2013 | 665p | 15,000 | 15,000 |
| 8 March 2007 to 7 March 2014 | 655p | 108,000 | 165,000 |
| 7 June 2007 to 6 June 2014 | 547p | - | 15,000 |
| 17 August 2007 to 16 August 2014 | 530p | 37,735 | 75,470 |
| 7 March 2008 to 6 March 2015 | 709p | 137,833 | 137,833 |
| 15 July 2008 to 14 July 2015 | 736p | 7,000 | 7,000 |
| 18 August 2008 to 17 August 2015 | 802p | 5,300 | 5,300 |
| 6 March 2009 to 5 March 2016 | 1085p | 36,866 | 36,866 |
| 6,286,457 | 9,238,681 |
There were no options granted during the year.
The fair value of options granted during the prior year, determined using the stochastic valuation model, was £0.1 million and the weighted average fair value was £2.51 per option.
(b) Equity Compensation Plan
Under the Equity Compensation Plan, rights over 3,478,055 (2006: 3,555,225) ordinary and 24,468 (2006: 40,853) non-voting ordinary shares were granted during the year ended 31 December 2007. The weighted average fair value of £10.30 (2006: £9.99) per ordinary and £9.49 (2006: £9.47) per non-voting ordinary share was calculated using the market value of the shares at the grant date, discounted for dividends forgone over the average holding period of the award.
(c) Cash-settled share-based awards
The Group issues to certain employees cash-settled share-based awards that require the Group to pay the intrinsic value of the award to the employee on the date of exercise. At 31 December 2007, the total carrying amount of liabilities arising from cash-settled share-based awards at the balance sheet date was £1.4 million (2006: £3.4 million). The total intrinsic value at 31 December 2007 of liabilities for which the counterparty's right to cash or other assets had vested by that date was £1.0 million (2006: £1.2 million).
(d) Share Incentive Plan
The employee monthly share purchase plan is open to most employees and provides free shares from the Group to match the employee purchase up to a maximum of £50 per month. Pursuant to these plans the Group purchased 26,487 ordinary shares in 2007 (2006: 20,371), at a weighted average share price of £11.46 (2006: £9.91). A charge of £0.3 million (2006: £0.2 million) will be expensed over a vesting period of one year.
The Group recognised total expenses of £34.3 million (2006: £28.6 million) arising from share-based payment transactions during the year of which £32.9 million (2006: £27.5 million) were equity-settled share-based payment transactions.