Notes to the Group Financial Statements
3. Employees and compensation continued
The fair value of share options and awards at grant date is calculated using a 'binomial lattice' model that takes into account the effect of both financial and demographic assumptions. Financial assumptions include the future share price volatility, dividend yield, risk-free interest rate, and the best estimate outcome of non-market based performance conditions. Demographic assumptions include forfeiture and early vesting behaviours that are based upon historic observable data. The fair values per option and award granted during the year to employees, and the assumptions used in the calculations, are as follows:
| Executive share option scheme |
Other employee share option schemes |
Performance share plan |
Deferred share plan |
|
| Grant dates | 12/6/2008 | 1/7/2008-1/8/2008 | 12/6/2008 | 29/5/2008-8/12/2008 |
| Weighted average share price at grant date ($) | 12.19 | 12.29 | 12.19 | 7.84 |
| Weighted average exercise price at grant date ($) | 12.19 | 9.86 | - | - |
| Share options/awards made in the year | 263,594 | 424,126 | 1,585,372 | 15,851,785 |
| Vesting period (years) | 3 | 2-5 | 4 | 4 |
| Expected share price volatility | 30% | 30% | - | - |
| Dividend yield | 4% | 4% | 4% | 4-14% |
| Risk-free rate | 5.3% | 5.2% | - | - |
| Expected option life (years) | 7.7 | 3.3 | - | - |
| Number of shares/options assumed to vest | 263,594 | 322,180 | 1,585,372 | 14,404,677 |
| Average fair value per option/share granted ($) | 3.44 | 2.47 | 10.42 | 6.43 |
The expected share price volatility is based on historical volatility over the last 10 years. The expected option life is the average expected period to exercise. The risk-free rate of return is the yield on zero-coupon US and UK (where appropriate) government bonds of a term consistent with the assumed option life.
It is assumed that the performance conditions applicable to the executive share option scheme and performance share plan will be met in full. For the executive share option scheme, it is assumed that 5% of options per year are subject to early exercise, and in addition, provided there is a gain of 50% on the exercise price, it is assumed that 50% of remaining option holders will exercise per year.
Movements in the number of share options outstanding are as follows:
| 2009 | 2008 | ||||
| Number | Weighted average exercise price ($ per share) |
Number | Weighted average exercise price ($ per share) |
||
| Share options outstanding at 1 April | 6,268,005 | 5.26 | 11,915,571 | 4.24 | |
| Granted | 687,720 | 10.60 | 1,561,677 | 10.53 | |
| Forfeited | (488,444) | 9.06 | (1,123,824) | 6.31 | |
| Exercised | (1,868,032) | 4.17 | (6,085,419) | 3.46 | |
| Share options outstanding at 31 March | 4,599,249 | 7.09 | 6,268,005 | 5.26 | |
| Share options exercisable at 31 March | 1,625,046 | 3.18 | 1,450,788 | 4.10 | |
The weighted average share price during the financial year ended 31 March 2009 was $6.89 (2008: $11.04).
The share options outstanding at the end of the year have a weighted average exercise price and expected remaining life as follows:
| 2009 | 2008 | ||||||
| Range of exercise prices ($ per share) |
Number of share options |
Weighted average exercise price ($ per share) |
Weighted average expected remaining life (years) |
Number of share options |
Weighted average exercise price ($ per share) |
Weighted average expected remaining life (years) |
|
| 2.00-5.00 | 1,981,266 | 3.29 | 2.5 | 2,849,988 | 3.98 | 3.2 | |
| 5.01-7.00 | 1,346,962 | 5.93 | 5.1 | 803,256 | 5.62 | 3.0 | |
| 7.01-9.00 | 1,271,021 | 8.10 | 5.9 | 1,392,708 | 7.94 | 6.6 | |
| 9.01-11.00 | - | - | - | 405,221 | 9.43 | 2.8 | |
| 11.01+ | - | - | - | 816,832 | 11.48 | 7.7 | |
| 4,599,249 | 6,268,005 | ||||||
