26 Share-based payments
Equity-settled share options
The Company’s 2005 Plan and the ESOP 2007 provide for a grant price equal to the average of the middle market price of the Company’s shares at close of business on the five dealing days preceding the date of grant. The Company’s 1995 Scheme provides for the average quoted middle market price of the Company’s shares on the three dealing days preceding the date of grant. Details of the 1995 Scheme and the ESOP 2007 option vesting periods are given in note 22 and the vesting periods for options granted under the 2005 Plan are given in the directors’ remuneration report.
Under the SAYE scheme, employees are granted an option to purchase shares at up to 20% less than the market price at grant in three years time, depending on their entering into a contract to make monthly contributions into a savings account over the relevant period. These funds are used to fund the option exercise price. The scheme is open to all employees with six months continuous service at the invitation date. No performance criteria are applied to the exercise of SAYE options.
The weighted average share price at the date of exercise for share options exercised during the year was £9.87 (2007: £13.61). The options outstanding at 31 December 2008 had a weighted average exercise price of £6.04 (2007: £6.39), and a weighted average remaining contractual life of 2.1 years (2007: 1.4 years). In 2008 options under the ESOP 2007 were granted on 15 April, 27 May, 28 October and 26 November and the estimated fair value of the options granted on those dates was £0.3m (2007: £0.6m). Options and share awards under the 2005 Plan were granted on 9 April 2008 and 16 June 2008. The estimated fair value of the options granted on those dates was £1.0m (2007: £1.0m) and the estimated fair value of the share awards granted on those dates was £0.8m (2007: £0.7m). The estimated fair value of options granted under the SAYE scheme on 1 July 2008 was £1.2m (2007: £nil).
A modified Black-Scholes model has been used to value the options and awards set out below. None of the options or awards granted was subject to a share price related performance condition.
| ESOP 2007 options |
ESOP 2007 options |
SAYE 2008 options |
ESOP 2007 options |
ESOP 2007 options |
||
|---|---|---|---|---|---|---|
| 2007 ESOP and 2008 SAYE options | Apr 08 | May 08 | July 08 | Oct 08 | Nov 08 | |
| Number of options/shares granted | 55,000 | 55,000 | 1,674,119 | 42,500 | 25,000 | |
| Weighted average fair value at date | ||||||
| of grant (per option/share) | £2.51 | £2.27 | £0.72 | £0.52 | £0.69 | |
| Weighted average share price at date of grant | £10.04 | £9.49 | £5.86 | £4.12 | £4.62 | |
| Weighted average exercise price | £10.03 | £9.92 | £7.02 | £4.36 | £4.75 | |
| Expected term (from date of grant) | (b) | 6 years | 6 years | 3.25 years | 6 years | 6 years |
| Expected volatility | (c) | 32.0% | 32.0% | 33.0% | 37.0% | 38.0% |
| Expected dividend yield | (d) | 3.8% | 4.0% | 6.5% | 9.7% | 8.7% |
| Risk-free rate | 4.1% | 4.9% | 5.2% | 4.0% | 3.4% |
| 2005 Plan options |
2005 Plan shares |
2005 Plan options |
2005 Plan shares |
||
|---|---|---|---|---|---|
| 2005 Plan shares and options | Apr 08 | Apr 08(e) | Jun 08 | Jun 08(e) | |
| Number of options/shares granted | (a) | 342,066 | 72,726 | 25,048 | 6,262 |
| Weighted average fair value at date of | |||||
| grant (per option/share) | £2.66 | £10.34 | £1.93 | £7.75 | |
| Weighted average share price at date of grant | £10.34 | £10.34 | £7.75 | £7.75 | |
| Weighted average exercise price | £10.39 | Nil | £7.42 | Nil | |
| Expected term (from date of grant) | (b) | 6 years | 3 years | 6 years | 3 years |
| Expected volatility | (c) | 33.0% | 31.0% | 33.0% | 33.0% |
| Expected dividend yield | (d) | 3.7% | 0.0% | 4.9% | 0.0% |
| Risk-free rate | 4.2% | 4.0% | 5.4% | 5.5% |
(a) In April and June 2008, 342,066 and 25,048 share options were granted to executives of the Group under the 2005 Plan.
(b) Adjusted from maximum term, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, vesting conditions and behavioural considerations.
(c) Assumed to be equal to historic volatility of the Company’s share price over the period prior to grant equal in length to the expected term.
(d) Set as equal to dividend yield prevailing at date of grant with the exception of awards granted to executives of the Group, which are subject to performance conditions.
(e) At the end of the vesting period, award holders may receive the value of any dividends paid during the vesting period in respect of their vested shares. Consequently, the fair value is not discounted for value lost in respect of dividends.
The Group recognised total remuneration expenses of £2.3m and £1.7m related to equity-settled share-based payment transactions in 2008 and 2007 respectively.
The following tables provide a summary of the options granted under the Group’s employee share option schemes during the current and comparative year.
| 2008 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Grant Date | Exercise price £ |
Balance at beginning of the year No. |
Options granted No. |
Option slapsed No. |
Options forfeited No. |
Options exercised No. |
Balance of options in issue at end of the year No. |
Balance of options exercisable at end of the year No. |
Proceeds received (net of settlements) £ |
| 1995 Scheme | |||||||||
| 29 Oct 021 | 2.70 | 380,000 | – | 31,993 | – | 102,007 | 246,000 | 246,000 | 42,200 |
| 10 Mar 032 | 2.07 | 100,000 | – | – | – | 100,000 | – | – | 207,000 |
| 25 Feb 043 | 4.20 | 100,000 | – | – | – | – | 100,000 | – | – |
| 14 Sep 044 | 438 | 60,000 | – | – | – | – | 60,000 | – | – |
| ESOP 2007 | |||||||||
| 13 Aug 075 | 16.76 | 23,000 | – | – | – | – | 23,000 | – | – |
| 24 Sep 076 | 15.81 | 41,000 | – | – | – | – | 41,000 | – | – |
| 20 Dec 077 | 10.51 | 100,000 | – | – | – | – | 100,000 | – | – |
| 15 Apr 088 | 10.03 | – | 55,000 | – | – | – | 55,000 | – | – |
| 27 May 089 | 9.92 | – | 55,000 | – | – | – | 55,000 | – | – |
| 28 Oct 0810 | 4.36 | – | 42,500 | – | – | – | 42,500 | – | – |
| 26 Nov 0811 | 4.75 | – | 25,000 | – | – | – | 25,000 | – | – |
| 2005 Plan | |||||||||
| 20 May 0512 | 7.24 | 318,024 | – | – | – | – | 318,024 | 318,024 | – |
| 5 Apr 0613 | 12.59 | 258,532 | – | – | – | – | 258,532 | – | – |
| 6 Mar 0714 | 12.15 | 271,357 | – | – | – | – | 271,357 | – | |
| 9 Apr 0815 | 10.39 | – | 342,066 | – | – | – | 342,066 | – | – |
| 16 Jun 0816 | 7.42 | – | 25,048 | – | – | – | 25,048 | – | – |
| 2008 SAYE | |||||||||
| 1 July 0817 | 7.02 | – | 1,674,119 | – | 124,288 | – | 1,549,831 | 11,339 | – |
| Total | 1,651,913 | 2,218,733 | 31,993 | 124,288 | 202,007 | 3,512,358 | 575,363 | 249,200 |
The weighted average share price of Morgan Sindall plc shares was £7.36 (2007: £14.13) during the year.
Notes:
1995 Scheme
ESOP 2007
- 5 Exercisable between 13 August 2010 and 12 August 2017
- 6 Exercisable between 24 September 2010 and 12 September 2017
- 7 Exercisable between 20 December 2010 and 19 December 2017
- 8 Exercisable between 15 April 2011 and 14 April 2018
- 9 Exercisable between 27 May 2011 and 26 May 2018
- 10 Exercisable between 28 October 2011 and 27 October 2018
- 11 Exercisable between 26 November 2011 and 25 November 2018
| 2007 | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Grant Date | Exercise price £ |
Balance at beginning of the year No. |
Options granted No. |
Options lapsed No. |
Options forfeited No. |
Options exercised No. |
Balance of options in issue at end of the year No. |
Balance of options exercisable at end of the year No. |
Proceeds received (net of settlements) £ |
| 1988 Scheme | |||||||||
| 24 Sep 971 | 1.71 | 12,625 | – | – | – | 12,625 | – | – | 21,589 |
| 1995 Scheme | |||||||||
| 27 Mar 012 | 3.88 | 75000 | – | 21381 | – | 53619 | – | – | 2,681 |
| 14 Feb 023 | 4.95 | 47500 | – | 16846 | – | 30654 | – | – | 1,533 |
| 29 Oct 024 | 2.70 | 635000 | – | 70140 | – | 184860 | 380,000 | 380,000 | 154,993 |
| 10 Mar 035 | 2.07 | 100,000 | – | – | – | – | 100,000 | – | – |
| 25 Feb 046 | 4.20 | 100,000 | – | – | – | – | 100,000 | – | – |
| 14 Sep 047 | 4.38 | 60,000 | – | – | – | – | 60,000 | – | – |
| ESOP 2007 | |||||||||
| 13 Aug 078 | 16.76 | – | 23,000 | – | – | – | 23,000 | – | – |
| 24 Sep 079 | 15.81 | – | 41,000 | – | – | – | 41,000 | – | – |
| 20 Dec 0710 | 10.51 | – | 100,000 | – | – | – | 100,000 | – | – |
| 2005 Plan | |||||||||
| 20 May 0511 | 7.24 | 318, 024 | – | – | – | – | 318,024 | – | – |
| 5 Apr 0612 | 12.59 | 258,532 | – | – | – | – | 258,532 | – | – |
| 6 Mar 0713 | 12.15 | – | 271,357 | – | – | – | 271,357 | – | – |
| Total | 1,606,681 | 435,357 | 108,367 | – | 281,758 | 1,651,913 | 380,000 | 180,796 |
Notes:
1988 Scheme
1995 scheme
- 2 Exercisable between 27 September 2006 and 26 September 2008
- 3 Exercisable between 14 February 2007 and 13 February 2009
- 4 Exercisable between 29 October 2007 and 28 October 2009
- 5 Exercisable between 10 March 2008 and 9 March 2010
- 6 Exercisable between 25 February 2009 and 24 February 2011
- 7 Exercisable between 14 September 2009 and 13 September 2011
Cash-settled share-based payments
The Group grants to certain employees share appreciation rights (‘phantoms’) that require the Group to pay the intrinsic value of the phantoms to the employee at the date of exercise. As cash-settled share-based payment awards, the phantoms are revalued at the end of each reporting period. There were no phantoms granted during the period (2007: nil). Phantoms are exercisable between three and eight years from the date of grant of the phantom. The total intrinsic value at 31 December 2008 was £0.2m (2007: £1.0m). The Group had recorded liabilities of £0.2m at 31 December 2008 in respect of phantoms (2007: £0.8m).
At the reporting date, the fair value and number of phantom awards outstanding was:
| Balance at beginning of the year No. |
Phantom options lapsed No. |
Phantom options exercised No. |
Balance at end of the year No. |
|||
|---|---|---|---|---|---|---|
| Exercise price £ |
Fair value per award £ |
|||||
| Date of grant | ||||||
| 17 August 2005 | 6.65 | 78,000 | 10,000 | – | 68,000 | 0.79 |
| 11 October 2005 | 8.49 | 51,000 | – | – | 51,000 | 0.52 |
| 5 December 2005 | 8.31 | 90,000 | 30,000 | – | 60,000 | 0.54 |
| 5 April 2006 | 12.59 | 60,000 | 10,000 | – | 50,000 | 0.25 |
| 5 April 20061 | 12.59 | 50,000 | – | – | 50,000 | 0.25 |
| 18 May 2006 | 11.09 | 30,000 | – | – | 30,000 | 0.33 |
| 10 August 2006 | 10.86 | 10,000 | – | – | 10,000 | 0.35 |
| 9.672 | 369,000 | 50,000 | – | 319,000 | 0.482 |
1 This grant is subject to a performance condition. To the extent that this condition is not expected to be satisfied and the options are expected to lapse, the income statement charge is adjusted. Similar adjustment is made in the event of a bad leaver.
The market price of a share on 31 December 2008 was £5.42 (2007: £10.39).
The fair value of the phantoms was determined by the use of a modified Black-Scholes model using the assumptions noted in the table below:
| 31 December 2008 | 31 December 2007 | ||
|---|---|---|---|
| Expected term (from date of grant) | (a) | 4.6-5.6 years | 5 years |
| Share price at valuation date | £5.42 | £10.39 | |
| Expected volatility of return | (b) | 38%-41% | 28%-30% |
| Expected dividend yield | (c) | 7.4% | 2.9% |
| Risk-free rate | 2.50% | 4.4% |
(a) Adjusted from maximum term, based on management’s best estimate, for the effects of non-transferability, exercise restrictions, vesting conditions and behavioural considerations.
(b) Assumed to be equal to historic volatility of the Company’s share price over the period prior to grant equal in length to the expected term.
(c) Set as equal to dividend yield prevailing at date of grant.
The Group recorded a credit to profit of £0.6m during the year in respect of phantoms (2007: £0.1m expense).