12 Share-based payments
The charge for share-based payments for the year was £14.3m (last year £29.0m). Further details of the option and share schemes that the Group operates are provided in the Remuneration report.
A. Save As You Earn Share Option Scheme
Under the terms of the scheme, the Board may offer options to purchase ordinary shares in the Company once in each financial year to those employees who enter into an HM Revenue & Customs (HMRC) approved Save As You Earn (SAYE) savings contract. HMRC rules limit the maximum amount saved to £250 per month. The price at which options may be offered is 80% of the average mid-market price for three consecutive dealing days preceding the offer date. The options may normally be exercised during the period of six months after the completion of the SAYE contract, either three or five years after entering the scheme.
|
|
2009 |
|
|
2008 |
|
Number of
options |
Weighted average
exercise
price |
|
Number of
options |
Weighted
average exercise
price |
| Outstanding at beginning of the period |
28,444,760 |
403.1p |
|
33,241,616 |
327.6p |
| Granted |
42,551,459 |
203.0p |
|
7,716,437 |
517.0p |
| Exercised |
(2,075,204) |
232.7p |
|
(10,212,015) |
234.8p |
| Forfeited |
(10,958,637) |
456.4p |
|
(2,207,700) |
450.7p |
| Expired |
(99,317) |
261.8p |
|
(93,578) |
235.2p |
| Outstanding at end of the period |
57,863,061 |
252.2p |
|
28,444,760 |
403.1p |
| Exercisable at end of period |
6,169,324 |
296.9p |
|
948,372 |
262.9p |
For SAYE share options exercised during the period, the weighted average share price at the date of exercise was 296.2p (last year 535.2p).
The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs shown below:
|
|
2009 |
|
|
2008 |
|
3-year plan |
5-year plan |
|
3-year plan |
5-year plan |
| Grant date |
Nov 08 |
Nov 08 |
|
Nov 07 |
Nov 07 |
| Share price at grant date |
253p |
253p |
|
646p |
646p |
| Exercise price |
203p |
203p |
|
517p |
517p |
| Option life in years |
3 years |
5 years |
|
3 years |
5 years |
| Risk-free rate |
2.9% |
3.2% |
|
4.6% |
4.6% |
| Expected volatility |
39.2% |
33.4% |
|
21.6% |
25.2% |
| Expected dividend yield |
8.9% |
8.9% |
|
2.7% |
2.7% |
| Fair value of option |
54.6p |
43.9p |
|
167.5p |
201.8p |
Volatility has been estimated by taking the historic volatility in the Company’s share price over a three or five year period.
The resulting fair value is expensed over the service period of three or five years on the assumption that 20% of options will lapse over the service period as employees leave the Group.
Outstanding options granted under the UK Employees’ SAYE Scheme are as follows:
|
Number of options |
|
Weighted average remaining
contractual life (years) |
|
| Options granted |
2009 |
2008 |
|
2009 |
2008 |
Option price |
| January 2001 |
– |
338,682 |
|
– |
0.3 |
156p |
| January 2003 |
– |
371,017 |
|
– |
0.3 |
283p |
| January 2004 |
2,748,699 |
4,078,721 |
|
0.3 |
1.3 |
228p |
| January 2005 |
2,705,890 |
3,703,910 |
|
1.3 |
2.1 |
280p |
| January 2006 |
5,089,994 |
7,164,101 |
|
0.9 |
2.1 |
349p |
| January 2007 |
2,381,588 |
5,434,588 |
|
2.0 |
3.0 |
559p |
| January 2008 |
3,114,069 |
7,353,741 |
|
3.0 |
4.0 |
517p |
| January 2009 |
41,822,821 |
– |
|
4.0 |
– |
203p |
|
57,863,061 |
28,444,760 |
|
3.3 |
2.6 |
252p |
B. Executive Share Option Scheme
Under the terms of the Executive Share Option Scheme, last approved by shareholders in 2005, the Board may offer options to purchase ordinary shares in the Company to executive directors and senior managers at the market price on a date to be determined prior to the date of the offer. No further options may be granted under any schemes other than the 2005 scheme. No awards have been made under the 2005 scheme. Further details are set out in the Remuneration report.
Performance targets are assessed over a three year period from the date of grant with no ability to retest any grants. Once options have vested they can be exercised during the period up to ten years from grant date.
|
|
2009 |
|
|
2008 |
|
Number of
options |
Weighted
average
exercise price |
|
Number of
options |
Weighted
average
exercise price |
| Outstanding at beginning of the period |
9,623,518 |
341.0p |
|
12,017,117 |
341.2p |
| Exercised |
(142,559) |
343.9p |
|
(2,235,209) |
341.0p |
| Forfeited |
(678,888) |
340.7p |
|
(152,698) |
348.6p |
| Expired |
(169,288) |
550.3p |
|
(5,692) |
527.0p |
| Outstanding at end of the period |
8,632,783 |
336.8p |
|
9,623,518 |
341.0p |
| Exercisable at end of period |
8,632,783 |
336.8p |
|
8,444,937 |
339.4p |
For executive share options exercised during the period, the weighted average share price at the date of exercise was 395.3p (last year 645.5p).
The resulting fair value is expensed over the expected service period of five years on the assumption that 30% of options will lapse over the service period as employees leave the Company.
Outstanding options granted under all Executive Share Option Schemes are as follows:
|
Number of options |
|
Weighted average remaining
contractual life (years) |
|
| Options granted |
2009 |
2008 |
|
2009 |
2008 |
Option price |
| 1997 Scheme |
|
|
|
|
|
|
| June 1998 |
– |
161,863 |
|
– |
0.2 |
557p |
| November 1998 |
– |
7,425 |
|
– |
0.6 |
404p |
| June 1999 |
98,880 |
98,880 |
|
0.3 |
1.2 |
358p |
| 2000 Scheme |
|
|
|
|
|
|
| September 2000 |
232 |
232 |
|
1.5 |
2.5 |
215p |
| June 2001 |
135,989 |
135,989 |
|
2.3 |
3.3 |
256p |
| December 2001 |
18,087 |
71,658 |
|
2.8 |
3.7 |
350p |
| 2002 Scheme |
|
|
|
|
|
|
| June 2002 |
579,237 |
659,465 |
|
3.3 |
4.2 |
350p |
| November 2002 |
47,150 |
47,150 |
|
3.7 |
4.7 |
353p |
| June 2003 |
1,398,584 |
1,502,053 |
|
4.3 |
5.2 |
297p |
| November 2003 |
36,109 |
36,109 |
|
4.7 |
5.7 |
270p |
| February 2004 |
33,111 |
33,111 |
|
4.9 |
5.8 |
270p |
| July 2004 |
4,417,613 |
4,831,318 |
|
5.3 |
6.3 |
347p |
| November 2004 |
806,193 |
859,684 |
|
5.7 |
6.7 |
337p |
| June 2005 |
1,061,598 |
1,178,581 |
|
6.3 |
7.2 |
352p |
|
8,632,783 |
9,623,518 |
|
5.0 |
5.9 |
335p |
C. Performance Share Plan
The Performance Share Plan is the primary long-term incentive plan for approximately 100 of the most senior managers and was first approved by shareholders in 2005. Under the plan, annual awards, based on a percentage of salary, may be offered. The extent to which the awards vest is based on adjusted earnings per share growth over three years. The value of any dividends earned on the vested shares during the three years will also be paid on vesting. Further details are set out in the Remuneration report. Awards under this scheme have been made in each year since 2005.
During the year, 6,835,938 shares (last year 3,414,413) were awarded under the plan. The weighted average fair value of the shares awarded was 368.9p (last year 704.0p).
D. Deferred Share Bonus Plan
The Deferred Share Bonus Plan was introduced in 2005/06 as part of the Annual Bonus
Scheme for approximately 450 of the most senior managers. As part of the scheme, the managers are required to defer a proportion of any bonus paid into shares which will be held for three years. There are no further performance conditions on these shares, other than continued employment, and the value of any dividends earned during the deferred period will be paid on vesting.
During the year, 288,656 shares (last year 2,182,379) were awarded under the plan in relation to the annual bonus. The fair value of the shares awarded was 381.6p (last year 706.6p).
E. Restricted Share Plan
The Restricted Share Plan was established in 2000 as part of the reward strategy for retention and recruitment of senior managers who are vital to the success of the business. The plan operates for senior managers below executive director level. Awards under the plan are made as part of ongoing reviews of reward packages, and for recruitment. The shares are held in trust for a period of between one and three years, at which point they are released to the employee, subject to them still being in employment. The value of any dividends earned during the restricted period will also be paid at the time of vesting.
During the year, 1,755,667 shares (last year 328,165) have been awarded under the plan. The weighted average fair value of the shares awarded was 337.8p (last year 604.6p).
F. United Kingdom Share Incentive Plan
The Share Incentive Plan is a discretionary, all-employee plan, approved by HMRC, under which Freeshares may be allocated by the Company. The last award was made in June 2003, which vested in June 2008.
G. Share Matching Deal Plan
The Share Matching Deal Plan was introduced in 2006 for those employees who were eligible to receive a cash-only bonus. The scheme was not open to those employees who participated in the Deferred Share Bonus Plan. The plan allows employees to invest a proportion of their bonus in shares of the Company. These investment shares must be held by the participant for three years, during which time they will receive dividends. At the end of the three year holding period, if the participant is still in employment with the Company, and still holds the investment shares, they will receive one matching share for every four that they bought.
No shares were awarded under the Share Matching Deal Plan during the year.
H. Marks and Spencer Employee Benefit Trust
The Marks and Spencer Employee Benefit Trust (the Trust) holds 4,203,250 (last year 8,795,896) shares with a book value of £27.8m (last year £60.0m) and a market value of £11.1m (last year £34.9m). These shares were acquired by the Trust in the market. In addition, the Trust has entered into a call option to purchase up to 6.3 million of the Company’s shares. The Trust used funds provided by Marks and Spencer plc to meet the Group’s obligations. Awards are granted to employees at the discretion of Marks and Spencer plc and shares awarded to employees by the Trust in accordance with the wishes of Marks and Spencer plc under senior executive share schemes, including the Restricted Share Plan. Dividends are waived on all of these plans except for the Deferred Bonus Share Plan and Restricted Share Plan where dividends are paid via a Dividend Reinvestment Plan for awards made in the form of forfeitable shares.