Equity-settled share option schemes
The Company operates two share option schemes in relation to Group employees. Options are exercisable at the middle market closing price for the working day prior to the date of grant and are exercisable three years from the date of grant if stated performance criteria have been met. Options lapse if not exercised within ten years of the date of grant or if the participant leaves Group employment.
Details of the share options outstanding during the year are as follows:
| Date of grant | Option
price in
pence | Exercise period | No. of options
outstanding |
|---|
| 2012 | 2011 |
|---|
| Sep-02 | 125.76 | 2005-2012 | – | 53,474 |
| Sep-03 | 147.27 | 2006-2013 | 32,084 | 139,031 |
| | | 32,084 | 192,505 |
Movements in share options are summarised as follows:
| Number
of shares under option
2012 | Weighted
average
exercise price
2012
pence | Number
of shares
under option
2011 | Weighted
average
exercise price
2011
pence |
|---|
| Outstanding at the beginning of the year | 192,505 | 141.25 | 685,951 | 165.18 |
| Exercised during the year | (160,421) | 140.10 | (381,750) | 172.15 |
| Expired during the year | – | – | (111,696) | 184.95 |
| Outstanding and exercisable at the end of the year | 32,084 | 147.27 | 192,505 | 141.25 |
The weighted average share price at the date of exercise for share options exercised during the year was 140.10 pence. The options outstanding at 31 December 2012 had a weighted average exercise price of 147.27 pence, and a weighted average remaining contractual life of 0.8 years. The average share price during the year was 369.8 pence.
The inputs into the Black–Scholes model are as follows:
| | 2012 | 2011 |
|---|
| Weighted average share price | pence | 157.5 | 157.5 |
| Weighted average exercise price | pence | 157.5 | 157.5 |
| Expected volatility | % | 42.7 | 42.7 |
| Expected life | years | 3.0 | 3.0 |
| Risk-free rate | % | 4.0 | 4.0 |
| Expected dividends | % | 4.3 | 4.3 |
Expected volatility was determined by calculating the historical volatility of the Group's share price over the previous three years. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
Bodycote Incentive Plan (BIP)
The Company operates the BIP under which Executive Directors and senior executives received a conditional award of Bodycote shares up to a maximum of 175% of base salary. Vestings of awards are based upon two performance measures, over a three year period.
Fifty per cent of the award is subject to a return on capital employed (ROCE) performance condition and fifty per cent of the award is subject to an earnings per share (EPS) performance condition.
In the event that threshold performance for both EPS and ROCE is not achieved none of the conditional awards will vest.
Bodycote Co-investment Plan (CIP)
The CIP permits executives to invest in shares up to a value equivalent to 40% of net basic salary. The CIP provides for the grant of awards of matching shares to participants on an annual basis in a maximum ratio of 1:1 to the gross investment made in deferred shares. Deferred shares must be held for three years and matching shares are subject to an absolute Total Shareholder Return (TSR) target. The threshold target for CIP matching awards is TSR growth of not less than 4% per annum compound in excess of growth in the Consumer Prices Index (CPI) for a threshold matching ratio of 1:2. Ten per cent per annum compound growth in excess of growth in the CPI will be required for a vesting matching ratio of 1:1.
The number of outstanding share awards is as follows:
| BIP
2012 | CIP
2012 | BIP
2011 | CIP
2011 |
|---|
| At 1 January | 5,384,567 | 235,982 | 4,491,128 | 193,257 |
| Granted during the year | 1,002,056 | 77,336 | 1,372,585 | 64,176 |
| Exercised during the year | (2,103,870) | – | – | – |
| Expired during the year | (96,488) | – | (479,146) | (21,451) |
| At 31 December | 4,186,265 | 313,318 | 5,384,567 | 235,982 |
Exercise Price = £nil.
Fair value is calculated as the share price at the date of the award. No exercise price is payable at vesting.
The inputs to the Monte Carlo Simulation model, used to determine the charge to the income statement for CIP are as follows:
| | 2012 | 2011 |
|---|
| Weighted average share price | pence | 369.8 | 375.8 |
| Weighted average exercise price | pence | nil | nil |
| Expected volatility | % | 50.0 | 50.0 |
| Expected life | years | 3.0 | 3.0 |
| Risk-free rate | % | 4.0 | 4.0 |
| Expected dividend yields | % | 2.3 | 2.3 |
The Group recognised total expenses of £3.9m (2011: £5.4m) related to equity-settled share-based payment transactions.