Notes to the financial statements
24. Share-based payments
The Group operates four share schemes: The International Personal Finance plc Incentive Plan (‘the Incentive Plan’), The International Personal Finance plc Performance Share Plan (‘the Performance Share Plan’), The International Personal Finance plc Exchange Share Scheme (‘the Exchange Scheme’) and The International Personal Finance plc Employee Savings-Related Share Option Scheme (‘the SAYE Scheme’).
The income statement charge in respect of the Incentive Plan and the Performance Share Plan has been calculated using a Monte Carlo simulation model as these schemes are subject to a Total Shareholder Return (‘TSR’) performance target. The income statement charge in respect of the SAYE scheme is calculated using a binominal option pricing model. The total income statement charge in respect of these share-based payments is £2.1m (2007: £0.9m).
The income statement charge in respect of the Exchange Scheme is equal to the fair value of the shares at the date of award (share price at date of award adjusted for dividends). All awards will be equity settled. The total income statement charge in respect of these share-based payments is £nil (2007: £0.8m). The 2007 cost was included within exceptional demerger costs.
In 2007 a charge of £1.6m was charged to the income statement in respect of an accelerated charge for share options over shares in Provident Financial plc which had been granted to Group employees and which became exercisable on demerger and a charge of £0.2m was made in respect of share options over shares in Provident Financial plc prior to demerger.
The fair value per award granted and the assumptions used in the calculation of the share-based payment charge are as follows:
| Incentive Plan | Performance Share Plan | Exchange Scheme | SAYE Scheme |
|
|---|---|---|---|---|
| Grant date | 20 July 2007 | 20 July 2007 | 20 July 2007 | 02 April 2008 |
| Share price at award date (£) | 2.50 | 2.50 | 2.50 | 2.28 |
| Base price for TSR | 2.26 | 2.26 | n/a | n/a |
| Exercise price (£) | nil | nil | nil | 1.88 |
| Share awards outstanding | n/a | 1,951,129 | 357,626 | 288,278 |
| Vesting period (years) | 3-4 | 3-4 | 2 | 3, 5 and 7 |
| Expected volatility | 30.0% | 30.0% | n/a | 30.0% |
| Award life (years) | 3 | 3 | 2 | Up to 7 |
| Expected life (years) | 3 | 3 | 2 | Up to 7 |
| Risk-free rate | 5.7% | 5.7% | n/a | 5.7% |
| Expected dividends expressed as a dividend yield | 2.8% | 2.8% | 2.8% | 2.8% |
| Deferred portion | 50.0% | 50.0% | n/a | n/a |
| TSR threshold | 30.0% | 30.0% | n/a | n/a |
| TSR maximum target | n/a | 60.0% | n/a | n/a |
| Fair value per award (£) | n/a | 1.10-1.13 | 2.40 | 0.68-0.85 |
No exercise price is payable in respect of awards made under the Incentive Plan, Performance Share Plan and Exchange Scheme. As IPF plc shares have only been publicly traded since the date of demerger (16 July 2007) the expected volatility is based on the three-year volatilities of comparable companies. The risk-free rate of return is the yield on zero coupon UK government bonds with a remaining term equal to the expected life of the award. For the Performance Share Plan the maximum number of shares that will be awarded is 1,951,129 assuming the 60% TSR target is met, for the Incentive Plan there is no maximum number of shares. For both the Performance Share Plan and the Incentive Plan the fair value has been calculated based on an estimate of the amount of shares likely to vest.
Further detail in respect of the Incentive Plan, Performance Share Plan, Exchange Scheme and SAYE scheme is given in the directors’ remuneration report.
The movements in the outstanding awards are outlined in the table below:
| Performance Share Plan | Exchange Scheme | SAYE scheme | ||||||
|---|---|---|---|---|---|---|---|---|
| Group | Number | Weighted average exercise price | Number | Weighted average exercise price | Number | Weighted average exercise price | ||
| Outstanding at 1 January 2008 | 1,483,799 | – | 391,590 | – | – | – | ||
| Granted | 809,160 | – | – | – | 296,957 | 1.88 | ||
| Expired / Lapsed | (341,830) | – | (26,210) | – | (8,679) | 1.88 | ||
| Exercised | – | – | (7,754) | – | – | – | ||
| Outstanding at 31 December 2008 | 1,951,129 | – | 357,626 | – | 288,278 | 1.88 | ||
| Exercisable at 31 December 2008 | – | – | – | – | – | – | ||
Outstanding at 1 January 2007 |
– | – | – | – | – | – | ||
| Granted | 1,592,193 | – | 420,674 | – | – | – | ||
| Expired / Lapsed | (108,394) | – | (29,084) | – | – | – | ||
| Exercised | – | – | – | – | – | – | ||
| Outstanding at 31 December 2007 | 1,483,799 | – | 391,590 | – | – | – | ||
| Exercisable at 31 December 2007 | – | – | – | – | – | – | ||