- Financial Statements
Notes to the Consolidated Financial Statements
for the year to 31 December 2007
39. Share-based payments
Equity-settled share option plan
Details of all equity-settled share-based payment arrangements in existence during the year are set out in the paragraphs on ‘Executive share-based reward’ in the Remuneration Report.
| 2007 | 2006 | |||
| Schemes requiring consideration from participants: | Options | Weighted average exercise price (in £) |
Options | Weighted average exercise price (in £) |
| Outstanding at beginning of period | 6,956,315.0 | 2.28 | 15,279,832.0 | 2.10 |
| Granted during the period | 2,640,216.0 | 2.65 | 1,409,702.0 | 2.79 |
| Lapsed during the period | (421,974.0) | (2.94) | (1,726,908.0) | (2.16) |
| Exercised during the period | (2,142,532.0) | (2.00) | (8,006,311.0) | (2.06) |
| Acquired with subsidiary | 8,427,977.0 | 2.93 | – | – |
| Outstanding at the end of the period | 15,460,002.0 | 2.72 | 6,956,315.0 | 2.28 |
| Exercisable at the end of the period | 3,222,426.0 | 2.04 | 3,358,276.0 | 1.78 |
The weighted average share price at the date of exercise for share options exercised during the period was £3.30 (2006: £3.74). The options outstanding at 31 December 2007 had a range of exercise prices from £1.27 to £4.57 (2006: £1.25 to £2.79) and a weighted average remaining contractual life of 4.8 years (2006: 4.4 years).
| 2007 | 2006 | |||||
| Schemes
not requiring consideration from participants: |
Options | Weighted average exercise price (in £) |
Options | Weighted average exercise price (in £) |
||
| Outstanding at beginning of period | 8,428,486 | – | 7,364,498 | – | ||
| Granted during the period | 2,062,377 | – | 2,652,653 | – | ||
| Lapsed during the period | (2,230,286) | – | (1,032,616) | – | ||
| Exercised during the period | (2,204,708) | – | (556,049) | – | ||
| Acquired with subsidiary | 4,035,566 | – | – | – | ||
| Outstanding at the end of the period | 10,091,435 | – | 8,428,486 | – | ||
| Exercisable at the end of the period | 88,538 | – | 31,592 | – | ||
The options outstanding at 31 December 2007 had a weighted average remaining contractual life of 4.2 years (2006: 1.7 years).
Schemes not requiring consideration from participants include the George Wimpey Long Term Incentive Plan and the Performance Share Plan.
For share options with non-market conditions granted during the current and preceding year the fair value of those options at grant date were determined using the Binomial model. The inputs into that model were as follows:
| 2007 | 2006 | |
| Weighted average share price | £2.81 | £3.74 |
| Weighted average exercise price | £2.65 | £1.02 |
| Expected volatility | 30.0% | 27.0%-29.3% |
| Expected life | 3/5 years | 3/5 years |
| Risk-free rate | 5.1% | 4.5%-4.8% |
| Expected dividend yield | 3.6% | 4.1% |
The weighted average fair value of share options granted during the year is £0.69 (2006: £2.56).
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the expected term.
For share options with market conditions granted during the current year, the fair value of these options were determined using the Monte Carlo simulation model. The inputs into that model were as follows:
| 2007 | 2006 | |
| Weighted average share price | £4.92 | £3.82 |
| Weighted average exercise price | £nil | £nil |
| Expected volatility | 26% | 27% |
| Expected life | 3 years | 3 years |
| Risk-free rate | 5.4% | 4.5% |
| Expected dividend yield | 3.6% | 4.1% |
The weighted average fair value of share options granted during the year is £4.35 (2006: £1.01).
Expected volatility was determined by calculating the historical volatility of the Group’s share price over the expected term. The expected life used in the model is based on historic exercise patterns.
The Group recognised total expenses of £0.6m and £6.1m related to equity-settled share-based payment transactions in 2007 and 2006 respectively. Although there was a modification to certain Performance Share Plan awards during the year following the merger with George Wimpey Plc, no incremental fair value charge has been recognised as an additional cost as a result of the modification. The company does not currently expect the performance vesting criteria to be met, causing the awards to lapse at the end of the specified period.