33 Share options
The Group operates share-based payment schemes as part of the total remuneration package provided to employees – these schemes comprise both share option schemes where employees acquire shares at a grant price and share award plans whereby shares are issued to employees at no cost, subject to the achievement by the Group of specified performance targets. Details of the performance criteria to be met for each of the schemes, and details of the awards to the directors, are set out in the Remuneration report.
a Share Option Plan 1999
The British Airways Share Option Plan granted options to qualifying employees based on performance at an option price which was not less than the market price of the share at the date of the grant (or the nominal value if shares are to be subscribed and this value is greater than the market value). The options are subject to a three-year vesting period. Upon vesting, options may be exercised at any time until the 10th anniversary of the date of grant with the exception of grants made during 2004/05 when there will be a single re-test after a further year which will measure performance of the Group over the four-year period from the date of grant. No further grants of options under the Share Option Plan will be made other than those during 2005/06 in relation to performance during 2004/05 (for which there will be no re-testing).
b Long Term Incentive Plan
The Long Term Incentive Plan (LTIP) awarded options to senior executives conditional upon the Company’s achievement of a performance condition measured over three financial years. If granted, all options are immediately exercisable for seven years and no payment is due upon exercise of the options. No further awards under the Long Term Incentive Plan have been made since June 16, 2004.
c Performance Share Plan
From 2005 the Group introduced a Performance Share Plan for senior executives. Options over shares will be awarded conditional on the achievement of a variety of performance conditions and will vest after three years subject to the executive remaining employed by the Group. A further award will be made that will vest based on the achievement of performance conditions over the following three financial years. No payment is due upon exercise of the options. Executives awarded shares under the Performance Share Plan will be expected to retain no fewer than 50 per cent of the shares (net of tax) which vest from the new schemes until they have built up a shareholding equivalent to 100 per cent of basic salary.
d Deferred Share Plan
In 2006 the Group introduced a Deferred Share Plan (DSP) granted to qualifying employees based on performance and service tests. It will be awarded when a bonus is triggered subject to the employee remaining in employment with the Group for three years after the grant date. The relevant management population will receive a percentage of their bonus in cash and the remaining percentage in shares through the DSP. The maximum deferral is 50 per cent.
e Share option summary
| Group and Company | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Deferred Share Plan | Performance Share Plan | LTIPs | Share Option Plan | ||||||
| Number of shares 000s |
Weighted average fair value £ |
Number of shares 000s |
Weighted average fair value £ |
Number of shares 000s |
Weighted average fair value £ |
Number of shares 000s |
Weighted average exercise price £ |
Weighted average fair value £ |
|
| Outstanding at April 1, 2006* | 1,789 | 4,395 | 42,047 | 2.57 | |||||
| Granted in the year | 843 | 4.84 | 1,101 | 4.35 | |||||
| Exercised during the year **/*** | (2,336) | (20,689) | 2.38 | ||||||
| Expired/cancelled | (13) | (247) | (576) | (2,018) | 2.81 | ||||
| Outstanding at April 1, 2007 | 830 | 2,643 | 1,483 | 19,340 | 2.74 | ||||
| Granted in the year | 1,444 | 2.61 | |||||||
| Exercised during the year **/*** | (157) | (1,530) | 2.71 | ||||||
| Expired/cancelled | (43) | (191) | (44) | (896) | 2.73 | ||||
| Outstanding at April 1, 2008 | 787 | 3,896 | 1,282 | 16,914 | 2.75 | ||||
| Options exercisable: | |||||||||
| At March 31, 2008 | 7 | 4.84 | 1,282 | 11,413 | 2.74 | ||||
| At March 31, 2007 | 1,483 | 7,642 | 2.82 | ||||||
Range of exercise prices at March 31, 2008 for Share Option Plan
| Options outstanding | Options exercisable | ||||
|---|---|---|---|---|---|
| Range of exercise prices | Number of shares 000s |
Weighted average remaining life (years) |
Weighted average exercise price £ |
Number of shares 000s |
Weighted average exercise price £ |
| £1.57 – £2.61 | 2,784 | 4.82 | 1.67 | 2,784 | 1.67 |
| £2.62 – £3.20 | 10,073 | 6.79 | 2.70 | 4,572 | 2.62 |
| £3.21 – £3.94 | 4,057 | 2.40 | 3.61 | 4,057 | 3.61 |
| 16,914 | 5.41 | 2.75 | 11,413 | 2.74 | |
Range of exercise prices at March 31, 2007 for Share Option Plan
| Options outstanding | Options exercisable | ||||
|---|---|---|---|---|---|
| Range of exercise prices | Number of shares 000s |
Weighted average remaining life (years) |
Weighted average exercise price £ |
Number of shares 000s |
Weighted average exercise price £ |
| £1.57 – £2.61 | 3,024 | 5.84 | 1.67 | 3,024 | 1.67 |
| £2.62 – £3.20 | 11,848 | 7.76 | 2.69 | 150 | 2.64 |
| £3.21 – £3.94 | 4,468 | 3.42 | 3.61 | 4,468 | 3.61 |
| 19,340 | 6.46 | 2.74 | 7,642 | 2.82 | |
* Included within this balance are options over 5,235,228 (2007: 5,708,227) shares that have not been recognised in accordance with IFRS 2 as the options were granted on or before November 7, 2002. These options have not been subsequently modified and therefore do not need to be accounted for in accordance with IFRS 2.
** The weighted average share price at the date of exercise for the options exercised is £4.19 (2007: £5.04).
*** Part of the exercise of share options during the year met through shares previously held by British Airways Employee Benefits Trust (Jersey) Limited.
For the share options outstanding as at March 31, 2008, the weighted average remaining contractual life is five years (2007: six years).
For options granted during the year the weighted average option life was three years (2007: three years).
The fair value of equity-settled share options granted is estimated as at the date of grant using a binomial lattice or Monte-Carlo model, taking into account the terms and conditions upon which the options were granted. The following table lists the inputs to the models for the options granted in the year:
| 2008 | 2007 | |
|---|---|---|
| Expected share price volatility (per cent) | 24 | 28 |
| Historical volatility (per cent) | 24 | 28 |
| Expected comparator group volatility (per cent) | 19-96 | 19-116 |
| Expected comparator correlation (per cent) | 28 | 23 |
| Expected life of options (years) | 3 | 3 |
| Weighted average share price | 4.03 | 4.94 |
The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. Volatility was calculated with reference to the Group’s weekly share price volatility. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. The fair value of the Performance Share Plans also takes into account a market condition of total shareholder returns as compared to strategic competitors. No other features of options granted were incorporated into the measurement of fair value.
The share-based payments charge has been recorded in the income statement as follows:
| £ million | 2008 | 2007 |
|---|---|---|
| Employee costs | 3 | 10 |