Air New Zealand 2015 Annual Report Download - page 28

AIR NEW ZEALAND GROUP
Notes to the Financial Statements (continued)
As at 30 June 2015
26
18. Share Capital (continued)
Options
WEIGHTED
AVERAGE
SHARE PRICE
(CENTS)
EXPECTED
VOLATILITY OF
SHARE PRICE
(%)
EXPECTED
VOLATILITY OF
PERFORMANCE
BENCHMARK
INDEX (%)
CORRELATION
OF VOLATILITY
INDICES
CONTRACTUAL
LIFE
(YEARS)
RISK FREE
RATE
(%)
EXPECTED
DIVIDEND
YIELD
(%)
DISCOUNT
TO REFLECT
NEGOTIABILITY
RESTRICTIONS
(%)
Long Term Incentive Plan*
2014
2013(1)
2013 (2)
2012
2 011
139
112
146
111
129
27
30
30
35
37
15
15
15
17
17
0.25
0.20
0.25
0.45
0.45
5.0
5.0
4.8
5.0
5.0
4.40
3.10
3.30
4.09
4.72
5.8
4.9
3.8
5.0
5.4
25
25
25
25
25
CFO Option Plan**
2013 Tranche 1
2013 Tranche 2
112
112
30
30
15
20
0.20
0.20
4.0
6.0
2.90
3.30
4.9
4.9
20
25
CEO Option Plan*** 1
2013
2012
2 011
112
111
129
25
30
37
-
17
17
-
0.40
0.45
2.0
3.0
4.0
2.60
3.54
4.46
3.4
5.0
5.4
5
13
20
* Volatility and correlation estimates were derived using historical data over past 3-5 years; Risk free rate was based on the 5 year zero coupon bond yield.
** Volatility and correlation estimates were derived using historical data over past 2-4 years; Risk free rate was based on 4-6 year zero coupon bond yields.
*** Volatility and correlation estimates were derived using historical data over past 1-3 years; Risk free rate was based on the 2 year zero coupon bond yield.
Performance share rights
Performance share rights are granted at no cost to the holder. For each performance share right that vests, one share will be issued. The number
granted is determined by an independent valuation of the fair value at the date of issue. Vesting of performance share rights is subject to the
holder remaining an employee and vesting conditions relating to the Air New Zealand share price being achieved. If this is not achieved on the third
anniversary of the issue date, 50 percent of performance rights will lapse. For the remaining 50%, there will be a further 6 month opportunity for the
performance rights to vest. If they have not vested at the end of this period they will lapse.
In order to vest the Air New Zealand share price adjusted for distributions made over the period must outperform a comparison index over a period
of three years (or up to a maximum of three and a half years) after the issue date. The index is made up of 50:50 of the NZX All Index and the
Bloomberg World Airline Total Return Index (adjusted for dividends).
Options
The exercise price has been modelled as a stochastic variable, using the volatility, correlation, dividend yield and risk free rate assumptions provided.
The volatility and correlation estimates were derived from measuring these parameters using historical data. The risk free rate was based on the
zero coupon bond yield implied from short to medium term yields for government bonds.
The expected life used in calculating the value of options was determined by analysis of the attrition rates and early exercise behaviour of staff in
long term incentive programmes in similar large corporates.
Long Term Incentive Plan (LTIP)
The options may be exercised at any time between three and five years after the date of issue (subject to compliance with insider trading restrictions and
the rules of the scheme), but may lapse if the participants leave the Group in certain specified circumstances. The 2013(2) options may be exercised at
any time between 21 September 2015 and 21 September 2017 (subject to compliance with insider trading restrictions and the rules of the scheme).
The exercise price will be set three years after issue, and will be based on Air New Zealand’s share price at the issue date increased or decreased
by the percentage movement in a specified index over the three years, and decreased by any distributions made over the same period. The specified
index comprises the total shareholder return for the NZSX All Gross Index and the Bloomberg World Airline Total Return Index (adjusted for
dividends) in 50:50 proportions.
CFO Option Plan
The first tranche of options may be exercised at any time between two to four years after the date of issue for the CFO Option Plan and the second
tranche between four to six years after the date of issue for the CFO Option Plan (subject to compliance with insider trading restrictions and the
rules of the scheme), but may lapse if the participant leaves the Group in certain specified circumstances.
The exercise price was set for the first tranche two years after issue, and the second tranche will be set four years after issue, and is based on
Air New Zealand’s share price at the issue date increased or decreased by the percentage movement in a specified index over the vesting period,
and decreased by any distributions made over the same period. The specified index comprises the total shareholder return for the NZSX All Gross
Index and the Bloomberg World Airline Total Return Index (adjusted for dividends) in 50:50 proportions.
CEO Option Plan1
Options issued in the 2013 financial year were exercisable immediately. The exercise price was determined using a Black Scholes option pricing model
based on Air New Zealand’s share price over the 10 business days from 4 to 17 September 2012 adjusted for expected distributions in September 2014.
1. The CEO Option Plan was part of the former Chief Executive Officer’s total remuneration.