Aviva 2007 Annual Report Download - page 180
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29 – Equity compensation plans continued
(i) Share options
The fair value of the options was estimated on the date of grant, based on the following weighted average assumptions:
Weighted average assumption 2007 2006
Share price 733.5p 781p
Exercise price 563p 593p
Expected volatility 24% 26%
Expected life 4.07 years 3.82 years
Expected dividend yield 3.83% 3.70%
Risk-free interest rate 5.09% 4.80%
The expected volatility used was based on the historical volatility of the share price over a period equivalent to the
expected life of the options prior to its date of grant.
The risk-free interest rate was based on the yields available on UK government bonds as at the date of grant. The bonds
chosen were those with a similar remaining term to the expected life of the options.
1,496,069 options granted after 7 November 2002 were exercised during the year (2006: nil).
(ii) Share awards
The fair value of the awards was estimated on the date of grant, based on the following weighted average assumptions:
Weighted average assumption 2007 2006
Share price 778.5p 814p
Expected volatility* 18.35% 23%
Expected volatility of comparator companies’ share price* 19% 22%
Correlation between Aviva and competitors’ share price* 53% 50%
Expected life 2.20 years 3.0 years
Expected dividend yield 3.83% 3.60%
Risk-free interest rate* 5.36% 4.50%
* For awards with market-based performance conditions.
The expected volatility used was based on the historical volatility of the share price over a period equivalent to the
expected life of the options prior to its date of grant.
The risk-free interest rate was based on the yields available on UK government bonds as at the date of grant. The bonds
chosen were those with a similar remaining term to the expected life of the options.
30 – Shares held by employee trusts
We satisfy awards and options granted under the executive incentive plans partly through shares purchased in the
market and held by employees share trusts. This note gives details of the shares held in these trusts.
Movements in the carrying value of shares held by employee trusts comprise:
2007 2006
Number £m Number £m
Cost debited to shareholders’ funds
At 1 January 682,202 – 1,823,788 –
Acquired in the year 1,556,583 10 ––
Distributed in the year (717,721) – (1,141,586) –
Balance at 31 December 1,521,064 10 682,202 –
The shares are owned by employee share trusts in the Company and a subsidiary undertaking to satisfy awards under the
Group’s Long-Term Incentive Plan and Deferred Bonus Plans. Details of the features of the plans can be found in the
Directors’ renumeration report.
These shares were purchased in the market and are carried at cost less amounts changed to the income statement in prior
years. At 31 December 2007, they had an aggregrate nominal value of £380,266 (2006: £170,550) and a market value of
£10 million (2006: £6 million). The trustees have waived their rights to dividends on the shares held in the trusts.
Aviva plc
Annual Report and
Accounts 2007
176
Financial
statements
Notes to the consolidated financial statements continued