Barclays 2006 Annual Report Download - page 231

Barclays PLC
Annual Report 2006 227
Financial statements
3
51 Share-based payments (continued)
Absa Group Phantom Performance Share Plan (Absa Phantom PSP)
The Absa Phantom PSP was implemented during the year to replace the Absa Group Limited Share Incentive Trust (AGLSIT) scheme. Shares are
awarded at no cost to participants and the cash paid is equal to the market value of ordinary shares of Absa Group Limited. The performance of Absa
over a three-year period determines the final number of notional shares that any cash payment would be based on. Awards vest after three years to
the extent that the performance conditions are satisfied.
The weighted average fair value per option granted during the year is as follows:
2006 2005
££
Sharesave 1.88 1.29
Sharepurchase 6.55 5.57
ESAS 6.73 5.03
PSP 7.53 3.99
BGI EOP 21.18 10.41
AGLSIT 2.70 2.42
AGLESAS 8.42 –
ISOP –2.78
Fair values for Sharesave, PSP , BGI EOP, AGLSIT and ISOP are calculated at the date of grant using either a Black-Scholes model or Monte Carlo
simulation. Sharepurchase, ESAS and AGLESAS are nil cost awards on which the performance conditions are substantially completed at the date
of grant. Consequently the fair value of these awards is based on the market value at that date.
As described above, the terms of the ESAS scheme require shares to be held for a set number of years from the date of vest. The calculation of the
vest date fair value of such awards includes a reduction for this post-vesting restriction. This discount is determined by calculating how much a
willing market participant would rationally pay to remove the restriction using a Black-Scholes option pricing model. The total discount required in
2006 is £62m (2005: £36m, 2004: £25m).
The significant weighted average assumptions used to estimate the fair value of the options granted in 2006 are as follows:
2006
Sharesave PSP BGI EOP AGLSIT
Weighted average share price 6.20 6.74 81.12 8.92
Weighted average exercise price 5.11 – 81.12 6.57
Expected volatility 25% 25% 24% 29%
Expected option life 4 years 3 years 4 years 5 years
The significant weighted average assumptions used to estimate the fair value of the options granted in 2005 are as follows:
Sharesave PSP BGI EOP AGLSIT ISOP
Weighted average share price 5.71 5.33 39.09 8.25 5.73
Weighted average exercise price 4.44 n/a 39.09 8.41 5.66
Expected volatility 24% 20% 25% n/a 34%
Option life 4 years 3 years 4 years 5-8 years 5 years
The significant weighted average assumptions used to estimate the fair value of the options granted in 2004 are as follows:
Sharesave BGI EOP ISOP
Weighted average share price 5.28 20.11 4.77
Weighted average exercise price 3.59 20.11 4.18
Expected volatility 25% 25% 34%
Option life 5 years 5 years 5 years
Expected volatility and dividend yield on the date of grant have been used as inputs into the respective valuation models for Sharesave and PSP.
Expected volatility has been determined using historical volatility of its peers over the expected life of the options for BGI EOP and AGLSIT applies
a five-year rolling period.
The yield on UK government bonds with a commensurate life has been used to determine the risk-free discount rate of 5% for all schemes other than
AGLSIT. Option life is estimated based upon historical data for the holding period of options between grant and exercise dates. The risk-free rate on
the AGLSIT scheme represents the yield, recorded on date of option grant, on South African government zero coupon bond of a term commensurate
to the expected life of the option.