Experian 2008 Annual Report Download - page 125

123Experian Annual Report 2008
Introduction 2 – 5
Business review 6 – 37
Governance 38 – 64
Financial statements Group financial statements Financial statements Group financial statements
35. Share-based payment arrangements (continued)
(iii) Information relating to option valuation techniques
For the above plans the Black-Scholes model is used to determine an appropriate value of the option grants and inputs into
the model are calculated as follows:
Expected volatility: Experian Share Option Plan – As shares in Experian Group Limited were newly listed during the
year ended 31 March 2007, there was insufficient share price history in order to calculate historical volatility in that year.
Accordingly to arrive at a reasonable volatility assumption an analysis of the share price volatility of comparable companies
was performed in that year. Subsequently volatility has been calculated as an average over the expected life with an
assumption made for volatility in each year of the expected life. Volatility in the first year is now assumed to be the same as
implied volatility on grant date. Volatility for year 4 and beyond is assumed to remain at the long run historic volatility. Linear
interpolation is assumed for years 2 and 3.
Expected volatility: Experian Sharesave Plans – Calculated as an average over the expected life with an assumption made for
volatility in each year of the expected life. Volatility in the first year is assumed to be the same as implied volatility on grant
date. Volatility for year 4 and beyond is assumed to remain at the long run historic volatility. Linear interpolation is assumed
for years 2 and 3.
Expected volatility: former GUS plans – Calculated as an average over the expected life with an assumption made for
volatility in each year of the expected life. Volatility in the first year was assumed to be the same as implied volatility on grant
date. Volatility for year 4 and beyond was assumed to remain at the long run (10 year observed) historic volatility. Linear
interpolation was assumed for years 2 and 3.
Expected dividend yield – Yields are based on the current consensus analyst forecast figures at the time of grant.
The inputs utilised are an average of the forecast over the next three financial years.
Risk-free rate – Rates are obtained from the UK Government Debt Management Office website which details historical
prices and yields for gilt strips.
Expected option life to exercise: Experian Share Option Plan – Options under the Experian Share Option Plan vest 50% after
3 years and 50% after 4 years. The expected life is 4 years for the 50% that vest after 3 years and 4.85 years for the 50% that
vest after 4 years.
Expected option life to exercise: Experian Sharesave Plans – Options under these plans have expected lives of either 3 or 5
years.
Expected option life to exercise: former GUS plans – Options under The 1998 Approved and Non-Approved Executive Share
Option Schemes had expected lives of 4 years, The North America Stock Option Plan had an expected life of 3.75 years and
the savings related share option schemes had expected lives of either 3 or 5 years.
Share price on grant date: Experian Share Option Plan – The majority of the grants made in the year ended 31 March 2007
were made on 11 October 2006. As this was Experian’s first trading day, the weighted average price of trades was used. For
subsequent grants, the closing price on the day of grant was used.
Share price on grant date: Experian Sharesave Plans – The closing price on the day the options were granted.
Share price on grant date: former GUS plans – The closing price on the day the options were granted.
Option exercise price – Exercise price as stated in the terms of each award.