Food Lion 2011 Annual Report Download - page 130

128 // DELHAIZE GROUP FINANCIAL STATEMENTS ’11
21.3 Share-Based Compensation
Delhaize Group offers share-based incentives to certain members of its senior management: stock option plans for associates of
its non-U.S. operating companies; stock option, warrant and restricted stock unit plans for associates of its U.S. based
companies.
• Under a warrant plan the exercise by the associate of a warrant results in the creation of a new share, while stock option or
restricted stock unit plans are based on existing shares. Due to the sizeable administrative requirements that Belgian law
imposes on capital increases, a certain amount of time passes between the moment warrants have been exercised and the
capital increase is formally performed. In cases when the capital increase occurs after year-end for warrants exercised
before year-end, which usually concern a limited number of warrants, Delhaize Group accounts for the actual exercise of the
warrants at the date of the following capital increase. Consequently, no movement occurs in equity due to warrants
exercised pending a subsequent capital increase, until such a capital increase takes place. If considered dilutive, such
exercised warrants pending a subsequent capital increase are included in the diluted earnings per share calculation.
• Restricted stock unit awards represent the right to receive the number of ADRs set forth in the award at the vesting date at
no cost to plan participants.
The remuneration policy of Delhaize Group can be found as Exhibit E to the Delhaize Group’s Corporate Governance Charter
available on the Company’s website (www.delhaizegroup.com).
As explained in Note 2.3, the share-based compensation plans operated by Delhaize Group are accounted for as equity-settled
share-based payment transactions, do not contain cash settlement alternatives and the Group has no past practice of cash
settlement. The cost of such transactions with employees is measured by reference to the fair value of the equity instruments at
the date at which they are granted and is expensed over the applicable vesting period. The Group’s share-based compensation
plans are subject to service vesting conditions and do not contain any performance conditions.
Delhaize Group uses the Black-Scholes-Merton valuation model to estimate the fair value of share-based compensation. This
requires the selection of certain assumptions, including the expected life of the option, the expected volatility, the risk-free rate
and the expected dividend yield:
• The expected life of the option is based on management’s best estimate and based on historical option activity.
• The expected volatility is determined by calculating the historical volatility of the Group’s share price over the expected
option term.
• The risk-free rate is determined using a generic price of government bonds with corresponding maturity terms.
• The expected dividend yield is determined by calculating a historical average of dividend payments made by the Group.
The exercise price associated with stock options is dependent on the rules applicable to the relevant stock option plan. The
exercise price is either the Delhaize Group share price on the date of the grant (US plans) or the Delhaize Group share price on
the working day preceding the offering of the option (non-US plans).
The usage of historical data over a period similar to the life of the options assumes that the past is indicative of future trends, and
- as with all assumptions - may not necessarily be the actual outcome. The assumptions used for estimating fair values for
various share-based payment plans are given further below.
Total share-based compensation expenses recorded - primarily in selling, general and administrative expenses - were EUR
13 million, EUR 16 million, EUR 20 million in 2011, 2010 and 2009, respectively.
Non-U.S. Operating Entities Stock Options Plans
During 2009, Delhaize Group significantly reduced in its European entities the number of associates that are entitled to future
stock options and replaced this part of the long-term incentive plan with a “performance cash” plan. As a consequence, since
2009, only vice presidents and above are granted stock options.
25% of the options granted to associates of non-U.S. operating companies vest immediately and the remaining options vest after
a service period of approximately 3½ years, the date at which all options become exercisable. Options expire seven years from
the grant date.
An exceptional three-year extension was offered in 2003 for options granted under 2002 grant year. Further, in 2009, Delhaize
Group offered to the beneficiaries of the 2007 grant (under the 2007 stock option plan) the choice to extend the exercise period
from 7 to 10 years. Delhaize Group accounted for that change as a modification of the plan and recognizes the non-significant
incremental fair value granted by this extension, measured in accordance with IFRS 2, over the remaining vesting period.