ING Direct 2011 Annual Report Download - page 197

Notes to the consolidated annual accounts of ING Group continued
The fair value of options granted is recognised as an expense under staff expenses and is allocated over the vesting period of the options.
The fair values of the option awards have been determined using a Monte Carlo simulation. This model takes the risk free interest rate into
account (2.0% to 4.6%), as well as the expected life of the options granted (5 to 9 years), the exercise price, the current share price (EUR
2.90 – EUR 26.05), the expected volatility of the certificates of ING Group shares (25% – 84%) and the expected dividends yield (0.94%
to8.99%). The source for implied volatilities used for the valuation of the stock options is ING’s trading system. The implied volatilities in
this system are determined by ING’s traders and are based on market data implied volatilities not on historical volatilities.
Due to timing differences in granting option rights and buying shares to hedge them, an equity difference can occur if shares are
purchased at a different price than the exercise price of the options. However, ING Group does not intentionally create a position
andoccurring positions are closed as soon as possible. If option rights expire, the results on the (sale of) shares which were bought
tohedge these option rights are recognised in Shareholders’ equity.
Changes in share awards
Share awards (in numbers) Weighted average grant date fair value (in euros)
2011 2010 2009 2011 2010 2009
Opening balance 35,040,106 14,653,673 7,792,009 7.25 7.53 22.60
Granted 20,290,408 26,369,146 6,273,467 9.78 7.55 3.29
Performance effect –1,610,321 –1,507,307 –1,085,987 11.27 13.92 32.52
Vested –3,636,399 –2,961,355 –1,228,764 10.79 11.72 32.63
Forfeited –2,060,908 –1,514,051 –498,553 7.56 7.13 24.01
Rights issue 3,401,501
Closing balance 48,022,886 35,040,106 14,653,673 7.90 7.25 7.53
As per 31 December 2011 the share awards consists of 41,150,790 share awards (2010: 28,592,210; 2009: 10,810,687) relating to
equity-settled share-based payment arrangements and 6,872,096 share awards (2010: 6,447,896; 2009: 3,842,986) relating to cash-
settled share-based payment arrangements.
The fair value of share awards granted is recognised as an expense under staff expenses and is allocated over the vesting period of the
share awards. The fair values of share awards containing a market based performance condition have been determined using a Monte
Carlo simulation based valuation model. The model takes into account the risk free interest rate, the current stock prices, expected
volatilities and current divided yields of the performance peer group used to determine ING’s Total Shareholder Return (TSR) ranking.
As at 31 December 2011 total unrecognised compensation costs related to share awards amounted to EUR 149 million (2010: EUR 158
million; 2009: EUR 41 million). These costs are expected to be recognised over a weighted average period of 1.5 years (2010: 2.1 years;
2009: 1.8 years).
46 OTHER INTEREST EXPENSES
Other interest expenses mainly consist of interest in connection with the insurance operations, including interest on the perpetual
subordinated loans.
Other interest expenses include nil and nil dividends paid on preference shares and trust preferred securities (2010: nil and nil;
2009:niland EUR 86 million).
In 2011, total interest income and total interest expense for items not valued at fair value through profit and loss were EUR 43,085 million
(2010: EUR 41,139 million; 2009: EUR 41,688 million) and EUR 21,805 million (2010: EUR 19,212 million; 2009: EUR 22,257 million)
respectively. Net interest income of EUR 20,373 million is presented in the following lines in the profit and loss account.
Total net interest income
2011 2010 2009
Interest result banking operations 35 13,449 13,323 12,375
Investment income – insurance operations 37 7,452 7, 20 6 6,617
Other interest expenses –528 –786 –711
20,373 19,743 18,281
1 Who we are 2 Report of the Executive Board 3 Corporate governance 4 Consolidated annual accounts 5 Parent company annual accounts 6 Other information 7 Additional information
195ING Group Annual Report 2011