Marks and Spencer 2012 Annual Report Download - page 94

Financial statements Marks and Spencer Group plc Annual report and financial statements 2012 92
Notes to the financial statements continued
13 Share-based payments continued
The fair values of the options granted during the year have been calculated using the Black-Scholes model assuming the inputs
shown below:
2012 2011
3-year plan 3-year plan
Grant date Nov 11 Nov 10
Share price at grant date 322p 399p
Exercise price 258p 319p
Option life in years 3 years 3 years
Risk-free rate 0.5% 1.5%
Expected volatility 31.4% 44.5%
Expected dividend yield 5.4% 4.0%
Fair value of option 67p 125p
Volatility has been estimated by taking the historic volatility in the Company’s share price over a three year period.
The resulting fair value is expensed over the service period of three years on the assumption that 15% of options will lapse over
the service period as employees leave the Group.
Outstanding options granted under the UK Employees’ SAYE Scheme are as follows:
Number of options
Weighted average remaining
contractual life (years)
Options granted 2012 2011 2012 2011 Option price
January 2006 – 538,403 – 0.2 349p
January 2007 583,961 630,926 0.2 1.2 559p
January 2008 655,213 2,178,087 1.2 0.9 517p
January 2009 15,727,797 35,826,944 1.9 2.0 203p
January 2010 6,349,388 7,253,289 1.2 2.2 292p
January 2011 6,016,473 7,868,272 2.2 3.2 319p
January 2012 17,912,510 – 3.2 – 258p
47,245,342 54,295,921 2.3 2.2 259p
B. Performance Share Plan*
The Performance Share Plan is the primary long-term incentive plan for approximately 100 of the most senior managers and
was first approved by shareholders in 2005. Under the plan, annual awards, based on a percentage of salary, may be offered.
The extent to which the awards vest is based on adjusted (underlying basic) earnings per share growth over three years. The
value of any dividends earned on the vested shares during the three years will also be paid on vesting. Further details are set
out in the Remuneration report on page 59. Awards under this scheme have been made in each year since 2005.
During the year, 7,887,169 shares (last year 7,788,119) were awarded under the plan. The weighted average fair value of the
shares awarded was 350.8p (last year 342.2p).
C. Deferred Share Bonus Plan*
The Deferred Share Bonus Plan was introduced in 2005/06 as part of the Annual Bonus Scheme for approximately 450 of
the most senior managers. As part of the scheme, the managers are required to defer a proportion of any bonus paid into
shares which will be held for three years. There are no further performance conditions on these shares, other than continued
employment, and the value of any dividends earned during the deferred period will be paid on vesting.
During the year, 2,366,847 shares (last year 4,982,573) have been awarded under the Plan in relation to the annual bonus. The
fair value of the shares awarded was 378.4p (last year 341.2p). As at 31 March 2012, 6,396,018 shares (last year 4,948,663)
were outstanding under the scheme.
D. Restricted Share Plan*
The Restricted Share Plan was established in 2000 as part of the reward strategy for retention and recruitment of senior
managers who are vital to the success of the business. The Plan operates for senior managers below executive director level.
Awards under the Plan are made as part of ongoing reviews of reward packages, and for recruitment. The shares are held in
trust for a period of between one and three years, at which point they are released to the employee, subject to them still being
in employment. The value of any dividends earned during the restricted period will also be paid at the time of vesting.
During the year, 1,356,046 shares (last year 651,000) have been awarded under the Plan. The weighted average fair value of the
shares awarded was 356.9p (last year 355.2p).
* Nil cost options
For the purposes of calculating the number of nil cost options awarded, the share price used is the average of the mid-market price for the five consecutive dealing days
preceding the grant date.