27. Employee share schemes

Share options

The Group operates share award schemes whereby awards are granted to employees to acquire shares in Consort Medical plc at no cost, subject to the achievement by the Group of certain specified performance targets. It also offers savings-related share option schemes. Since the introduction of the 2005 LTIP scheme no further awards have been made under any Executive Share Option Scheme. In August 2011 and October 2011 awards were made under a new Company Share Option Scheme.

Grants of share options are normally exercisable at the end of the three-year vesting/performance period. Grants under savings-related share option schemes are normally exercisable after three years' saving. Grants under share option schemes are normally exercisable between three and ten years from the date of grant. Options under the share option schemes are normally granted at the market price ruling at the date of grant. The majority of options under the savings-related share option schemes are now granted at the market price ruling at the date of grant.

In June 2012, share options were granted under the new Company Share Option Scheme in tandem with grants under the LTIP. Further details are provided below.

Share options awarded to the directors are subject to performance criteria as laid out in the Remuneration Report.

Share-based compensation recognised in the income statement

The share-based compensation expense has been recorded in the income statement as follows:

2013
£000
2012
£000
Staff costs (note 4)1,4311,169
Cost arising on disposal (note 28)156
1,5871,169

Option pricing

For the purposes of valuing options to arrive at the stock-based compensation charge, the Black–Scholes option pricing model has been used. The assumptions used in the model are as follows:

SAYE
scheme
2013
Risk-free interest rate0.3%
Dividend yield2.7%
Volatility22.8%
Expected lives of options granted under:
Savings-related share option schemes3 years
Weighted average share price for grants in the year:
Savings-related share option schemes — market and option price702p

The expected volatility is based on historical volatility over the last three years. The expected life is the average expected period to exercise. The risk-free rate of return is the yield on zero-coupon UK Government bonds of a term consistent with the assumed option life.

Options outstanding

20132012
Save As You Earn Share Option SchemeNumber of
options
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
Outstanding at 1 May272,362396.0p278,228397.7p
Granted56,388702.0p29,028520.0p
Exercised(181,092)383.1p(1,931)558.5p
Forfeited(10,067)453.6p(32,963)518.0p
Outstanding at 30 April137,591534.6p272,362396.0p
Exercisable at end of year
20132012
Company Share Option SchemeNumber of
options
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
Outstanding at 1 May144,675485.1p106,367449.9p
Granted26,604626.5p46,102561.5p
Forfeited(28,627)507.3p(7,794)446.0p
Outstanding at 30 April142,652502.9p144,675485.1p
Exercisable at end of year
20132012
Executive Share Option SchemeNumber of
options
Weighted
average
exercise price
Number of
options
Weighted
average
exercise price
Outstanding at 1 May38,001482.3p101,689456.0p
Exercised(14,625)439.0p(63,688)441.0p
Outstanding at 30 May23,376509.0p38,001482.3p
Exercisable at end of year23,376509.0p38,001482.3p

Outstanding options granted under all schemes are as follows:

Options grantedOptions grantedWeighted average remaining
contractual life (years)
Price
2013201220132012
Savings-related share option schemes
July 201057,82362,2040.31.3382.0p
July 201124,96926,8421.32.3520.0p
July 201254,7992.3702.0p
Total137,59189,0461.31.6534.5p
Company and executive share option schemes
July 2004ESOS23,37629,0011.22.2509.0p
September 2010CSOS86,39294,7130.51.5446.0p
August 2011CSOS31,57546,1021.32.3561.5p
June 2012CSOS24,6852.1626.5p
Total166,028169,8161.01.8503.7p

In August 2012, share options were granted under the new Company Share Option Scheme in tandem with grants under the LTIP. Further details are provided below.

Performance Share Plan (LTIP)

The Group operates a Performance Share Plan whereby awards are granted to directors and senior management at no cost. The percentage of each award that vests is based upon the performance of the Group over a three-year measurement period.

Number of shares issuable2013
Number
2012
Number
Performance shares
At 1 May1,138,1841,128,409
Awards granted422,565406,909
Awards forfeited(622,086)(397,134)
At 30 April938,6631,138,184

Performance shares are issued at nil cost to the employee. There were no performance shares exercisable at the end of the year (2012: nil). The weighted average remaining contractual life of the performance shares in issue was 18 months (2012: 17 months).

Awards granted in the year were made in the form of an award of performance shares, and a linked CSOS option. The cumulative economic effect of these awards for both participants and the Company is identical to that for performance shares, and as such the fair value of these awards has been calculated on this aggregate basis.

During the year awards under the LTIP were granted to a number of employees. The fair value per share under award at grant has been calculated using a Monte Carlo share pricing model. The assumptions used in the calculation are as follows:

19 June 201225 June 2012
Share price at grant date635p678p
Shares under option356,78440,581
Vesting period3 years3 years
Volatility22.8%23.0%
Risk-free rate0.31%0.31%
Fair value per performance share463p530p