Annexure D – group share incentive schemes

 

Share-based payments

The group’s share incentive schemes enable key management personnel and senior employees to benefit from the performance of Standard Bank Group Limited and Liberty Holdings Limited shares.
 
 
2010
Rm
2009
Rm
Expenses recognised in staff costs
 
 
Banking activities
747
532
Share options and appreciation rights
296
243
Standard International Holdings S.A. (SIH) long-term incentive scheme
(48)
26
Quanto stock scheme
394
214
Deferred bonus scheme (DBS)
47
14
Black ownership initiative (group equity participation plans)
58
35
Stanlib
 
 
Black ownership initiative (group equity participation plans)
 
1
Liberty
60
68
Share options
50
52
Black ownership initiative (group equity participation plans)
10
16
     
 
807
601
Expenses recognised in restructuring costs – banking activities
 
 
Share options and appreciation rights
26
 
Deferred bonus scheme
5
 
 
31
 
Liabilities recognised in other liabilities
 
 
SIH long-term incentive scheme
50
141
Quanto stock scheme
605
215
Deferred bonus scheme
77
21
 
732
377
Further details on the group’s share incentive schemes are provided below:
Share options and appreciation rights
Standard Bank Group has two equity-settled schemes, namely the Group Share Incentive Scheme and the Equity Growth Scheme. The Group Share Incentive Scheme confers rights to employees to acquire ordinary shares at the value of the Standard Bank Group share price at the date the option is granted. The Equity Growth Scheme was implemented in 2005 and allocates appreciation rights to employees. The eventual value of the right is settled by receipt of value of shares equivalent to the full value of the rights. 

The two schemes have three different sub-types of vesting categories as illustrated by the table below:
 
Vesting category
Year
% vesting
Expiry
Type A 3, 4, 5 50, 75, 100 10 years
Type B 5, 6, 7 50, 75, 100 10 years
Type C 2, 3, 4 50, 75, 100 10 years
Refer to the remuneration report for a detailed schedule of movements in share options issued to the executive directors during the year. A reconciliation of the movement of all share options and appreciation rights is detailed below: 
 
 
Option price
range (rand)
Number
Group Share Incentive Scheme
2010
2010
2009
Reconciliation
 
 
 
Options outstanding at beginning of the year
 
19 123 282
22 862 850
Granted
102,00 – 114,60
2 606 250
2 453 900
Exercised
25,00 – 98,00
(5 762 232)
(5 878 968)
Lapsed
27,81 – 111,94
(862 950)
(314 500)
Options outstanding at end of the year
 
15 104 350
19 123 282
Share options were exercised regularly throughout the period. The weighted average share price for the year was R107,49 (2009: R86,14).

The following options granted to employees, including executive directors, had not been exercised at 31 December 2010:
 
Number of ordinary
shares
Option price range (rand)
Weighted average
exercise price (rand)
Option expiry period
724 400
30,90 – 33,50
31,45
Year to 31 December 2011
779 100
27,80 – 35,70
28,12
Year to 31 December 2012
1 579 500
27,70 – 32,19
27,93
Year to 31 December 2013
2 625 250
39,90 – 50,91
40,90
Year to 31 December 2014
419 500
64,27 – 65,60
65,47
Year to 31 December 2015
1 006 300
76,40 – 85,80
79,53
Year to 31 December 2016
960 400
97,95 – 107,91
98,45
Year to 31 December 2017
2 314 100
89,00 – 92,00
91,81
Year to 31 December 2018
2 205 800
62,39 – 98,20
62,98
Year to 31 December 2019
2 490 000
102,00 – 114,60
111,00
Year to 31 December 2020
15 104 350
 
 
 
The following options granted to employees, including executive directors, had not been exercised at 31 December 2009:
 
Number of ordinary shares Option price range (rand) Weighted average
exercise price (rand)
Option expiry period
552 800 25,00 – 28,15 25,64 Year to 31 December 2010
2 675 732 30,90 – 35,90 31,90 Year to 31 December 2011
1 251 700 27,80 – 35,70 28,10 Year to 31 December 2012
2 542 700 27,70 – 32,19 27,93 Year to 31 December 2013
3 921 150 39,90 – 62,00 40,90 Year to 31 December 2014
616 000 59,90 – 65,60 65,24 Year to 31 December 2015
1 236 600 76,40 – 85,80 79,53 Year to 31 December 2016
1 196 100 97,95 – 107,91 98,36 Year to 31 December 2017
2 736 000 76,30 – 92,00 91,72 Year to 31 December 2018
2 394 500 62,39 – 98,20 62,93 Year to 31 December 2019
19 123 282      
The share options granted during the year were valued using a Black-Scholes option pricing model. Each grant was valued separately. The weighted fair value of the options granted per vesting type and the assumptions utilised are illustrated below.
 
Type A
Type B
 
2010
2009
2010
2009
Number of options granted
1 516 000
1 518 700
1 090 250
935 200
Weighted average fair value at grant date (R)
39,68
22,07
41,42
23,01
The principle inputs are as follows:
 
 
 
 
Weighted average share price (R)
111,17
62,91
110,86
63,06
Weighted average exercise price (R)
111,17
62,91
110,86
63,06
Expected life (years)
5,9
6,1
6,9
7,0
Expected volatility (%)
35,7-38,1
35,5-38,8
35,7-38,1
35,5-38,8
Risk-free interest rate (%)
7,1-8,7
8,0-8,8
7,2-8,8
8,3-8,8
Dividend yield (%)
3,7
3,8
3,7
3,8
The options granted during the year which are expected to vest, have an estimated fair value of R79 million (2009: R41 million).
 
 
Price range (rand)
Number
Equity Growth Scheme
2010
2010
2009
Reconciliation
 
 
 
Rights outstanding at beginning of the year
 
41 257 077
31 294 711
Granted
102,00 – 116,80
11 724 941
12 655 000
Exercised1
101,30 – 118,00
(2 524 982)
(639 106)
Lapsed
60,35 – 117,30
(3 293 123)
(2 053 528)
Rights outstanding at end of the year2
 
47 163 913
41 257 077
1 During the year 529 137 (2009: 122 328) Standard Bank Group shares were issued to settle the appreciated rights value.
2 At the end of the year the group would need to issue 9 400 489 (2009: 9 113 514) Standard Bank Group shares to settle the outstanding appreciated rights value.
The group is required to pay employees tax arising from benefits due in terms of the scheme in accordance with the Fourth Schedule of the Income Tax Act in South Africa. Where employees have elected not to fund the tax from their own resources the tax due is treated as a partial realisation of the gross benefits due under the scheme. 487 285 (2009: 8 290) Standard Bank Group shares were issued and sold to settle the employees tax due during the year. This amount settled reduces the liability due in respect of the outstanding appreciated rights value. 

The following rights granted to employees, including executive directors, had not been exercised at 31 December 2010:
 
Number of rights
Price range (rand)
Weighted average
exercise price (rand)
Expiry period
3 621 599
60,35 – 69,50
65,41
Year to 31 December 2015
5 753 956
76,40 – 87,00
79,65
Year to 31 December 2016
4 951 517
94,50 – 117,30
98,41
Year to 31 December 2017
10 729 850
69,99 – 100,08
91,80
Year to 31 December 2018
11 085 800
62,39 – 99,00
64,21
Year to 31 December 2019
11 021 191
102,00 – 116,80
111,36
Year to 31 December 2020
47 163 913
 
 
 
The following rights granted to employees, including executive directors, had not been exercised at 31 December 2009:
Number of rights Price range (rand) Weighted average
exercise price (rand)
Expiry period
4 860 325 60,35 – 70,00 65,42 Year to 31 December 2015
6 616 302 74,00 – 87,00 79,62 Year to 31 December 2016
5 705 800 94,50 – 117,30 98,45 Year to 31 December 2017
11 782 550 69,99 – 100,08 91,78 Year to 31 December 2018
12 292 100 62,39 – 100,00 64,43 Year to 31 December 2019
41 257 077      
The share appreciation rights granted during the year were valued using a Black-Scholes option pricing model. Each grant was valued separately. The weighted fair value of the options granted per vesting type and the assumptions utilised are illustrated below:
 
Type A
Type B
 
2010
2009
2010
2009
Number of appreciation rights granted
6 986 053
8 236 500
4 738 888
4 418 500
Weighted average fair value at grant date (R)
39,85
22,50
41,73
23,81
The principle inputs are as follows:
 
 
 
 
Weighted average share price (R)
111,39
64,02
111,26
65,06
Weighted average exercise price (R)
111,39
64,02
111,26
65,06
Expected life (years)
5,9
6,1
6,9
7,0
Expected volatility (%)
35,5 – 38,3
35,5 – 38,8
35,5 – 38,3
35,5-38,8
Risk-free interest rate (%)
6,9-8,8
7,7-9,0
7,0-8,9
7,7-9,1
Dividend yield (%)
3,7
3,8
3,7
3,8
The appreciation rights granted during the year which are estimated to vest, have a fair value of R356 million (2009: R218 million).

Liberty has similar share-based payment transactions and has recognised a total expense of R50 million (2009: R52 million) relating to the share-based payments, comprising of R49 million (2009: R51 million) for share options and R1 million (2009: R1 million) relating to the Standard Bank Group employee scheme.
SIH long-term incentive scheme
SIH has a long-term incentive scheme whereby certain employees, including certain executive directors of the group, are granted notional ‘shadow’ share options. The scheme provides for eligible employees to be rewarded in cash, the value of which is derived from current and future performance of SIH. Throughout the life of the scheme, the liability is valued based on a defined formula. The notional share options which have a 10-year life are generally first exercisable in a one-month period, the month after the month in which the group’s financial statements are approved, 50% after three years, up to 75% after four years and 100% after five years. Exercise thereafter may take place in the month after the month in which the final or interim accounts of the group are approved up until the expiry of the shadow share options. 

Up until March 2004 the scheme options were underpinned by share options issued by Standard Bank Group. From March 2005 shadow share options have been issued without funding from Standard Bank Group options.

Commencing in 2005, certain shadow share options have been allocated with a zero strike price, all of which can be exercised after four years. All other terms of these shadow share options are the same as those described above. The change in liability under the scheme is accounted for in profit or loss over the vesting period of the shadow share options and includes assumptions about future performance and leavers.

The provision in respect of liabilities under the scheme amounts to USD7,5 million at 31 December 2010 (2009: USD19,1 million), and the amount released for the year was USD6,6 million (2009: USD3,1 million charged).
 
Number
SIH shadow share scheme
2010
2009
Reconciliation
 
 
Options outstanding at beginning of the year
22 874 466
28 865 848
Lapsed
(3 285 870)
(2 334 831)
Exercised1
(4 739 919)
(3 656 551)
Options outstanding at end of the year
14 848 677
22 874 466
1 During the year 21 600 (2009: 51 300) Standard Bank Group shares were issued to settle the underpinning SIH Shadow Scheme liability.
The following options granted to employees had not been exercised at 31 December 2010:
 
Number of ordinary shares
Option price range (USD)
Weighted average
exercise price (USD)
Option expiry period
1 735 816
2,38
2,38
Year to 31 December 2011
1 064 069
1,59
1,59
Year to 31 December 2012
2 096 550
2,83
2,83
Year to 31 December 2013
2 440 452
0 – 2,20
1,94
Year to 31 December 2014
1 841 164
1,79 – 1,89
1,79
Year to 31 December 2015
5 580 126
0 – 1,99
1,99
Year to 31 December 2016
90 500
2,48
2,48
Year to 31 December 2017
14 848 677
 
 
 
The following options granted to employees had not been exercised at 31 December 2009:
 
Number of ordinary shares Option price range (USD) Weighted average
exercise price (USD)
Option expiry period
1 509 161 2,79 2,79 Year to 31 December 2010
1 941 448 2,38 2,38 Year to 31 December 2011
1 336 903 1,59 1,59 Year to 31 December 2012
2 306 652 2,83 2,83 Year to 31 December 2013
3 528 438 0 – 2,20 1,29 Year to 31 December 2014
2 726 164 1,79 – 1,89 1,79 Year to 31 December 2015
9 385 200 0 – 1,99 1,76 Year to 31 December 2016
140 500 2,48 2,48 Year to 31 December 2017
22 874 466      
Quanto stock scheme
In early 2008, Corporate & Investment Banking Outside Africa launched a new long-term incentive scheme in the form of a Quanto Stock Unit Plan. The scheme compulsorily defers a portfolio of the incentive over a minimum threshold for key management and executives. The scheme was developed after a review of its compensation strategy to strengthen the retention effect of incentive remuneration and to promote an equity culture through shares, or an equivalent, which is linked to the performance of the overall Standard Bank Group. 

In terms of the scheme, qualifying employees are awarded Quanto stock units denominated in USD for nil consideration. Quanto stock units are linked to the Standard Bank Group share price, but expressed in US dollars. The awards vest over two or three years dependent on the employee being in service for the period and the employee may call for payment, termed “exercise”, at any point up until the 10-year maturity of the units (except for US taxpayers where it is an automatic settlement date). The scheme includes a discretionary option for an incremental amount to be paid if the employee is in service for four years and has not exercised the units. The cost of the award is accrued over the vesting period, normally commencing in the following year to which the awards relate.

The provision in respect of the liabilities under the scheme amounts to USD91,1 million as at 31 December 2010 (2009: USD29,2 million), and the charge for the year was USD53,8 million (2009: USD25,4 million). The change in the liability due to the change in the group share price, is hedged through the use of equity options designated as a cash flow hedge.
 
Units (‘000)
Quanto stock scheme
2010
2009
Reconciliation
 
 
Units outstanding at beginning of the year
885
412
Granted
455
551
Lapsed
(105)
(78)
Units outstanding at end of the year
1 235
885
Quanto stock units granted not yet exercised at 31 December 2010:
 
Number of units (‘000)
Unit expiry period
309
Year to 31 December 2018
489
Year to 31 December 2019
437
Year to 31 December 2020
1 235
 
Quanto stock units granted not yet exercised at 31 December 2009:
 
Number of units (‘000) Unit expiry period
362 Year to 31 December 2018
523 Year to 31 December 2019
885  
Deferred bonus scheme (DBS)
It is essential for the group to retain key skills over the longer term. This is done particularly through share-based incentive plans. The purpose of these plans is to align the interests of the group, its subsidiaries and employees, as well as to attract and retain skilled, competent people. 

The group has implemented a scheme to compulsorily defer a portion of incentive bonuses over a minimum threshold for key SBSA management and executives. This improves the alignment of shareholder and management interests by creating a closer linkage between risk and reward, and also facilitates retention of key employees.

All SBSA employees, who are awarded short-term incentives over a certain threshold, will now be subject to a mandatory deferral of a percentage of their cash incentive into the DBS. Vesting of the deferred bonus occurs after three years, conditional on continued employment at that time. The final payment of the deferred bonus is calculated with reference to the Standard Bank Group share price at payment date. To enhance the retention component of the scheme, additional increments on the deferred bonus become payable at vesting and one year thereafter. Variables on thresholds and additional increments in the DBS are subject to annual review by the remuneration committee, and may differ from one performance year to the next.

The provision in respect of liabilities under the scheme amounts to R77 million at 31 December 2010 (2009: R21 million) and the amount charged for the year, including restructuring costs, was R52 million (2009: R14 million), after hedging activities.
 
Units
 
2010
2009
Reconciliation
 
 
Units outstanding at beginning of the year
1 154 244
 
Granted
758 122
1 162 261
Exercised
(4 675)
 
Lapsed
(123 225)
(8 017)
Units outstanding at end of the year
1 784 466
1 154 244
Weighted average fair value at grant date (R)
96,41
53,39
Expected life (years)
3,00
3,00
Risk-free interest rate (%)
6,24
7,89
Dividend yield (%)
3,45
4,42
Black ownership initiative
The group entered into a BEE transaction during 2004 whereby Standard Bank Group and Liberty made investments in cumulative redeemable shares issued by BEE entities of R4 017 million and R1 251 million respectively (refer to note 16). The proceeds received from the issue of the cumulative redeemable preference shares were used by the BEE entities to purchase Standard Bank Group and Liberty shares. The BEE entities initially purchased 99 190 197 ordinary shares of the group. The instruments relating to Shanduka, Safika and the Community Trust vested immediately. In terms of IFRS 1, the group elected not to apply the provisions of IFRS 2 to equity-settled awards granted after 7 November 2002, but which had vested prior to January 2005. The instruments relating to the Standard Bank Black Managers’ Trusts, which are 38 857 919 Standard Bank Group shares, are accounted for over the vesting period ending 31 December 2010, which resulted in the recognition of a share-based payment transaction. The instrument was valued using a number of valuation techniques including the Black-Scholes model and discounted cash flow methods. Due to the uniqueness of the instrument, the mid-point of the range of valuations was used, arriving at a value of R8,50 per Standard Bank Group share at 4 October 2004, the grant date.

The instruments relating to the Standard Bank Black Managers’ Trusts are accounted for over the vesting period ending 31 December 2010, resulting in a total expense in 2010 of R58 million (2009: R35 million) for banking operations and Rnil (2009: R1 million) for Stanlib. Liberty has applied similar principles and has accounted for an expense of R10 million (2009: R16 million).

Changes to the terms of the preference share agreements referred to in note 16 have resulted in an additional IFRS 2 expense of R39 million for the year ended 31 December 2010, included in the expense above.