Notes 21-25

22. Share-based payments

Charges for share-based incentive plans were as follows:


 
2008
£m
2007
£m
2006
£m
Share-based payments 62.3 62.4 70.9

Share-based payments comprise charges for stock options and restricted stock awards to employees of the Group.

As of 31 December 2008, there was £84.0 million (2007: £93.9 million) of total unrecognised compensation cost related to the Group’s restricted stock plans. That cost is expected to be recognised over a weighted-average period of 12 months (2007: 12 months).

Further information on stock options is provided in note 26.

Restricted stock plans

The Group operates a number of equity-settled share incentive schemes, in most cases satisfied by the delivery of stock from one of the Group’s ESOP Trusts. The most significant current schemes are as follows:

Renewed Leadership Equity Acquisition Plan (Renewed LEAP)
Under Renewed LEAP, the most senior executives of the Group, including certain executive directors, commit WPP shares (‘investment shares’) in order to have the opportunity to earn additional WPP shares (‘matching shares’). The number of matching shares which a participant can receive at the end of the fixed performance period (five years in the case of the 2005, 2006, 2007 and 2008 grants; four years for the 2004 grant) is dependent on the performance (based on the Total Share Owner Return (TSR)) of the Company over that period against a comparator group of other listed communications services companies. The maximum possible number of matching shares for each of the 2008, 2007, 2006 and 2005 grants is five shares for each investment share. The 2004 Renewed LEAP plan vested in March 2008 at a match of 2.6 shares for each investment share.

Performance Share Awards (PSA)
Grants of stock under PSA are dependent upon annual performance targets, typically based on one or more of: operating profit, profit before taxation and operating margin. Grants are made in the year following the year of performance measurement, and vest two years after grant date provided the individual concerned is continually employed by the Group throughout this time.

Leaders, Partners and High Potential Group
Stock option grants under the executive stock option plan were not significant in 2008, 2007 or 2006 as the Group made grants of restricted stock (to be satisfied by stock from one of the Group’s ESOP trusts) to participants instead. Performance conditions include continued employment over the three-year vesting period.

Valuation methodology

For all of these schemes, the valuation methodology is based upon fair value on grant date, which is determined by the market price on that date or the application of a Black-Scholes model, depending upon the characteristics of the scheme concerned. The assumptions underlying the Black-Scholes model are detailed in note 26, including details of assumed dividend yields. Market price on any given day is obtained from external, publicly available sources.

Market/Non-market conditions

Most share-based plans are subject to non-market performance conditions, such as margin or growth targets, as well as continued employment. The Renewed LEAP scheme is subject to a number of performance conditions, including TSR, a market-based condition.

For schemes without market-based performance conditions, the valuation methodology above is applied and, at each year end, the relevant accrual for each grant is revised, if appropriate, to take account of any changes in estimate of the likely number of shares expected to vest.

For schemes with market-based performance conditions, the probability of satisfying these conditions is assessed at grant date through a statistical model (such as the Monte Carlo Model) and applied to the fair value. This initial valuation remains fixed throughout the life of the relevant plan, irrespective of the actual outcome in terms of performance. Where a lapse occurs due to cessation of employment, the cumulative charge taken to date is reversed.

Movement on ordinary shares granted for significant restricted stock plans


 
 
 
Non-vested
1 January
2008
number
(m)

 
Granted
number
(m)

 
Lapsed
number
(m)

 
Vested
number
(m)
Non-vested
31 December
2008
number
(m)
Renewed LEAP1 3.2 3.4 (3.8) 2.8
Performance Share Awards (PSA) 7.3 4.2 (0.6) (4.2) 6.7
Leaders, Partners and
High Potential Group
8.4 6.1 (0.7) (2.6) 11.2
Weighted average fair value (pence per share):
Renewed LEAP1 598p 496p 545p 548p
Performance Share Awards (PSA) 719p 571p 683p 649p 674p
Leaders, Partners and
High Potential Group
628p 373p 619p 563p 504p

Note

1
The number of shares granted represents the ‘investment shares’ committed by participants at grant date for the 2008 Renewed LEAP plan in addition to matched shares awarded on vest date for the 2004 Renewed LEAP plan which vested in March 2008. The actual number of shares that vest for each Renewed LEAP plan is dependent on the extent to which the relevant performance criteria are satisfied.

The total fair value of shares vested for all the Group’s restricted stock plans during the year ended 31 December 2008 was £58.6 million (2007: £31.7 million, 2006: £46.7 million).

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