27 Share-based payments
During the period ended 31 December 2007, the following material share-based payment arrangements existed, which are described below:
|Type of arrangement||Long Term|
|Share Reward |
|Timing of grant||2007 - March and May |
|See note (a)||Annually|
|Number of options/||March - 2,123,478||2,315,410||3 year – 108,351||n/a||240,641|
|shares granted in 2007||May - 658,054|| ||5 year – 142,511|| || |
|Number of options/||2,712,841||1,835,223||3 year – 126,844||n/a||334,738|
|shares granted in 2006|| || ||5 year – 154,664|| || |
|Fair value per share ||March - £10.47||£ 13.82||3 year – £4.25||n/a||£ 15.76|
|for 2007 grant||May - £10.72|| ||5 year – £4.57|| || |
|Fair value per share ||£10.10||£13.00||3 year – £3.65||n/a||£13.85|
|for 2006 grant|| || ||5 year – £3.91|| || |
|Method of settlement||Both equity and|
|Both equity and|
|Equity||Both equity and|
|Contractual life||10 years||3 years||3.5 or 5.5 years||10 years||3 years|
|Vesting conditions||See note (b)||See note (c)||See note (d)||See note (e)||See note (f)|
(a) The granting of options under this scheme ceased with the last grant made in March 2004. Eligible individuals are entitled to participate in the Long Term Incentive Plan and Deferred Share Bonus Scheme.
(b) Nil-cost options exercisable three years from date of grant, with payout subject to performance conditions based on earnings per share relative to inflation (50 per cent of grant) and total shareholder return, combining the share price and dividend performance of the Company by reference to two comparator groups (50 per cent of grant). Participants are not entitled to dividends prior to the exercise of the options. For grants made in 2005 and thereafter, a cash equivalent dividend will accrue through the vesting period and will be paid on vesting.
(c) Free shares released three years from date of grant and may be subject to forfeit if participant leaves employment before the end of the three year holding period. Participants receive a separate payment equivalent to a proportion of the dividend during the holding period.
(d) Options granted by invitation at a 20 per cent discount to the market price. Options are exercisable at the end of a three year or five year savings contract. Participants are not entitled to dividends prior to the exercise of the options.
(e) Options exercisable three years from date of grant and subject to earnings per share performance condition relative to inflation. Participants are not entitled to receive dividends in the period prior to the exercise of the options.
(f) Free shares granted (maximum £3,000 in any year) subject to a three year holding period and may be subject to forfeit if the employee leaves within this period. Participants are entitled to receive dividends during the holding period which are reinvested to buy further shares.
During the period, the Company operated a Partnership Share Scheme, which was open to all eligible employees, where employees can allocate part of their pre-tax salary to purchase shares in British American Tobacco p.l.c. The maximum amount that can be allocated in this way to any individual is £1,500 in any tax year. The shares purchased are held in a UK-based trust and are normally capable of transfer to participants tax free after a five year holding period.
Further details on the operation of share-based payment arrangements can be found in the Remuneration Report.
Share option schemes
Details of the movements for equity-settled share option schemes during the years ended 31 December 2007 and 31 December 2006 covering the Share Option and Sharesave Schemes were as follows:
price per share
price per share
|Outstanding at start of year||8,449,681 ||6.86 ||12,648,695 ||6.39 |
|Granted during the period||250,862 ||14.35 ||281,508 ||11.52 |
|Exercised during the period||(3,806,566)||6.73 ||(4,234,650)||5.75 |
|Forfeited during the period||(297,967)||7.85 ||(245,872)||7.01 |
|Outstanding at end of year||4,596,010 ||7.32 ||8,449,681 ||6.86 |
|Exercisable at end of year||3,440,746 ||6.44 ||3,626,882 ||5.55 |
In addition to the above options, the movement in nil-cost equity-settled options from the Long Term Incentive Plan was as follows:
|Outstanding at start of year||8,108,255 ||9,403,252 |
|Granted during the period||2,324,409 ||2,224,313 |
|Exercised during the period||(2,439,044)||(2,478,316)|
|Forfeited during the period||(316,591)||(1,040,994)|
|Changed to cash-settled share-based payment arrangement *||(354,984)|| |
|Outstanding at end of year||7,322,045 ||8,108,255 |
|Exercisable at end of year||921,841 ||922,014 |
*During 2007, equity-settled awards in respect of 300,107 options were modified to a cash-settled basis, while a further 54,877 options were replaced by cash-settled awards.
The weighted average British American Tobacco p.l.c. share price at the date of exercise for share options exercised during the period was £16.03 (2006: £13.94). A detailed breakdown of the range of exercise prices for options outstanding for the years ended 31 December 2007 and 31 December 2006 is shown in the table below: