Financial Statements
8 Staff costs
| Staff costs (Including directors) | 2007 £m |
2006 £m |
|---|---|---|
| Wages and salaries | 38 | 39 |
| Social security costs | 4 | 4 |
| Pension costs | 12 | |
| Equity-settled share-based payments | 21 | 10 |
| 63 | 65 |
The average number of employees of the Group during the year was 804 (2006: 718) of which some 605 (2006: 518) were employed directly at the Group's properties and their costs recharged to tenants.
The Executive Directors are the key management personnel and their remuneration is disclosed in the Remuneration Report.
The Group's equity-settled share-based payments comprise the Long-Term Incentive Plan (LTIP), the Matching Share Plan (MSP), the Performance Plan (PP), the Restricted Share Plan (RSP), the Share Incentive Plan (SIP), various Sharesave Plans and a recruitment scheme relating to the Chief Executive, the Co-Investment Share Plan (CISP).
The RSP was used for the last time in June 2003. The Company expenses an estimate of how many shares are likely to vest based on the market price at the date of grant, taking account of expected performance against the net asset value per share growth target and the three year service period. Under the SIP the Company gives eligible employees free shares of up to £3,000 a year. They can also purchase partnership shares for up to £1,500 a year that are matched 2 for 1 by the Company. The free and matching shares are purchased at fair value in the market and expensed at the time of allocation.
At the 2003 AGM the shareholders approved the LTIP whereby the Company may award employees a combination of performance shares and options. Both components have the same performance targets based on net asset value per share growth and a three-year service period. Performance shares are valued at the market value at the date of the award. The options are valued using a Black-Scholes model adjusted for dividends according to the table below:
| Long-Term Incentive Plan: 2007 awards | 30 May 2006 | 14 July 2006 | 29 November 2006 |
|---|---|---|---|
| Share price at grant date | 1252p | 1316p | 1545p |
| Exercise price | 1252p | 1316p | 1545p |
| Option life in years (maximum 10) | 7 | 7 | 7 |
| Risk free rate | 4.6% | 4.6% | 4.6% |
| Expected volatility | 23% | 23% | 22% |
| Expected dividend yield | 2% | 2% | 2% |
| Value per option | 339p | 357p | 407p |
For both LTIP components the Company estimates the number of shares or options likely to vest and expenses that value over the relevant period. Volatility has been estimated by taking the historical volatility in the Company's share price over a four year period and adjusting where there are known factors that may affect future volatility. Vesting estimates take account of the Company's high staff retention rate.
At the 2006 AGM the shareholders approved the MSP and PP. The MSP allows eligible employees to receive one third of their annual bonus in shares, held in trust, which following performance targets based on total shareholder return and earnings per share being achieved over a three year period will be matched 2 for 1 by the Company. The Company expenses this over the three year period based on the market price at the date of grant.
Under the PP the Company may award employees a combination of cash (20% of the award) and shares based on a maximum of 30% of the annual performance fee earned by the Unit Trusts. The cash is awarded following the performance year under review with the shares awarded over the following three years subject to clawback of the performance fee and continued employment. The Company expenses an estimate of the fair value of the award over the performance and subsequent period to full vesting.
Under the Sharesave Plans eligible employees can save up to £250 a month over a three or five year period and use the savings to exercise an option granted at the outset at a 20% discount to the then prevailing share price. The fair value of the various options is expensed over the service period, based on a Black-Scholes model, assuming, for the grants during the current year, a risk-free rate ranging from 4.7% to 4.9%, expected volatility ranging from 22% to 23% and an expected dividend yield of 2.0%. The values per option for these schemes range from 366 pence to 505 pence. There are no performance measures. An estimated 5% of the three year options and 7% of the five-year options are assumed to lapse as employees leave the Company prior to the minimum service period.
Awards under the CISP are valued at the fair value of the shares at the date of grant and expensed over three years.
Movements in shares and options are given in note 20.