Notes on the Accounts.

for the year ended 31st March 2011

13 Share-based payments

Share options

Equity settled share options were granted to employees at the average of the market value of the company’s shares over the three days prior to the date of grant and were subject to performance targets over a three year period and have a maximum life of ten years. The number of shares over which options were granted was based on a percentage of the employee’s salary and from 2001 to 2006 approximately 800 employees were granted options each year. In 2007 a new long term incentive plan was introduced and allocations of shares under this plan replaced the granting of share options. No share options have been granted since the year ended 31st March 2007.

Options granted in 2004 to 2006 were subject to a minimum three year performance target of underlying earnings per share (EPS) growth of UK RPI plus 3% per annum. Other performance targets were EPS growth of UK RPI plus 4% per annum and EPS growth of UK RPI plus 5% per annum. If the performance targets were not met at the end of the three year performance period, the options would lapse. The targets for options granted in 2004, 2005 and the 3% and 4% targets for options granted in 2006 have been met and so these options are exercisable. The 5% target for options granted in 2006 was not met and so these options have lapsed. Gains are capped at 100% of the grant price.

Options granted in 2001 to 2003 can only be exercised if the normalised EPS has grown by at least UK RPI plus 4% per annum over any three consecutive years during the life of the options. They were subject to annual retesting until they lapse on the tenth anniversary of grant. Since the targets have been met all these options are exercisable.

Long Term Incentive Plan (LTIP)

Under the LTIP, shares are allocated to approximately 900 of the group’s executive directors, senior managers and middle managers based on a percentage of salary and are subject to performance targets over a three year period. At 31st March 2011, shares allocated in 2008, 2009 and 2010 (at 31st March 2010, shares allocated in 2007, 2008 and 2009) were outstanding in respect of which the performance period has not expired. The minimum release of 15% of the allocation is subject to the achievement of EPS growth of 6% compound per annum over the three year period. For the maximum release of 100% of the allocation, EPS must have grown by at least 15% compound per annum. The number of allocated shares released will vary on a straight line basis between these points. Allocations will lapse if the EPS growth is less than 6% compound per annum over the three year performance period. For the shares allocated in 2009 only, the performance conditions have been relaxed and so the minimum release requires EPS growth of 3% compound per annum and the maximum release requires EPS growth of 10% compound per annum. The performance target relating to shares allocated in 2007 was not achieved and therefore this allocation expired during the year.

Share Incentive Plan (SIP) – UK and Overseas

Under the SIP, all employees with at least one year of service with the group and who are employed by a participating group company are entitled to contribute up to 2.5% of basic pay each month, subject to a £125 per month limit. The SIP trustees buy shares (partnership shares) at market value each month with the employees’ contributions. For each partnership share purchased, the group purchases two shares (matching shares) which are allocated to the employee. In the UK SIP, if the employee sells or transfers partnership shares within three years from the date of allocation, the linked matching shares are forfeited. In the Overseas SIP, partnership shares and matching shares are subject to a three year holding period and cannot be sold or transferred during that time.

401k approved savings investment plans (401k plans)

In the US there are two 401k plans, one for salaried employees and one for hourly employees. Salaried employees may contribute up to 50% of their base pay and hourly employees up to 20% of their base pay, both subject to a statutory limit. Salaried employees choosing Johnson Matthey Plc shares matching are matched 100% of the first 4% contributed and hourly employees are matched 50% of the first 2% contributed. Employees may contribute after one month of service and are eligible for matching after one year of service.

Further details of the directors’ remuneration under share-based payment plans are given in the Remuneration Report.

Activity relating to share options was:

  2011



Number of
options
  2011
Weighted
average
exercise
price
pence
  2010



Number of
options
  2010
Weighted
average
exercise
price
pence
Outstanding at the start of the year 2,474,307   1,117.88   4,507,045   1,107.60
Forfeited during the year (24,299)   1,150.11   (308,181)   1,273.35
Exercised during the year (652,228)   1,099.75   (1,724,557)   1,063.25
Outstanding at the end of the year 1,797,780   1,124.02   2,474,307   1,117.88
Exercisable at the end of the year 1,797,780   1,124.02   2,474,307   1,117.88

Options were exercised on a regular basis throughout the year. The average share price during the year was 1,787.40 pence (2010 1,412.25 pence).

Details of share options outstanding at the end of the year are:

  2011


Number of
options
  2011
Weighted
average
remaining life
years
  2010


Number of
options
  2010
Weighted
average
remaining life
years
Range of exercise price  
800 pence to 900 pence 336,847   1.9   452,298   3.0
900 pence to 1,000 pence     17,315   0.3
1,000 pence to 1,100 pence 710,930   3.9   1,046,322   4.8
1,200 pence to 1,300 pence 750,003   5.3   958,372   6.3
  1,797,780   4.1   2,474,307   5.0

The fair value of the shares allocated during the year under the LTIP was 1,523.6 pence per share allocation (2010 1,138.9 pence per share allocation). The fair value was based on the share price at the date of allocation of 1,636.0 pence (2010 1,245.0 pence) adjusted for the present value of the expected dividends that will not be received at an expected dividend rate of 2.38% (2010 2.98%).

Activity relating to the LTIP was:

  2011
Number of
allocated
shares
  2010
Number of
allocated
shares
Outstanding at the start of the year 2,176,594   1,530,753
Allocated during the year 849,617   1,097,339
Forfeited during the year (50,844)   (152,394)
Released during the year   (224,335)
Expired during the year (572,826)   (74,769)
Outstanding at the end of the year 2,402,541   2,176,594

266,614 (2010 324,274) matching shares under the SIP and 64,078 (2010 80,505) shares under the 401k plans were allocated to employees during the year. They are nil cost awards on which performance conditions are substantially completed at the date of grant. Consequently the fair value of these awards is based on the market value of the shares at that date.

The total expense recognised during the year in respect of equity settled share-based payments, taking into account expected lapses due to leavers and the probability that EPS performance conditions will not be met, was £17.1 million (2010 £10.4 million).