Notes on the Accounts

for the year ended 31st March 2013

13 Share-based payments

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 2013, shares allocated in 2010, 2011 and 2012 (at 31st March 2012, shares allocated in 2009, 2010 and 2011) 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 underlying earnings per share (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 were relaxed and so the minimum release required EPS growth of 3% compound per annum and the maximum release required EPS growth of 10% compound per annum. As a result of the share consolidation (note 30), for the shares allocated in 2010, 2011 and 2012 to executive directors only, the performance conditions have been adjusted and so the minimum release requires EPS growth of 7% compound per annum and the maximum release requires EPS growth of 16% compound per annum. Of the shares allocated in 2009, 100% were released during the year.

Share options

In 2007 the LTIP 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. 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 approximately 800 employees were granted options each year.

Options granted in 2004 to 2006 were subject to a minimum three year performance target of 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 2002 and 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.

Deferred bonus

In the year ended 31st March 2012 the bonus rules were changed for the executive directors and members of the Chief Executive’s Committee, whereby a proportion of their bonus payable is now awarded as shares and deferred for three years. The first shares were awarded in August 2012 for the 2011/12 bonus. The Management Development and Remuneration Committee is entitled to claw back the deferred element in cases of misstatement or misconduct or other relevant reason as determined by it.

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 6% 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.

Options were exercised on a regular basis throughout the year. The average share price during the year was 2,297.0 pence (2012 1,943.0 pence).

Activity relating to share options was:

  2013


Number of
options
2013
Weighted
average
exercise
price
pence
2012


Number of
options
2012
Weighted
average
exercise
price
pence
Outstanding at the start of the year 758,867 1,174.4 1,797,780 1,124.0
Forfeited during the year (741) 1,070.0 (15,063) 1,060.8
Exercised during the year (454,930) 1,195.0 (1,023,850) 1,087.6
Outstanding at the end of the year 303,196 1,143.8 758,867 1,174.4
Exercisable at the end of the year 303,196 1,143.8 758,867 1,174.4

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

  2013

Number of
options
2013
Weighted
average
remaining life
years
2012

Number of
options
2012
Weighted
average
remaining life
years
Range of exercise price        
800 pence to 900 pence 103,236 0.3 199,965 1.1
1,000 pence to 1,100 pence 10,620 2.3 15,335 3.3
1,200 pence to 1,300 pence 189,340 3.3 543,567 4.3
  303,196 2.3 758,867 3.5

The fair value of the shares allocated during the year under the LTIP was 2,005.0 pence per share allocation (2012 1,907.2 pence per share allocation). The fair value was based on the share price at the date of allocation of 2,163.2 pence (2012 2,040.0 pence) adjusted for the present value of the expected dividends that will not be received at an expected dividend rate of 2.54% (2012 2.25%).

Activity relating to the LTIP was:

  2013
Number of
allocated
shares
2012
Number of
allocated
shares
Outstanding at the start of the year 2,676,241 2,402,541
Allocated during the year 915,983 937,850
Forfeited during the year (55,018) (127,552)
Released during the year (962,755) (280,521)
Expired during the year (256,077)
Outstanding at the end of the year 2,574,451 2,676,241

32,475 shares were awarded during the year under deferred bonus rules. The fair value was 1,953.8 pence per share award, based on the share price at the date of award of 2,162.0 pence adjusted for the present value of the expected dividends that will not be received at an expected dividend rate of 2.54%. These shares are still outstanding at the end of the year.

232,668 (2012 252,092) matching shares under the SIP and 46,951 (2012 55,442) 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 £14.3 million (2012 £18.8 million).

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