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ANNUAL REPORT 2010

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Skip Navigation LinksFinancial Report > Notes to the Consolidated Financial Statements > Note 28. Share-Based Payment Plans

note 28. share based payment plan

The share-based payment plans are described below.

(a) Types of share-based payment plans

Executive Share Option Plan (EXSOP)

On 21 November 2006, the EXSOP was approved by shareholders at the Company’s Annual General Meeting. The number of shares that may be issued under the EXSOP must not exceed 5% of the total number of shares on issue.

Share options are granted to employees under the EXSOP which is designed to create a stronger link between increasing shareholder value and employee reward. Under the EXSOP, the exercise price of the options is set at the market price of the shares on the date of grant and performance is measured by comparing the Company’s Total Shareholder Return (‘TSR’) (share price appreciation plus dividends reinvested) with a group of peer companies. The Company’s performance will be measured over three years from the date of grant. To the extent that maximum performance is not achieved under the performance condition, performance will be retested every six months following the first three years until the end of the fourth year.

In assessing whether the TSR hurdle for each grant has been met, the Group receives independent data from an external advisor, who provides both the Group’s TSR growth from the commencement of each grant and that of the pre-selected peer group. The peer group chosen for comparison is the resource companies in the S&P/ASX200 Index at the date of grant. This peer group reflects the Group’s competitors for capital and talent.

The Group’s performance against the hurdle is determined according to Paladin’s ranking against the peer group TSR growth over the performance period.

  • when Paladin is ranked over the 75th percentile, 100% of the share options will vest;
  • for rankings above the 50th and below the 75th percentile, the percentage of options to vest will be pro-rata between 50% and 100%;
  • when Paladin is ranked at the 50th percentile, 50% of the share options will vest; and
  • when Paladin is ranked below the 50th percentile the share options will not vest.

When a participant ceases employment prior to the vesting of their share options, the share options are forfeited unless cessation of employment is due to termination initiated by the Group other than for misconduct or death. In the event of a change of control all the awards will vest and may be exercised by the participant.

The contractual life of each option granted is five years. There are no cash settlement alternatives.

Following the adoption of the Rights Plan referred to below, no further grants will be made under the EXSOP. The last grant under this Plan was made on 24 June 2009.

Employee Performance Share Rights Plan

The Employee Performance Share Rights Plan (Rights Plan) was approved by shareholders on 25 November 2009. The Rights Plan replaces the EXSOP and no further options will be granted under the EXSOP. The last grant under that plan was made on 24 June 2009.

The Rights Plan is a long-term incentive plan aimed at advancing the interests of the Company by creating a stronger link between employee performance and reward and increasing shareholder value by enabling participants to have a greater involvement with, and share in the future growth and profitability of the Company. It is an important tool to assist in attracting and retaining talented people.

Share Rights are granted under the plan for no consideration. Share Rights are rights to receive fully paid ordinary shares in the capital of the Company (Shares) in the future if certain individual and/or corporate performance metrics (Performance Conditions) are met in the measurement period.

The Board is cognisant of general shareholder concern that long-term equity based reward for staff should be linked to the achievement by the Company of a performance condition. Share Rights granted under the Rights Plan are subject to performance conditions as determined by the Board from time to time.

The Share Rights issued in 2010 are subject to a combination of Performance Conditions:-

  • Time-based Performance conditions which prescribe a period of time that the employee must stay employed by the Company prior to automatic vesting.
  • The Total Shareholder Return (TSR) measure which represents the change in the Company’s Share price over the relevant period, plus dividends (if any) notionally reinvested in the Company’s Shares, expressed as a percentage of the opening value.

The TSR of the Company from the date of the offer to the measurement date will be compared with the TSR of all mining companies in the ASX S&P 200 Index for the same period excluding, for such time as Paladin does not pay a dividend, all companies that paid a dividend during any year of the measurement period.

The number of Share Rights that vest depends on the TSR percentile ranking of the Company, as set out below:

Relative TSR Percentile Ranking Percentage of share rights that may vest if the relative TSR performance condition is met
Less than 50th percentile  0% of the Share Rights subject to the TSR condition
at 50th percentile

50% of the Share Rights subject to the TSR condition

Greater than the 50th percentile but less
than the 75th percentile
Pro-rated vesting between 51% and 99% of the
Share Rights subject to the TSR condition
At 75th percentile or greater

100% of the Share Rights subject to the TSR condition

 

  • The Market Price Performance condition measures the increase in share price of the Company. Share Rights subject to the Market Price Performance Condition will vest if, at the end of the measurement period, the Share price of the Company is 25% above the market price as at the date of the offer.
  • The Earnings Per Share (EPS) Performance condition, which is determined by dividing the operating profit attributable to members of the Paladin Group by the weighted average number of Ordinary Shares outstanding during the financial year. Growth in EPS will be measured by comparing the EPS in the base year and the measurement year.

Vesting will only occur if the Company achieves average compound growth in EPS of at least 10% per annum over the three year performance period, calculated from the date of the grant of the Share Rights.

The vesting schedule of the Share Rights subject to the EPS conditions is as follows:

Average compound growth EPS over the
performance period
 Percentage of share rights that may vest if the EPS condition is met
Less than 10% pa

0% of the Share Rights subject to the EPS condition

At 10% pa

50% of the Share Rights subject to the EPS condition

More than 10% pa but less than 20% pa

Pro-rated vesting between 51% and 99% of the Share Rights subject to the EPS condition

At 20% pa or greater

100% of the Share Rights subject to the EPS condition

When a participant ceases employment prior to the vesting of their Share Rights, the Share Rights lapse unless cessation of employment is due to retirement, total and permanent disablement, redundancy or death. In the event of a change of control all the Share Rights will vest.

Contractor Performance Share Rights Plan

The Company has also implemented a plan to reward a small number of key individual contractors, who provide similar services to employees. This plan and the Rights Plan applicable to employees, as detailed above, differ only in respect of the class of individuals who are eligible for participation. This Plan was approved by shareholders on 25 November 2009.

(b) Summaries of options granted under EXSOP

The following table illustrates the number (No.) and weighted average exercise prices (WAEP) of and movements in share options issued during the year:

2010
No.
2010
WAEP
2009
No.
2009
WAEP
Outstanding at the beginning of the year15,227,4555.2519,077,0725.12
Granted during the year--1,950,0003.12
Forfeited during the year(1,458,700)5.02(1,314,617)4.55
Exercised during the year--(2,060,000)13.32
Expired during the year(1,000,000)5.5(2,425,000)4.54
Outstanding at the end of the year12,768,7555.2615,227,4555.25
Exercisable at the end of the year--1,700,0005.45

1 The weighted average share price at the date of exercise is A$3.79

The outstanding balance as at 30 June 2010 is represented by:

Date options grantedExercisableExpiry dateExercisable price of optionsNumber under option
01 February 200701 February 201001 February 20128.772,694,270
29 January 200829 January 201129 January 20134.507,149,485
15 February 200815 February 201115 February 20135.37300,000
18 April 200818 April 201118 April 20134.591,075,000
14 October 200814 October 201114 October 20132.54750,000
11 December 200811 December 201111 December 20132.07300,000
24 June 200924 June 201224 June 20144.48500,000
Total12,768,755

Please refer to Outstanding Share Information table in the Management Discussion & Analysis for movements since the year end.

(c) Weighted average remaining contractual life

The weighted average remaining contractual life for the share options outstanding as at 30 June 2010 is 2.5 years (2009: 3.2 years).

(d) Range of exercise price

The range of exercise prices for options outstanding at the end of the year was A$2.07 – A$8.77 (2009: A$2.07 – A$8.77).

(e) Weighted average fair value

There were no options granted during the year. (The weighted average fair value of options granted during 2009 was A$1.79).

(f) Option pricing model: EXSOP

The fair value of the equity-settled share options granted under the option plan is estimated as at the date of grant using a Black-Scholes model taking into account the terms and conditions upon which the options were granted.

The following table lists the inputs to the model used for the years ended 30 June 2010 and 30 June 2009:

20102009
Dividend yield (%)-Nil%
Expected volatility (%)-70% - 72%
Risk-free interest rate (%)-3.69% - 4.93%
Expected life of option (years)-3.75 years
Option exercise price ($)-A$2.07 - A$4.48
Closing share price at grant date ($)-A$2.45 - A$4.41

The expected life of the options is based on historical data and is not necessarily indicative of exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. No other features of options granted were incorporated into the measurement of fair value.

(g) Summaries of Performance Share Rights granted under the Rights Plans

The following table illustrates the number (No.) of and movements in share rights issued during the year (2009: N/A):

2010
No.
Granted during the year *5,026,900
Forfeited during the year(12,400)
Vested during the year-
Outstanding at the end of the year5,014,500

* Includes 520,000 rights granted under the Contractor Performance Share Rights Plan.

The outstanding balance as at 30 June 2010 is represented by:

Date rights grantedVesting dateVesting Performance ConditionsNumber
26 March 201026 March 2013Relative total shareholder return150,000
26 March 201026 March 2013Earnings per share150,000
26 March 201001 September 2010Time based507,450
26 March 201001 September 2011Time based701,175
26 March 201001 September 2012Time based1,168,625
26 March 201001 September 2012Relative total shareholder return934,900
26 March 201001 September 2012Market price1,402,350
Total5,014,500

Please refer to Outstanding Share Information table in the Management Discussion & Analysis for movements since the year end.

(h) Weighted average remaining contractual life

The weighted average remaining contractual life for the share rights outstanding as at 30 June 2010 is 1.9 years (2009: N/A).

(i) Weighted average fair value

The weighted average fair value of share rights granted during the year was A$3.31.

(j) Rights pricing model

The fair value of the equity-settled share rights granted under the plan is estimated as at the date of grant using either the Black-Scholes model for rights with non-market based performance conditions (time based and EPS), the Monte-Carlo simulation model for rights that contained a relative TSR performance condition or an Asset or Nothing Digital Option valuation model for rights subject to the market price condition.

The following table lists the inputs to the model used for the years ended 30 June 2010 (30 June 2009: N/A)

2010
Dividend yield (%)Nil
Expected volatility (%)70% - 71%
Risk-free interest rate (%)4.55% - 5.42%
Expected life of right (years)0.5 - 4 years
Closing share price at grant date (A$)A$3.88