Notes 26-30
- 26 Employee costs and share option plans for employees
- 27 Commitments and contingent liabilities
- 28 Leases
- 29 Statutory and other information
- 30 Share capital of parent company
26 EMPLOYEE COSTS AND SHARE OPTION PLANS FOR EMPLOYEES
Employee costs
The average number of people employed by the Group is set out in the table below. In accordance with the Companies Act 1985, this includes part-time employees:
| Employees | 2007 | 2006 | 2005 |
|---|---|---|---|
| Average number of people employed by the Group in: | |||
| UK | 11,800 | 11,800 | 11,600 |
| Continental Europe | 25,600 | 26,600 | 26,200 |
| The Americas | 20,200 | 18,200 | 17,900 |
| Asia, Africa & Australasia | 10,300 | 10,000 | 9,200 |
| Continuing operations | 67,900 | 66,600 | 64,900 |
The number of people employed by the Group at the end of 2007 was 67,400 (2006 66,800, 2005 65,300).
The costs incurred during the year in respect of these employees were:
| 2007 $m |
2006 $m |
2005 $m |
|
|---|---|---|---|
| Salaries | 5,217 | 4,580 | 4,270 |
| Social security costs | 858 | 832 | 670 |
| Pension costs | 449 | 390 | 339 |
| Other employment costs | 584 | 553 | 482 |
| 7,108 | 6,355 | 5,761 |
Severance costs of $724m are not included above (2006 $66m, 2005 $29m).
The Directors believe that, together with the basic salary system, the Group’s employee incentive schemes provide competitive and market-related packages to motivate employees. They should also align the interests of employees with those of shareholders, as a whole, through long-term share ownership in the Company. The Group’s current UK, Swedish and US schemes are described below; other arrangements apply elsewhere.
Bonus plans
The AstraZeneca UK Performance Bonus Plan
Employees of participating AstraZeneca UK companies are invited to participate in this bonus plan, which rewards strong individual performance. Bonuses are paid partly in the form of Ordinary Shares in the Company (under the Inland Revenue-approved AstraZeneca All-Employee Share Plan and up to a maximum annual value of £3,000) and partly in cash. A tax-efficient share retention scheme, under which employees leave their bonus shares in trust for three to five years, forms part of the All-Employee Share Plan. The Company also offers UK employees the opportunity to buy Partnership Shares (Ordinary Shares) under the All-Employee Share Plan. Employees may invest up to £1,500 over a 12 month accumulation period and purchase Partnership Shares in the Company with the total proceeds at the end of the period. The purchase price for the shares is the lower of the price at the beginning or the end of the 12 month period. A tax-efficient share retention scheme is also available in respect of Partnership Shares. At the Company’s AGM in 2002, shareholders approved the issue of new shares for the purposes of the All-Employee Share Plan.
The AstraZeneca Executive Annual Bonus Scheme
This scheme is a performance bonus scheme for Directors and senior employees who do not participate in the AstraZeneca UK Performance Bonus Plan. Annual bonuses are paid in cash and reflect both corporate and individual performance measures. The Remuneration Committee has discretion to reduce or withhold bonuses if business performance falls sufficiently short of expectations in any year such as to make the payment of bonuses inappropriate.
The AstraZeneca Deferred Bonus Plan
This plan was introduced in 2006 and is used to defer a portion of the bonus earned under the AstraZeneca Executive Annual Bonus Scheme into Ordinary Shares in the Company for a period of three years. The plan currently operates only in respect of Executive Directors and members of the Senior Executive Team (SET). Awards of shares under this plan are typically made in February each year, the first award having been made in February 2006.
The AstraZeneca Performance Share Plan
This plan was approved by shareholders in 2005 for a period of 10 years. Generally, awards can be granted at any time, but not during a close period of the Company. The first grant of awards was made in June 2005. The main grant of awards in 2007 under the plan was in March, at the same time as options were granted under the AstraZeneca Share Option Plan, with further smaller grants in August and November. Awards granted under the plan vest after three years depending on the performance of the Company compared to that of a selected peer group of other pharmaceutical companies. The Remuneration Committee has responsibility for agreeing any awards under the plan and for setting the policy for the way in which the plan should be operated, including agreeing performance targets and which employees should be invited to participate. A fuller description of this plan can be found in the Directors’ Remuneration Report.
The AstraZeneca Pharmaceuticals LP Restricted Stock Unit Award Plan
This plan was introduced in 2007 and provides for the grant of restricted stock unit (RSU) awards (Awards) to selected employees (predominantly in the US). The RSU Plan is used in conjunction with the AstraZeneca Share Option Plan to provide a mix of restricted stock units and share options. Awards typically vest on the third anniversary of the date of grant and are contingent on continued employment with the Company. The RSU Plan has also been used in 2007 to make Awards to certain employees within the MedImmune part of the Group.
Sweden
In Sweden an all-employee performance bonus plan is in operation, which rewards strong individual performance. Bonuses are paid partly into a fund investing 50% in AstraZeneca equities and partly in cash. The AstraZeneca Executive Annual Bonus Scheme, the AstraZeneca Share Option Plan and the AstraZeneca Performance Share Plan all operate in respect of relevant AstraZeneca employees in Sweden.
US
In the US, there are two all-employee performance bonus plans in operation, which reward strong individual performance. Annual bonuses are paid in cash. There are also two senior staff incentive schemes, under which approximately 450 participants may be eligible for awards granted as either AstraZeneca ADSs or stock appreciation rights related to AstraZeneca ADSs. AstraZeneca ADSs necessary to satisfy the awards are purchased in the market. The AstraZeneca Share Option Plan and the AstraZeneca Pharmaceuticals LP Restricted Stock Unit Award Plan both operate in respect of relevant AstraZeneca employees in the US.
AstraZeneca Performance Share Plan
| Shares ’000 |
WAFV* pence |
|
|---|---|---|
| Shares awarded in June 2005 | 312 | 1121 |
| Shares awarded in March 2006 | 280 | 1486 |
| Shares awarded in May 2006 | 19 | 1424 |
| Shares awarded in March 2007 | 1,611 | 1372 |
| Shares awarded in August 2007 | 68 | 1217 |
| Shares awarded in November 2007 | 16 | 1105 |
US incentive share schemes
| Shares ’000 |
WAFV* $ |
|
|---|---|---|
| 1,028 | 50.86 |
Restricted Stock Unit Award Plan
| Units ’000 |
WAFV* $ |
|
|---|---|---|
| Units awarded in March 2007 | 755 | 26.90 |
| Units awarded in November 2007 | 270 | 21.56 |
* Weighted average fair value
The fair values were determined using a modified version of the binomial model. This method incorporated expected dividends but no other features into the measurements of fair value.
The charge for share-based payments in respect of the AstraZeneca Performance Share Plan, the US incentive share schemes and restricted stock unit award plan is $31m (2006 $14m, 2005 $15m). The plans are equity-settled.
Share option plans
At 31 December 2007, there were options outstanding under the Zeneca 1994 Executive Share Option Scheme, the AstraZeneca Savings-Related Share Option Scheme, the AstraZeneca Savings-Related Share Option Plan and the AstraZeneca Share Option Plan.
(1) Summary of the AstraZeneca Share Option Plan
This is a share option plan for employees of participating AstraZeneca Group companies which was approved by shareholders at the Company’s AGM in 2000. The first grant of options occurred in August 2000. The main grant of options in 2007 under the plan was in March, with further smaller grants in August and November. The Remuneration Committee sets the policy for the Company’s operation of the plan and, in accordance with the rules of the plan, conducted a review of the plan in 2004.
Eligibility
Any AstraZeneca employee may be recommended from time to time for the grant of an option. The Remuneration Committee sets the policy for the Company’s operation of the plan including as regards which employees will be eligible to participate.
Grant of options
Options may be granted at any time other than during a close period. The grant of options is supervised by the Remuneration Committee, which is comprised wholly of Non-Executive Directors. No payment is required for the grant of an option. Options are not transferable. Options may be granted over AstraZeneca Ordinary Shares or ADSs.
Acquisition price
The price per Ordinary Share payable upon the exercise of an option will not be less than an amount equal to the average of the middle-market closing price for an Ordinary Share or ADS of the Company on the London or New York Stock Exchange on the three consecutive dealing days immediately before the date of grant (or as otherwise agreed with HM Revenue & Customs). Where the option is an option to subscribe, the price payable upon exercise cannot be less than the nominal value of an Ordinary Share of the Company.
Exercise of options
An option will normally be exercisable between three and 10 years following its grant provided any relevant performance condition has been satisfied. Options may be satisfied by the issue of new Ordinary Shares or by existing Ordinary Shares purchased in the market. The Remuneration Committee sets the policy for the Company’s operation of the plan including as regards whether any performance target(s) will apply to the grant and/or exercise of each eligible employee’s option. Options normally lapse on cessation of employment. Exercise is, however, permitted for a limited period following cessation of employment either for reasons of injury or disability, redundancy or retirement, or at the discretion of the Remuneration Committee, and on an amalgamation, take-over or winding-up of the Company.
(2) Summary of the AstraZeneca Savings-Related Share Option Scheme and the AstraZeneca Savings-Related Share Option Plan
The AstraZeneca Savings-Related Share Option Scheme was approved by shareholders in 1994 for a period of 10 years. The last grant of options under this scheme was made in September 2002. In 2003, shareholders approved the AstraZeneca Savings-Related Share Option Plan for a period of 10 years. The first grant of options under this plan was made in September 2003. The following sections apply to both the AstraZeneca Savings-Related Share Option Scheme and the AstraZeneca Savings-Related Share Option Plan, which have broadly similar rules.
Eligibility
UK-resident employees of participating AstraZeneca companies are automatically eligible to participate.
Grant of options
Invitations to apply for options may be issued within six weeks after the announcement by the Company of its results for any period and at other times in circumstances considered to be exceptional by the Directors. No invitations may be issued later than 10 years after the approval of the scheme by shareholders. Options may only be granted to employees who enter into HM Revenue & Customs-approved savings contracts with the savings body nominated by the Company, under which monthly savings of a fixed amount (currently not less than £5 nor more than £250) are made over a period of three or five years. The number of Ordinary Shares over which an option is granted will be such that the total amount payable on its exercise will be the proceeds on maturity of the related savings contract. No payment will be required for the grant of an option. Options are not transferable.
Individual participation
Monthly savings by an employee under all savings contracts linked to options granted under any Save As You Earn scheme may not exceed £250 or such lower amounts as may be determined by the Directors.
Acquisition price
The price per Ordinary Share payable upon the exercise of an option will not normally be less than the higher of:
(a) 90% of the arithmetical average of the middle-market quotations for an Ordinary Share on the London Stock Exchange on three consecutive dealing days shortly before the date on which invitations to apply for options are issued (provided that no such day may fall before the Company last announced its results for any period) or such other dealing day or days falling within the six week period for the issue of invitations, as the Directors may decide; and
(b) the nominal value of an Ordinary Share (unless the option is expressed to relate only to existing Ordinary Shares).
Exercise of options
An option will normally be exercisable only for six months commencing on the third or fifth anniversary of the commencement of the related savings contract. Options are satisfied by the issue of new Ordinary Shares. Options normally lapse on cessation of employment. Exercise is, however, permitted for a limited period (irrespective of the period during which the option has been held) following cessation of employment in certain compassionate circumstances or where an option has been held for more than three years (except on dismissal for misconduct) and on an amalgamation, take-over or winding-up of the Company.
(3) Summary of the Zeneca 1994 Executive Share Option Scheme
The Zeneca 1994 Executive Share Option Scheme was introduced in 1994. The last date for the grant of options was 16 March 2000 and the scheme has been replaced by the AstraZeneca Share Option Plan. Options granted under the 1994 scheme are normally exercisable between three and 10 years following grant, provided the relevant performance condition has been satisfied. Options are satisfied by the issue of new Ordinary Shares. The performance condition applicable to the 1994 scheme was that earnings per share must have grown by at least the increase in the UK Retail Price Index over three years plus 3% per annum. Satisfaction of this condition was tested annually by reference to the audited financial statements. All options granted under the 1994 scheme have become exercisable, the performance conditions having been satisfied.
| AstraZeneca Share Option Plan |
1994 Scheme | SAYE Schemes | ASVIP | |||||
|---|---|---|---|---|---|---|---|---|
| Options ’000 |
WAEP* pence |
Options ’000 |
WAEP* pence |
Options ’000 |
WAEP* pence |
Shares under option ’000 |
WAEP* SEK |
|
| At 1 January 2005 | ||||||||
| Options outstanding | 44,136 | 2790 | 7,489 | 2650 | 4,113 | 2005 | 483 | 431 |
| Movements during 2005 | ||||||||
| Options granted | 9,621 | 2133 | – | – | 606 | 2257 | – | – |
| Options exercised | (1,053) | 2486 | (1,259) | 2601 | (689) | 1782 | (6) | 442 |
| Options forfeited | (2,625) | 2800 | (272) | 2688 | (592) | 2248 | (168) | 411 |
| Options lapsed | – | – | – | – | – | – | – | – |
| Weighted average fair value of options granted during the year | 619 | 700 | ||||||
| At 31 December 2005 | ||||||||
| Options outstanding | 50,079 | 2670 | 5,958 | 2658 | 3,438 | 2053 | 309 | 442 |
| Movements during 2006 | ||||||||
| Options granted | 9,266 | 2977 | – | – | 280 | 3001 | – | – |
| Options exercised | (18,543) | 2708 | (4,038) | 2665 | (289) | 2278 | – | – |
| Options forfeited | (1,078) | 2669 | (14) | 2862 | (218) | 2473 | (309) | 442 |
| Options lapsed | – | – | – | – | – | – | – | – |
| Weighted average fair value of options granted during the year | 857 | 943 | ||||||
| At 31 December 2006 | ||||||||
| Options outstanding | 39,724 | 2428 | 1,906 | 2371 | 3,211 | 2087 | – | – |
| Movements during 2007 | ||||||||
| Options granted | 7,312 | 2737 | – | – | 1,074 | 2164 | – | – |
| Options exercised | (2,770) | 2648 | (321) | 2426 | (1,327) | 1785 | – | – |
| Options forfeited | (1,706) | 2745 | (95) | 2603 | (238) | 2528 | – | – |
| Options lapsed | – | – | – | – | – | – | – | – |
| Weighted average fair value of options granted during the year | 682 | 616 | ||||||
| At 31 December 2007 | ||||||||
| Options outstanding | 42,560 | 2451 | 1,490 | 2364 | 2,720 | 2226 | – | – |
| Range of exercise prices | 1477p to 3487p |
2208p to 2749p |
1756p to 3001p |
n/a | ||||
| Weighted average remaining contractual life | 2,473 days | 751 days | 1,109 days | n/a | ||||
| Options exercisable | 19,637 | 2860 | 1,490 | 2689 | 350 | 1879 | – | n/a |
*Weighted average exercise price.
| 2007 | 2006 | 2005 | |
|---|---|---|---|
| Average share price (pence) | 2599 | 3020 | 2384 |
| Weighted average exercise price (pence) | |||
| AstraZeneca Share Option Plan | 2737 | 2977 | 2133 |
| SAYE schemes | 2164 | 3001 | 2257 |
| Weighted average fair value of options granted in the period (pence) | |||
| AstraZeneca Share Option Plan | 682 | 857 | 619 |
| SAYE schemes | 616 | 943 | 700 |
| Expected volatility (%) | 25.0 | 30.0 | 30.0 |
| Dividend yield (%) | 2.6 | 2.3 | 2.3 |
| Risk-free interest rate (%) | 4.8 | 4.3 | 4.3 |
| Expected lives: AstraZeneca Share Option Plan (years) | 6.0 | 6.0 | 6.0 |
| Expected lives: SAYE schemes (years) | 4.3 | 4.1 | 3.9 |
The expected volatility is based on the historic volatility (calculated based on the weighted average remaining life of the share options) adjusted for any expected changes to future volatility due to publicly available information.
No other features of options granted were incorporated into the measurement of fair value.
The charge for share-based payments in respect of share options is $124m (2006 $125m, 2005 $128m) which is comprised entirely of equity-settled transactions.
