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annual report 2008
true value for society
true value for society
One of the principles on which Randstad was founded is the belief that work is a unifying force in society. Almost fifty years later, we continue to add true value to society through our strong commitment to employability for all people.
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annual report 2008 | consolidated financial statements | notes to the consolidated financial statements | 40. Share-based payments

40. Share-based payments

Within the Group a number of share-based payment arrangements are in effect: stock option plans and performance share plans for executive board members and senior management, and a share purchase plan for all corporate employees. Share-based payment arrangements of the Vedior Group, acquired in 2008, were settled before the acquisition. The number of options and shares to be granted under the plans of the Randstad Group for the executive board and senior management may not lead to a dilution per year of more than 1% of issued ordinary shares. For more details, please refer to the summary of the remuneration report in this annual report.

40.1 Stock option plans


Executive board stock option plan
The executive board stock option plan was implemented in 2001; during 2007 the last grants based on these plans were realized. The options have an exercise price that is not lower than the share price at granting date. The options granted until 2003 had a term of five full years, while the options granted as from 2004 have a term of seven years. The options are exercisable as from three years after granting, without performance conditions or other restrictions. If a board member resigns from the Group within three years after granting, a reduction mechanism on potential profits on options is in place.

Senior management stock option plan
From 2003 until 2007, options were granted annually to a limited group of senior management. The exercise price, term and other conditions are identical to the executive board stock option plan.

Executive board performance stock option plan
From 2007, conditional performance stock options are granted annually to the executive board members; the options have an exercise price that is not lower than the share price at granting date. The options have a term of seven years, and are exercisable as from three years after granting. The number of options that will vest depends on the company’s ‘total shareholder return’ (TSR) performance compared with a peer group of ten companies measured over a three-year period starting on January 1 of the year of granting the options. If a board member resigns from the Group within the three-year vesting period, the options will be forfeited.

The plans are equity-settled. The fair value of share-based payments is determined per the date of each grant. For stock options this is based on a binomial valuation model, and for performance stock options it is based on a combination of a Monte Carlo simulation model and a Black & Scholes valuation model. The following parameters are used:

  2008 2007
       
Share price at grant date € 26.39   € 57.40
Average exercise price € 26.39   € 57.40
Option life 7 years   7 years
Expected volatility1  33%    30%
Dividend yield 2%   2%
Risk-free interest rate 4.5%   4.2%
Vesting of stock options  -   25% after first, 25% after second and 50% after third year
Vesting of performance stock options2  December 31, 2010    December 31, 2009
Options are exercisable as from 3 years after grant date   3 years after grant date
Exercise multiple 2   2
Attrition rates 2.5% in first and 3.5% in the following years   2.5% in first and 3.5% in the following years

(1) Expected volatility is measured at the standard deviation of expected share price return of daily share prices.
(2) Vesting of performance stock options is based on the company’s relative TSR performance.

The fair value of the stock options and the performance stock options is charged to the income statement over the vesting period.

At each balance sheet date the assumed attrition is reassessed; any adjustment is charged to the income statement. On exercise of options, the company issues new shares.

The details are:

Life in years Number of participants
Number of options ( x 1,000)
 Share price(in €) Exercise price(in €) Fair value at grant date(x € 1,000) Expenses(x € 1,000)
January 1, 2008 Granted LapSed Exercised December 31, 2008 Exercisable 2008 2007
                         
5 98 41 - 17 24 - - 9.10 9.51 1,420 - -
7 114 186 - - 4 182 182 20.90 22.64 3,018 - 150
7 145 478 - 19 - 459 459 28.70 28.87 3,878 216 780
7 201 361 - 14 - 347 - 53.70 53.70 5,961 1,139 2,240
7 200 446 - 21 - 425 - 57.40 57.40 7,882 2,690 2,546
7 6 - 172 - - 172 - 26.39 26.39 1,638 533 -
                         
    1,512 172 71 28 1,585 641       4,578 5,716

40.2. Performance share plans

Executive board performance share plans
According to the performance share plan 2004-2007 the executive board could earn a bonus, paid in shares. The plan had three plan years; the last tranche vested mid-2007.

As from 2007, conditional performance shares are granted annually to the members of the executive board. The plan has a term of three years. The number of shares that will vest depends on the company’s TSR performance compared to a peer group of ten companies measured over a three-year period starting on January 1 of the year of grant.
In 2007 a one-time additional grant was made; these shares vest in three tranches (33.3% after one year, 33.3% after two years and the remaining 33.3% after three years). The number of shares to vest per tranche depends on the company’s TSR performance. If a board member resigns from the Group within the three-year vesting period, the shares yet to be vested will be forfeited.

Senior management performance share plan
As from 2007 conditional performance shares are granted annually to a limited group of senior managers. The terms and conditions are identical to the executive board conditional performance share plan, with the addition that the number of shares that will vest not only depends on the company’s TSR performance, but also on the personal performance of each participating manager during the vesting periods.
Performance shares were granted to a small group of senior management in mid-2008; the plan has a term of two years. The number of shares that will vest depends mainly on personal performance conditions related to the integration of Randstad and former-Vedior group companies and synergies to be achieved; performance is measured over a two-year period, starting July 1, 2008.

The plans are equity-settled. The fair value of the performance shares is based on a Monte Carlo simulation model; the following parameters are used:

 Parameters Performance share plans 2008 Performance share plan 2007 Performance share plan 2004-2007
           
Share price at grant reference date January 1, 2008: € 27.02 July 1, 2008: € 22.20   January 1, 2007: €52.40   July 1, 2004: € 22.30
Expected volatility based on historical prices over the three-year period to the valuation date 30% - 35%   30%   50%
Expected dividends 2%   2%   2%
Risk-free interest rate (yield on Dutch Government bonds) 4.5%   4.2%   3.1%
Expected forfeiture 2.5% – 3.5%   2.5% – 3.5%   0%


Related-party transactions

At each balance sheet date the non-market conditions (attrition and personal performance) are reassessed; any adjustment is charged to the income statement. On final allocation, the company issues new shares.

The details are:

Life in years Number of participants
Number of shares (x 1,000) at target
 Fair value
at grant
date(x
€ 1,000)
 Expenses (x € 1,000)
January 1, 2008 Granted Lapsed Vested in February, 2008 December 31, 2008 2008 2007
                   
3 4 - - - - - 2,340 - 110
3 270 251 - 18 16 217 13,538 3,638 5,374
3 305 - 601 - - 601 14,285 4,414 -
2 125 - 288 - - 288 4,143 911 -
                   
    251 889 18 16 1,106 8,963 5,484

The first of three tranches of the additional grant of performance shares 2007 vested early 2008 based on the TSR performance over the period January 1, 2005 – December 31, 2007; the performance resulted in vesting of 24,421 shares (share price: € 26.30) compared to an on target award of 15,929 shares.

40.3. Share purchase plan corporate employees

Under the share purchase plan, participating corporate employees may purchase shares from Stichting Randstad Optiefonds twice a year. The maximum amount to be spent within the plan is set annually at 5% of the participant’s fixed annual salary. If employees retain the purchased shares for a period of six months (under the condition that they are still an employee of the Group), they receive a bonus equal to a fixed percentage of the number of shares purchased. The bonus is expensed by the company per granting date (2008: € 1.0 million; 2007: € 1.6 million).
Due to the short vesting period of six months, the fair value of the bonus shares granted to participating employees is fixed at the share price at balance sheet date or date of award, respectively.