Notes Forming Part of the Consolidated Financial Statements

32. Share-based payments

The Group operates two equity settled share option schemes under which certain employees have been issued with share options as described below.

The Performance Share Plan (“PSP”) is the active plan under which option awards may be granted. Details of the award and vesting conditions are set out in the Report of the Remuneration Committee. Vesting is contingent on market conditions such as total shareholder return and non-market conditions such as earnings per share, free cash flow and return on average capital employed. During the year 782,500 options were granted under the PSP with a vesting period of 3 years.

The 2009 Share Option Plan remains in place with respect to outstanding grants made prior to 2016 but no new grants will be made following the adoption of the PSP. During the year grants of second tier options over 152,500 ICG Units at an exercise price of €2.97 granted on 1 September 2014 were determined to have vested.

The number of shares over which options may be granted may not exceed 10% of the shares of the Company in issue.

Options are forfeited where the grantee ceases employment with the Group or Company unless retention, is permitted by the Remuneration Committee under good leaver rules. The Scheme Rules allow for the early exercise of outstanding options upon a change in control of the Company.

The number and weighted average exercise price of share options granted under the above plans is as follows:

In settlement of the options exercised during the year the Company issued 55,000 (2018: 270,000) new ICG units with none sourced through market purchase.

The exercise prices of options outstanding at 31 December are as follows:

Notes on vesting conditions

1. Second Tier Options under the 2009 Share Option Plan will vest and become exercisable from the fifth anniversary of grant once (i) Earnings Per Share growth over any period of five consecutive financial years commencing at the financial year immediately preceding the date of grant place the Company in the top quartile of companies either (a) listed on Euronext Dublin or (b) included in the London Stock Exchange FTSE 250, by reference to Earnings Per Share growth over the same period and (ii) over that period the Earnings Per Share growth is at least 10% above the increase in the Consumer Price Index compounded per annum over such period.
2. Vesting of options under the Performance Share Plan are contingent on the achievement of certain market and non-market performance hurdles set out in the Report of the Remuneration Committee.

Under Group equity-settled share based payment schemes the maximum life of a share option is ten years, these are measured at fair value (excluding the effect of non-market based vesting conditions) at the date of grant. Fair value was measured using the Binomial option pricing model for options granted prior to 31 December 2018. For options granted after 1 January 2019, fair value has been estimated using Monte-Carlo simulation modelling. The Directors consider the change in valuation technique better reflects the underlying features of the PSP. The effect of the change on the cumulative share option expense in prior periods represented by the share option reserve at 1 January 2019 has been estimated as not material and previous estimates of fair value have not been modified. The expected life used in the model has been adjusted, based on management’s best estimates, for the effects of non-transferability, exercise restrictions and behavioural considerations.

Outstanding options had been granted on 26 March 2012, 1 September 2014, 5 March 2015, 23 May 2017, 9 March 2018 and 8 March 2019. The estimated fair values of the options are as follows:

The inputs into the model in the respective years of grant were as follows:

Expected volatility was determined by calculating the historical volatility of the Company’s share price. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Group’s estimate of the shares that will eventually vest, and adjusted for the effect of non-market based vesting conditions.

In 2019, the share-based payment expense recognised in the Consolidated Income Statement was €2.1 million (2018: €2.4 million) and in the Income Statement of the Company was €1.0 million (2018: €1.0 million).

The share-based payment expense has been classified in the Consolidated Income Statement as follows:

Share-based payment expense of €901,000 (2018: €845,000) relates to the Directors of the Group. The balance on the share option reserve in the Consolidated Statement of Financial Position at 31 December 2019 is €5.9 million (2018: €3.8 million).