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Notes to the Financial Statements
149
34.5.1 Share based payments
Certain key management employees are entitled to participate in the share based payment plans of SAG. Under the arrangements, Stock
Appreciation Rights (SARs) and / or phantom stocks are granted to these employees. Both these plans are cash settled plans. On exercising, the
related share based payments are made by the Company.
Stock appreciation rights
The grant of SARs to employees are subject to a two year vesting period, after which they may be exercised for a period of upto three years and
are settled in cash only. Compensation in cash shall be equal to the difference between the exercise price and the opening market price of the SAG's
stock on the day of exercising the stock option.
The number and weighted average exercise prices of SARs are as follows:
2008 2007
Weighted Number of Weighted Number of
average SARs average SARs
exercise price
exercise price
Euro
Euro
Outstanding at beginning of the year 73.81 17,790 73.55 24,415
Exercised during the year 72.89 (8,145) 72.86 (6,625)
Outstanding at end of the year 74.59 9,645 73.81 17,790
Exercisable at end of year 74.59 9,645 72.89 8,145
The share price at the date of exercise for SARs exercised during the year ended September 30, 2008 was Euro 107.29 (September 30, 2007: Euro
89.97).
The determination of the fair value of grants is based on a Black-Scholes option pricing model, which was developed for use in estimating the fair
values of options that have no vesting restrictions. Option valuation models require the input of highly subjective assumptions including the
expected stock price volatility. Assumptions made in estimating the fair value of grants made are as follows:
Assumption at grant date
2006
Risk-free interest rate 2.99%
Expected dividend yield 2.41%
Expected volatility 18.30%
Expected option life
3.5 years
Estimated weighted average fair value per option Euro 4.06
Fair value of total options granted during the year Euro 11
No SARs were granted during the years ended September 30, 2007 and 2008.
The expected volatility is based on historical volatility of SAG shares, implied volatility of traded options with similar terms and features and certain
other factors. The expected term is derived by applying the simplified method and is determined as the average of the vesting term and the
contractual term. The risk-free interest is based on the applicable government bonds. Changes in subjective assumptions can materially affect the
fair value of the option.