27. Share-based payments – Long-Term Incentive Plan
On 1 January 2005 Heineken established a performance-based share plan (Long-Term Incentive Plan; LTIP) for the Executive Board. On 1 January 2006 a similar LTIP was established for senior management.
The Long-Term Incentive Plan includes share rights, which are conditionally awarded to the Executive Board each year, are subject to Heineken’s Relative Total Shareholder Return (RTSR) performance in comparison with the TSR performance of a selected peer group. At target performance, 100 per cent of the shares will vest. At maximum performance 150 per cent of the shares will vest. The LTIP share rights conditionally awarded to senior management each year are for 25 per cent subject to Heineken’s Relative RTSR performance and for 75 per cent subject to internal performance conditions.
The performance period for share rights granted in 2005 is from 1 January 2005 to 31 December 2007. The performance period for share rights granted in 2006 is from 1 January 2006 to 31 December 2008. The vesting date for the Executive Board is five business days and for senior management twenty business days after the publication of the annual results of 2007, respectively of 2008.
The costs recognised are measured at grant date using the Monte Carlo model taking into account the terms and conditions of the plan.
The terms and conditions of the share rights granted are as follows:
| Grant date/employees entitled | Number | Based on share price |
Vesting conditions | Contractual life of rights |
| Share rights granted to Executive Board on 1 January 2005 | 43,724 | 24.53 | Continued service and RTSR performance | 3 years |
| Share rights granted to Executive Board on 1 January 2006 | 40,049 | 26.78 | Continued service and RTSR performance | 3 years |
| Share rights granted to senior 75% internal performance management on 1 January 2006 |
352,098 | 26.78 | Continued service conditions and 25% RTSR performance | 3 years |
| 435,871 | ||||
The number and weighted average share price per share is as follows:
| Weighted average share price 2006 |
Number of share rights 2006 |
Weighted average share price 2005 |
Number of share rights 2005 |
|
| Outstanding at 1 January | 24.53 | 43,724 | – | – |
| Granted during the year | 26.78 | 392,147 | 24.53 | 43,724 |
| Outstanding at 31 December | 26.55 | 435,871 | 24.53 | 43,724 |
The fair value of services received in return for share rights granted is based on the fair value of shares granted, measured using the Monte Carlo model, with following inputs:
| In EUR | Executive Board 2006 |
Executive Board 2005 |
Senior management 2006 |
Senior management 2005 |
| Fair value at grant date | 424,519 | 424,560 | 8,814,436 | – |
| Expected volatility | 22.4% | 26.3% | 22.4% | – |
| Expected dividends | 1.5% | 1.3% | 1.5% |
Personnel expenses
| In millions of EUR | 2006 | 2005 |
| Share rights granted in 2005 | – | – |
| Share rights granted in 2006 | 4 | – |
| Total expense recognised as personnel expenses | 4 | – |
Heineken’s Relative Total Shareholder Return (RTSR) as at 31 December 2006 is a number 2 position.
