26. Share-based payments

Annual Performance Plan

Under the IHG Annual Performance Plan (APP), eligible employees (including Executive Directors) can receive all or part of their bonus in the form of deferred shares and/or receive one-off awards of shares. Deferred shares are released on the third anniversary of the award date. Under the terms of awards that are referred to in this note, a fixed percentage of the award is made in the form of shares. Awards under the APP are conditional on the participants remaining in the employment of a participating company or leaving for a qualifying reason as per the plan rules. The award of deferred shares under the APP is at the discretion of the Remuneration Committee.

The number of shares is calculated by dividing a specific percentage of the participant’s annual performance-related award by the middle market quoted prices on the three consecutive dealing days immediately preceding the date of grant. A number of executives participated in the APP during the year and conditional rights over 175,944 (2017: 234,918, 2016: 335,775) shares were awarded to participants. In 2018 this number included 48,771 (2017: 79,471, 2016: 103,071) shares awarded as part of recruitment terms or for one-off individual awards.

New plan rules for the APP were approved by shareholders at the AGM on 2 May 2014, and apply to awards made in respect of the 2015 and subsequent financial years. The new plan rules contain substantially the same terms as the superseded plan rules.

Long Term Incentive Plan

The Long Term Incentive Plan (LTIP) allows Executive Directors and eligible employees to receive conditional share awards, which normally have a vesting period of three years.

Performance-related awards: Awards to the Executive Directors, and some awards to other eligible employees, are granted subject to the achievement of performance conditions set by the Remuneration Committee, which are normally measured over the vesting period.

Restricted stock units: Awards to eligible employees are granted subject to continued employment.

Awards are normally made annually and, except in exceptional circumstances, will not exceed three times salary for eligible employees. The plan provides for the grant of ‘nil cost options’ to participants as an alternative to conditional share awards. During the year, conditional rights over 784,119 (2017: 805,045, 2016: 1,355,721) shares were awarded to employees under the plan, comprising 257,240 (2017: 280,458, 2016: 888,518) performance-related awards and 526,879 (2017: 524,587, 2016: 467,203) restricted stock units.

New plan rules for the LTIP were approved by shareholders at the AGM on 2 May 2014, and apply to awards made in respect of the 2015-17 and subsequent LTIP cycles. The new plan rules contain substantially the same terms as the superseded plan rules.


LOGO		More detailed information on the performance measures for awards to Executive Directors is shown in the Directors’ Remuneration Report on pages 72 to 85.

The Group recognised a cost of $27m (2017: $21m, 2016: $17m) in operating profit and $1m (2017: $2m, 2016: $nil) within exceptional administrative expenses related to equity-settled share-based payment transactions during the year, net of amounts borne by the System Fund. An additional $11m (2017: $6m, 2016: $6m) has been charged to the System Fund.

No aggregate consideration was received in respect of ordinary shares issued under option schemes during 2018, 2017 or 2016.

The Group uses separate option pricing models and assumptions depending on the plan. The following table sets out information about awards granted in 2018, 2017 and 2016:


	APP						LTIP
	Binomial valuation model						Monte Carlo Simulation and Binomial valuation model
	2018		2017		2016		2018			2017			2016
Weighted average share price		4,645.0p		3,781.0p		2,725.0p		4,774.0p			4,300.0p			2,846.0p
Expected dividend yield		n/a		n/a		n/a		2.27	%		2.05	%		2.55	%
Risk-free interest rate								0.84	%		0.10	%		0.36	%
Volatility^a								25	%		24	%		24	%
Term (years)		3.0		3.0		3.0		3.0			3.0			3.0

^a	The expected volatility was determined by calculating the historical volatility of the Company’s share price corresponding to the expected life of the share award.

Movements in the awards outstanding under the schemes are as follows:


	APP			LTIP
	Number of shares thousands			Performance-related awards Number of shares thousands			Restricted stock units Number of shares thousands
Outstanding at 1 January 2016		689			5,275			—
Granted		336			889			467
Vested		(229	)		(915	)		—
Share capital consolidation		(104	)		—			—
Lapsed or cancelled		(7	)		(1,048	)		(18	)

Outstanding at 31 December 2016		685			4,201			449
Granted		235			280			525
Vested		(263	)		(928	)		—
Share capital consolidation		(21	)		—			—
Lapsed or cancelled		(20	)		(1,160	)		(58	)

Outstanding at 31 December 2017		616			2,393			916
Granted		176			257			527
Vested		(199	)		(702	)		—
Lapsed or cancelled		(2	)		(860	)		(142	)

Outstanding at 31 December 2018		591			1,088			1,301

Fair value of awards granted during the year (cents)
2018		6,066.21			4,748.67			5,965.97
2017		4,959.3			4,133.2			5,251.0
2016		3,671.9			1,768.0			3,624.5

Weighted average remaining contract life (years)
At 31 December 2018		1.0			0.8			1.2
At 31 December 2017		1.2			0.6			1.7
At 31 December 2016		1.2			0.9			2.2

The above awards do not vest until the performance and service conditions have been met.

The weighted average share price at the date of exercise for share awards vested during the year was 4,583.8p (2017: 3,804.7p). The closing share price on 31 December 2018 was 4,237.0p and the range during the year was 3,948.0p to 4,966.0p per share.