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Share-based payments

12 Months Ended

Dec. 31, 2019

. 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 217,122 (2018: 175,944, 2017: 234,918) shares were awarded to participants. In 2019 this number included 86,126 (2018: 48,771, 2017: 79,471) shares awarded as part of recruitment terms or for

one-off

individual awards.

The

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 The plan rules contain substantially the same terms as the superseded plan rules.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 826,313 (2018: 784,119, 2017: 805,045) shares were awarded to employees under the plan, comprising 286,746 (2018: 257,240, 2017: 280,458) performance-related awards and 539,567 (2018: 526,879, 2017: 524,587) restricted stock units.

The

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 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 96 to 109.

The Group recognised a cost of $28m (2018: $27m, 2017: $21m) in operating profit and $1m (2018: $1m, 2017: $2m) within exceptional administrative expenses related to equity-settled share-based payment transactions during the year, net of $12m (2018: $11m, 2017: $6m)

borne by

the System Fund.

The Group also recognised a cost of $2m (2018: $nil, 2017: $nil) in operating profit related to cash-settled share-based payment transactions.

No consideration was received in respect of ordinary shares issued under option schemes during 2019, 2018 or 2017.

The Group uses separate option pricing models and assumptions depending on the plan. The following table sets out information about awards granted in 2019, 2018 and 2017:


	APP						LTIP
	Binomial valuation model						Monte Carlo Simulation and Binomial valuation model
	2019		2018		2017		2019			2018			2017
Weighted average share price		4,597.0p		4,645.0p		3,781.0p		4,850.0p			4,774.0p			4,300.0p

Expected dividend yield		n/a		n/a		n/a		2.16	%		2.27	%		2.05	%

Risk-free interest rate								0.72	%		0.84	%		0.10	%

Volatility a								19	%		25	%		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 2017		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

Granted		217			287			540

Vested		(276	)		(293	)		(422	)

Share capital consolidation		(21	)		—			—

Lapsed or cancelled		(15	)		(387	)		(144	)

Outstanding at 31 December 201 9		496			695			1,275

Fair value of awards granted during the year (cents)
2019		5,888.7			4,985.6			5,862.1

2018		6,066.2			4,748.7			5,966.0

2017		4,959.3			4,133.2			5,251.0

Weighted average remaining contract life (years)
At 31 December 2019		1.1			1.3			1.2

At 31 December 2018		1.0			0.8			1.2

At 31 December 2017		1.2			0.6			1.7

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 4,584.8p (2018: 4,583.8p). The closing share price on 31 December 2019 was 5,208.0p and the range during the year was 4,092.0p to 5,738.0p.