Share-based Compensation Plans

12 Months Ended

Dec. 31, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-based Compensation Plans Disclosure

28.       Share-based compensation plans

The following table shows the total share-based compensation expense (see below for types of share-based awards) included in the consolidated statements of income:

	2011	2010	2009
	$’M	$’M	$’M
	____________	____________	____________
Cost of product sales	8.8	7.0	4.4
Research and development	21.8	16.8	20.1
Selling, general and administrative	45.1	38.4	41.2
	____________	____________	____________
Total	75.7	62.2	65.7
Less tax	(23.6)	(17.2)	(19.4)
	____________	____________	____________
	52.1	45.0	46.3
	____________	____________	____________

There were no capitalized share-based compensation costs at December 31, 2011 and 2010.

At December 31, 2011$114.1 million(2010: $94.8 million) of total unrecognized compensation cost relating to non-vested awards is expected to be recognized over a period of 3 years.

At December 31, 2011$100.0 million (2010: $73.1 million) of total unrecognized compensation cost relating to non-vested in the money awards (based on the average share price during the year) is expected to be recognized over a weighted average period of 1.8 years (2010: 1.8 years). The total fair value of in the money awards vested during the yearto December 31, 2011 was $87.4 million (2010: $49.3 million).

Share-based compensation plans

The Company grants stock-settled share appreciation rights (“SARs”) and performance share awards over ordinary shares and ADSs to Executive Directors and employees under the Shire Portfolio Share Plan (Parts A and B). In 2010 the Company amended the rules of the Shire Portfolio Share Plan effective on a prospective basis for newly granted awards (the “Amendment”). After theAmendment SARs and PSAs granted under the Shire Portfolio Share Plan (Part A & B) to Executive Directors are exercisable subject to performance and service criteria.

The Amendments had the following principal effect on the terms and conditions of SARs and PSAs: (i) the contractual life of SARs has been extended from five to seven years, (ii) the vesting period of SARs and PSAs granted to employees below the level of Executive Vice President allows for graded vesting rather than mandatory cliff vesting, and (iii) awards granted to Executive Directors contain performance conditions based on growth in adjusted return on invested capital (“Adjusted ROIC”) and earnings before interest, taxation, depreciation and amortization as defined in the Amendments (“Non-GAAP EBITDA”), rather than the previous market based condition of total shareholder return.

The Company also operates an Employee Share Purchase Plan and a Sharesave Scheme.

The following awards were outstanding as at December 31, 2011:

	Compensation type	Number of awards*	Expiration period from date of issue	Vesting period
	____________	____________	____________	____________
Portfolio Share Plan - Part A	SARs	21,600,470	5 - 7 years	3 years cliff or graded vesting, subject to market or performance criteria for Executive Directors only
Sharesave Scheme	Stock options	328,746	6 months after vesting	3 or 5 years
Stock Purchase Plan	Stock options	793,706	On vesting date	1 to 5 years
Legacy Plans	Stock options	675,526	7 to 10 years	3-10 years, subject to market or performance criteria
		__________________
Stock-settled SARs and stock options		23,398,448
		__________________
Portfolio Share Plan - Part B	Performance share awards	5,709,744	3 years	3 years cliff or graded vesting, subject to market or performance criteria for Executive Directors only
		__________________
Performance share awards		5,709,744
		__________________

* Number of awards are stated in terms of ordinary share equivalents.

Stock settled SARs and stock options

(a)       Portfolio Share Plan – Part A

Stock-settled share appreciation rights granted under the Portfolio Share Plan – Part A prior to the Amendments are exercisable subject to certain marketand service criteria. Stock-settled share appreciation rights granted under the Portfolio Share Plan – Part A subsequent to the Amendments are exercisable subject to performance and service criteria.

In respect of any awards made to Executive Directors prior to the Amendments the market conditions arebased on relative total shareholder return. Vesting of awards granted to Executive Directors will depend on relative total shareholder return performance against two comparator groups. For one-third of the award, the comparator group will be the Financial Times Stock Exchange 100 constituents (excluding financial institutions) and for two-thirds of the award the comparator group will be a group of international companies from the pharmaceutical sector. In addition, before awards granted to Executive Directors will vest, the Remuneration Committee must be satisfied that the underlying performance of the Company is sufficient to justify this. Where median performance is achieved, 33 1/3 per cent of stock-settled share appreciation rights will vest, rising on a straight-line basis to full vesting at upper quartile performance.

In respect of any award made to Executive Directors subsequent to Amendments performance criteria are based on Non-GAAP EBITDA and Adjusted ROIC targets. These performance measures provide increased alignment to the core activities and strategy of the Company.

Awards granted to employees below Executive Director level are not subject to market orperformance conditions and are only subject to service conditions.

Once awards have vested, participants will have until the fifth anniversary (for awards granted prior to the Amendments) or seventh anniversary(for awards granted subsequent to the Amendments) of the date of grant to exercise their awards.

(b)       Shire Sharesave Scheme (Sharesave Scheme)

Options granted under the Sharesave Scheme are granted with an exercise price equal to 80% of the mid-market price on the day before invitations are issued to employees. Employees may enter into three or five-year savings contracts. No performance conditions apply.

(c)       Shire Employee Stock Purchase Plan (Stock Purchase Plan)

Under the Stock Purchase Plan, options are granted with an exercise price equal to 85% of the fair market value of a share on the enrolment date (the first day of the offering period) or the exercise date (the last day of the offering period), whichever is the lower. Employees agree to save for a period up to 27 months. No performance conditions apply.

(d)       Legacy plans –principally the Shire 2000 Executive Share Option Scheme

Options granted under this scheme were subject to certain performance criteria, which were based on the Company's share price or diluted EPS growth compared to a fixed growth rate. At December 31, 2011 all stock options outstanding under this scheme had met the required conditions and were exercisable.

A summary of the status of the Company's SARs and stock options as at December 31, 2011 and of the related transactions during the period then ended is presented below:

	Weighted average exercise price
Year to December 31, 2011	£	Number of	Intrinsic Value
		shares*	£’ M
	_______________	_______________	_______________
Outstanding as at beginning of period	10.36	29,545,584
Granted	17.84	7,551,373
Exercised	7.71	(12,459,335)
Expired	12.26	(1,239,174)
	_______________	_______________	________________
Outstanding as at end of period	12.83	23,398,448	224.7
	_______________	_______________	________________
Exercisable as at end of period	8.39	4,384,592	61.6
	_______________	_______________	________________

* Number of awards are stated in terms of ordinary share equivalents

The weighted average grant date fair value of SARs and stock options granted in the year ended December 31, 2011was£4.68.

SARs and stock options outstanding as at December 31, 2011 have the following characteristics:

Number of awards outstanding*	Exercise prices	Weighted Average remaining contractual term (Years)	Weighted average exercise price of awards outstanding	Number of awards exercisable	Weighted average exercise price of awards exercisable
	£		£		£
________________	______________	__________	_______________	_____________	_____________
622,621	3.38-7.00	4.7	5.41	595,648	5.34
11,780,747	7.01-14.00	3.7	8.21	2,909,836	7.14
10,995,080	14.01-21.24	5.7	16.83	879,108	14.59
________________				_____________
23,398,448				4,384,592
________________				_____________

* Number of awards are stated in terms of ordinary share equivalents

Performance shares

Portfolio Share Plan – Part B

Performance share awards granted to Executive Directors under the Portfolio Share Plan – Part B are exercisable subject to certain market, performance and service criteria.

In respect of any award granted to Executive Directors prior to the Amendmentsthe market conditions arebased on relative total shareholder return. Vesting will depend on relative total shareholder return performance against two comparator groups. For one-third of an award, the comparator group will be the Financial Times Stock Exchange 100 constituents (excluding financial institutions) and for two-thirds of the award the comparator group will be a group of international companies from the pharmaceutical sector. In addition, before awards granted to Executive Directors will vest, the Committee must be satisfied that the underlying performance of the Company is sufficient to justify this. Where median performance is achieved, 33 1/3 per cent of performance shares will vest, rising on a straight-line basis to full vesting at upper quartile performance.

In respect of any award granted to Executive Directors subsequent to the Amendments, the performance criteriaare based on Non-GAAP EBITDA and Adjusted ROIC targets.

Awards granted to employees below Executive Director level are not subject to marketor performance conditions and are only subject to service conditions.

A summary of the status of the Company's performance share awards as at December 31, 2011 and of the related transactions during the period then ended is presented below:

* Number of awards are stated in terms of ordinary share equivalents

The weighted-average grant date fair value of performance share awards granted in the year to December 31, 2011 is £18.04.

Exercises of employee share-based awards

The total intrinsic values of share-based awards exercised for the years to December 31, 2011, 2010 and 2009 were $189.3 million, $70.3 million and $43.8 million, respectively. The total cash received from employees as a result of employee share option exercises for the period to December 31, 2011, 2010 and 2009 was approximately $13.4 million, $11.2 million and $14.6 million, respectively. In connection with these exercises, the excess tax benefitcredited to additional paid-in capital for the years to December 31, 2011, 2010 and 2009 was $29.4 million,$2.9 million and $16.8million respectively.

The Company will settle future employee share award exercises with either newly listed common shares or withshares held in the ESOT. The number of shares to be purchased by the ESOT during 2012 will be dependent on thenumber of employee share awards granted and exercised during the year and Shire plc's share price. At December 31, 2011 the ESOT held 4.6 million ordinary shares and 2.4 million ADSs.

Valuation methodologies

The Company estimates the fair value of its share-based awards using a Black-Scholes valuation model. Key input assumptions used to estimate the fair value of share–based awards include the grant price of the award, the expected stock-based award term, volatility of the Company's share price, the risk-free rate and the Company's dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in estimating the fair values of Shire's stock-based awards. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by employees who receive equity awards, and subsequent events are not indicative of the reasonableness of the original estimates of fair value made by the Company under guidance issued by the FASB on share based payment transactions.

The fair value of share awards granted was estimated using the following assumptions:

Period ended December 31,	2011	2010	2009
	______________	______________	______________
Risk-free interest rate1	0.1-2.5%	0.5-3.0%	0.5-2.7%
Expected dividend yield	0-0.5%	0-0.6%	0-0.7%
Expected life	1-5 years	1-5 years	3-4 years
Volatility	19-33%	22-32%	31-33%
Forfeiture rate	5-7%	5-7%	5%

(1)       Risk free interest rate is for UK and US grants

The following assumptions were used to value share-based awards:

• risk-free interest rate – for awards granted over ADSs, the US Federal Reserve treasury constant maturities rate with a term consistent with the expected life of the award is used. For awards granted over ordinary shares, the yield on UK government bonds with a term consistent with the expected life of the award is used;
• expected dividend yield – measured as the average annualized dividend estimated to be paid by the Company over the expected life of the award as a percentage of the share price at the grant date;
• expected life – estimated based on the contractual term of the awards and the effects of employees' expected exercise and post-vesting employment termination behaviour;
• expected volatility – measured using historical daily price changes of the Company's share price over the respective expected life of the share-based awards at the date of the award; and
• the forfeiture rate is estimated using historical trends of the number of awards forfeited prior to vesting.

Performance share awards	Number of shares*	Aggregate intrinsic value £’M	Weighted average remaining life
	_______________	_______________	_______________
Outstanding as at beginning of period	6,391,007
Granted	1,885,525
Exercised	-2,299,295
Expired	-267,493
	_______________
Outstanding as at end of period	5,709,744	128.1	1.5
	_______________	_______________	________________
	_______________	_______________	_______________