| 2010 | 2011 | Figures in million | 2011 | 2010 |
|---|---|---|---|---|
| SA Rands | US Dollars | |||
| Share incentive schemes | ||||
| No new share incentive schemes were approved by the shareholders of AngloGold Ashanti Limited during the current financial year. New awards were made under the existing BSP and LTIP plans. Additional ESOP awards were granted in terms of the April 2011 modification. The total cost relating to share incentive schemes was $54m, R395m (2010: $59m, R434m) and is made up as follows: | ||||
| 48 | 35 | Employee Share Ownership Plan (ESOP) – Free shares | 5 | 6 |
| 42 | 53 | Employee Share Ownership Plan (ESOP) – E ordinary shares to employees | 7 | 6 |
| Ghana Employee Ownership Plan (Ghana ESOP) | ||||
| 11 | 3 | – Share appreciation rights | – | 2 |
| 221 | 218 | Bonus Share Plan (BSP) | 30 | 30 |
| 116 | 86 | Long-Term Incentive Plan (LTIP) | 12 | 16 |
| 438 | 395 | Total employee compensation cost | 54 | 60 |
| (4) | – | Employee compensation cost related to equity accounted joint ventures | – | (1) |
| 434 | 395 | Total employee compensation cost excluding equity accounted joint ventures (note 10) | 54 | 59 |
| – | 44 | Black economic empowerment transaction modification cost for Izingwe (Pty) Limited (Izingwe) | 7 | – |
| 434 | 439 | Total share-based payment expense | 61 | 59 |
| Included in: | ||||
| 276 | 256 | – cost of sales | 35 | 37 |
| 158 | 139 | – corporate administration, marketing and other expenses | 19 | 22 |
| – | 44 | – special items (note 6) | 7 | – |
| 434 | 439 | 61 | 59 | |
On 12 December 2006, AngloGold Ashanti Limited announced the finalisation of the Bokamoso Employee Share Ownership Plan (Bokamoso ESOP) with the National Union of Mineworkers (NUM), Solidarity and United Association of South Africa (UASA). The Bokamoso ESOP creates an opportunity for AngloGold Ashanti Limited and the unions to ensure a closer alignment of the interest between South African-based employees and the company, and the seeking of shared growth solutions to build partnerships in areas of shared interest. Participation is restricted to those employees not eligible for participation in any other South African share incentive plan.
The company also undertook an empowerment transaction with a black economic empowerment investment vehicle, Izingwe, in 2006.
In order to facilitate this transaction the company established a trust to acquire and administer the ESOP shares. AngloGold Ashanti Limited allotted and issued free ordinary shares to the trust and also created, allotted and issued E ordinary shares to the trust for the benefit of employees. The company also created, allotted and issued E ordinary shares to Izingwe. The key terms of the E ordinary shares are:
On 14 April 2011, AngloGold Ashanti Limited, NUM, Solidarity, UASA, Izingwe and the Bokamoso ESOP Board of Trustees announced the modification of the empowerment transactions concluded between the company and the unions, and the company and Izingwe respectively in 2006.
This modification was motivated by the fact that share price performance since the onset of the 2008 global financial crisis led to a situation where the first two tranches of E ordinary shares vested and lapsed at no additional value to Bokamoso ESOP beneficiaries and Izingwe.
In order to remedy this situation in a manner that would ensure an element of value accruing to participants, though at a reasonable incremental cost to AngloGold Ashanti Limited shareholders, the scheme was modified as follows:
the life span of the scheme was extended by an additional one year, the last vesting being in 2014, instead of 2013.
A minimum payout on vesting of the E ordinary shares has been set at R40.00 each and a maximum payout of R70.00 each per E ordinary share for Izingwe and R90.00 each for members of the Bokamoso ESOP (i.e. employees), including the impact of the 50% of dividend flow. While the floor price provides certainty to all beneficiaries of the empowerment transactions, the creation of a ceiling serves to limit the cost to AngloGold Ashanti Limited and its shareholders.
The total incremental fair value of awards granted was R29.14 per share and will be included in earnings up to the vesting date in 2014. The company recorded a charge of $12m, R79m (2010: nil) to earnings during the year as a result of the modification.
The fair value of each free share awarded on 1 November each year was as follows:
| Award date | 2006 | 2007 | 2008 | 2011 |
|---|---|---|---|---|
| Calculated fair value | R320.00 | R305.99 | R188.48 | R306.99 |
The fair value is equal to the market value at the date-of-grant. Dividends declared and paid to the trust will accrue and be paid to ESOP members, pro rata to the number of shares allocated to them. An equal number of shares vests from 2009 and each subsequent year up to the expiry date of 1 November 2013.
Accordingly, for the awards issued, the following information is available:
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 665,862 | – | Awards outstanding at beginning of year | 434,941 | – |
| – | – | Awards granted during the year | 48,923 | – |
| 21,004 | – | Awards reallocated during the year | 15,878 | – |
| (21,004) | – | Awards lapsed during the year | (15,878) | – |
| (230,921) | – | Awards exercised during the year | (156,958) | – |
| 434,941 | – | Awards outstanding at end of year | 326,906 | – |
| – | – | Awards exercisable at end of year | – | – |
During 2011, the rights to a total of 15,878 (2010: 21,004) shares were surrendered by the participants. A total of 21,562 (2010: 104,741) shares were allotted to deceased, retired or retrenched employees. The income statement charge for the year was $5m, R35m (2010: $6m, R48m).
Before the modification of the ESOP scheme the average fair value per share of the E ordinary shares awarded to employees on 1 November each year was as follows:
| Award date | 2006 | 2007 | 2008 |
|---|---|---|---|
| Calculated fair value | R105.00 | R79.00 | R13.40 |
After the modification of the ESOP scheme during April 2011, the average fair value per share of the E ordinary shares was R49.57.
Dividends declared in respect of the E ordinary shares will firstly be allocated to cover administration expenses of the trust, whereafter they will accrue and be paid to ESOP members, pro rata to the number of shares allocated to them. At each anniversary over a six-year period commencing on the third anniversary of the original 2006 award, the company will cancel the relevant number of E ordinary shares as stipulated by a cancellation formula.
Any E ordinary shares remaining in that tranche will be converted to ordinary shares for the benefit of employees.
Accordingly, for the E ordinary shares issued, the following information is available:
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 2,394,998 | 346.82 | Awards outstanding at beginning of year | 1,686,126 | 366.30 |
| – | – | Awards granted during the year | 769,164 | 320.00 |
| 69,146 | 361.16 | Awards reallocated during the year | 61,978 | 332.74 |
| (69,146) | 354.07 | Awards lapsed during the year | (61,978) | 332.74 |
| (708,872) | 354.35 | Awards cancelled during the year | (408,332) | 320.39 |
| – | – | Awards converted during the year | (513,996) | 315.35 |
| 1,686,126 | 366.30 | Awards outstanding at end of year | 1,532,962 | 315.31 |
The weighted average exercise price is calculated as the initial grant price of R288.00 plus an interest factor less dividend apportionment up to April 2011. After that date the exercise price is calculated at the restructured price of R320.00 less dividend apportionment. The income statement charge for the year was $7m, R53m (2010: $6m, R42m).
During 2011, the rights to a total of 61,978 (2010: 69,146) shares were surrendered by participants. A total of 513,996 (2010: nil) E ordinary shares were converted into 60,695 ordinary shares during the year. A total of 408,332 (2010: 708,872) shares were cancelled as the result of the exercise price exceeding the share price on conversion date.
Before the modification of the scheme the average fair value of the E ordinary shares granted to Izingwe on 13 December 2006 was R90.00 per share. After the modification the average fair value of the E ordinary shares granted to Izingwe was R44.61 per share. Dividends declared in respect of the E ordinary shares will accrue and be paid to Izingwe, pro rata to the number of shares allocated to them. At each anniversary over a six year period commencing on the third anniversary of the award, the company will cancel the relevant number of E ordinary shares as stipulated by a cancellation formula. Any E ordinary shares remaining in that tranche will be converted to ordinary shares for the benefit of Izingwe.
Accordingly, for the awards issued, the following information is available:
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 1,400,000 | 346.82 | E ordinary shares outstanding at beginning of year | 1,120,000 | 366.30 |
| – | – | E ordinary shares granted during the year | 560,000 | 330.00 |
| – | – | E ordinary shares converted during the year | (350,000) | 325.31 |
| (280,000) | 353.04 | E ordinary shares cancelled during the year | (280,000) | 326.21 |
| 1,120,000 | 366.30 | E ordinary shares outstanding at end of year | 1,050,000 | 325.31 |
The weighted average exercise price is calculated as the initial grant price of R288.00 plus an interest factor less dividend apportionment up to April 2011. After that date the exercise price is calculated at the modified price of R330.00 less dividend apportionment. The income statement charge for the period due to the modification of the empowerment transaction was $7m, R44m (2010: nil) and is included in special items (note 6) and $19m, R131m was expensed at inception of the scheme in 2006. A total of 350,000 (2010: nil) E ordinary shares were converted into 39,052 ordinary shares during the year. A total of 280,000 (2010: 280,000) shares were cancelled as the result of the exercise price exceeding the share price on conversion date.
The fair value of each share granted for the ESOP and Izingwe schemes was estimated on the date of grant using the Black- Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the option award and share price volatility. Expected volatility is based on the historical volatility of AngloGold Ashanti Limited’s shares. These estimates involve inherent uncertainties and the application of management judgement. In addition, the company is required to estimate the expected forfeiture rate and only recognise expenses for those options expected to vest. As a result, if other assumptions had been used, the recorded share-based compensation expense could have been different from that reported.
The Black-Scholes option-pricing model used the following assumptions, at grant date:
| 2006 | 2007 | 2008 | 20011 | |
|---|---|---|---|---|
| Risk-free interest rate | 7.00% | 7.00% | 7.00% | 6.63% |
| Dividend yield | 2.30% | 2.06% | 1.39% | 0.99% |
| Volatility factor of market share price | 36.00% | 33.00% | 35.00% | 33.50% |
The BSP is intended to provide effective incentives to eligible employees. An eligible employee is one who devotes substantially the whole of his working time to the business of AngloGold Ashanti Limited, any subsidiary of AngloGold Ashanti Limited or a company under the control of AngloGold Ashanti Limited, unless the board of directors (the board) excludes such a company. An award in terms of the BSP may be made at any date at the discretion of the board, the only vesting condition being three years’ service for awards granted prior to 2008. For all BSP awards granted from 2008, 40% will vest after one year and the remaining 60% will vest after two years. An additional 20% of the original award will be granted to employees if the full award remains unexercised after three years.
The board is required to determine a BSP award value and this will be converted to a share amount based on the closing price of AngloGold Ashanti Limited’s shares on the JSE Limited on the last business day prior to the date of grant. AngloGold Ashanti Limited’s Remuneration Committee has at its discretion the right to pay dividends, or dividend equivalents, to the participants of the BSP. The fair value includes dividends and was used to determine the income statement expense. The fair value is equal to the award value determined by the board.
Accordingly, for the awards issued, the following information is available:
| Award date (unvested awards and awards vested during the year) | 2008 | 2009 | 2010 | 2011 |
|---|---|---|---|---|
| Calculated fair value | R267.05 | R293.99 | R280.90 | R340.00 |
| Vesting date (40%) | 1 Jan 2009 | 18 Feb 2010 | 24 Feb 2011 | 21 Feb 2012 |
| Vesting date (60%) | 1 Jan 2010 | 18 Feb 2011 | 24 Feb 2012 | 21 Feb 2013 |
| Vesting date (conditional 20%) | 1 Jan 2011 | 18 Feb 2012 | 24 Feb 2013 | 21 Feb 2014 |
| Expiry date | 31 Dec 2017 | 17 Feb 2019 | 23 Feb 2020 | 20 Feb 2021 |
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 1,295,708 | – | Awards outstanding at beginning of year | 1,552,493 | – |
| 811,638 | – | Awards granted during the year | 820,847 | – |
| (86,526) | – | Awards lapsed during the year | (81,113) | – |
| (468,327) | – | Awards exercised during the year | (466,849) | – |
| 1,552,493 | – | Awards outstanding at end of year | 1,825,378 | – |
| 450,999 | – | Awards exercisable at end of year | 681,166 | – |
During 2011, the rights to a total of 81,113 (2010: 86,526) shares were surrendered by the participants. A total of 30,478 (2010: 43,394) shares were allotted to deceased, retired or retrenched employees.
The income statement charge for the year was $30m, R218m (2010: $30m, R221m).
The LTIP is an equity-settled share-based payment arrangement, intended to provide effective incentives for executives to earn shares in the company based on the achievement of stretched company performance conditions. Participation in the LTIP will be offered to executive directors and selected senior management of participating companies. Participating companies include AngloGold Ashanti Limited, any subsidiary of AngloGold Ashanti Limited or a company under the control of AngloGold Ashanti Limited, unless the board excludes such a company.
An award in terms of the LTIP may be granted at any date during the year that the board of AngloGold Ashanti Limited determine and may even occur more than once a year. The board is required to determine an LTIP award value and this will be converted to a share amount based on the closing price of AngloGold Ashanti Limited’s shares on the JSE Limited on the last business day prior to the date of grant. AngloGold Ashanti Limited’s Remuneration Committee has at its discretion the right to pay dividends, or dividend equivalents, to the participants of the LTIP. Having no history of any discretionary dividend payments, the fair value includes dividends and was used to determine the income statement expense. The fair value is equal to the award value as determined by the board.
The main performance conditions in terms of the LTIP issued in 2011, 2010, 2009 and 2008 are:
Accordingly, for the awards made, the following information is available:
| Award date (unvested awards and awards vested during the year) | 2008 | 2009 | 2010 | 2011 |
|---|---|---|---|---|
| Calculated fair value | R267.05 | R293.99 | R280.90 | R340.00 |
| Vesting date | 1 Jan 2011 | 18 Feb 2012 | 24 Feb 2013 | 21 Feb 2014 |
| Expiry date | 31 Dec 2017 | 17 Feb 2019 | 23 Feb 2020 | 20 Feb 2021 |
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 1,263,749 | – | Awards outstanding at beginning of year | 1,599,690 | – |
| 632,142 | – | Awards granted during the year | 686,305 | – |
| (211,279) | – | Awards lapsed during the year | (102,620) | – |
| (84,922) | – | Awards exercised during the year | (201,315) | – |
| 1,599,690 | – | Awards outstanding at end of year | 1,982,060 | – |
| 85,457 | – | Awards exercisable at end of year | 242,145 | – |
The income statement charge for the year was $12m, R86m (2010: $16m, R116m).
The options, if vested, may be exercised at the end of a three-year period commencing 1 May 2003. The share options were granted at an exercise price of R221.90. The performance condition applicable to these options was that the US dollar EPS must increase by at least 6% in real terms, after inflation, over the next three years, in order to vest. As none of the performance criteria were met in the initial three years, the grantor decided to roll the scheme forward on a “roll over reset” basis, in February 2006, to be reviewed annually. The performance criteria of these options was achieved during 2006. The remaining weighted average contractual life of the options granted is 1.33 years. An employee would only be able to exercise his options after the date upon which he receives written notification from the directors that the previously specified performance criteria have been fulfilled.
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 178,471 | 216.87 | Options outstanding at beginning of year | 112,960 | 217.49 |
| – | – | Options lapsed during the year | – | – |
| (65,511) | 215.81 | Options exercised during the year | (59,397) | 217.82 |
| – | – | Options expired during the year | – | – |
| 112,960 | 217.49 | Options outstanding at end of year | 53,563 | 217.13 |
| 112,960 | 217.49 | Options exercisable at end of year | 53,563 | 217.13 |
There was no income statement charge for the year, as the total compensation cost was expensed up to the date of vesting in 2006 (2006: $10m, R69m).
The options, if vested, may be exercised at the end of a three-year period commencing 1 November 2004. The share options were granted at an exercise price of R228.00. The performance condition applicable to these options was that US dollar EPS must increase from the 2004 year by at least 6% in real terms, i.e. after inflation, over the following three years in order to vest. The performance criteria was met during 2006. The remaining weighted average contractual life of options granted is 2.83 years. An employee would only be able to exercise his options after the date upon which he has received written notification from the directors that the previously specified performance criteria have been fulfilled.
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 242,807 | 221.25 | Options outstanding at beginning of year | 150,770 | 221.51 |
| – | – | Options lapsed during the year | – | – |
| (92,037) | 220.82 | Options exercised during the year | (72,636) | 221.11 |
| – | – | Options expired during the year | – | – |
| 150,770 | 221.51 | Options outstanding at end of year | 78,134 | 221.89 |
| 150,770 | 221.51 | Options exercisable at end of year | 78,134 | 221.89 |
There was no income statement charge for the year as the total compensation cost was expensed up to the date of vesting in 2007 (2007: $3m, R23m).
There are currently two equity-settled share incentive schemes that fall outside the transitional provisions of IFRS 2, as the options were granted prior to 7 November 2002. The details of these schemes are as follows:
The share options were granted at an exercise price of R299.50 per share. The performance condition applicable to these options was that US dollar EPS must increase by 7.5% for each of the three succeeding years. On 24 December 2002, AngloGold Ashanti Limited underwent a share split on a 2:1 basis. The EPS target was reduced accordingly. As none of the performance criteria was met in the initial three years, AngloGold Ashanti Limited decided to roll the scheme forward on a “roll over reset” basis, to be reviewed annually. The performance criteria of these options were achieved during 2006. The remaining weighted average contractual life of options granted is 0.33 years. An employee would only be able to exercise his options after the date upon which he receives written notification from the directors that the previously specified performance criteria have been fulfilled.
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 218,697 | 283.45 | Options outstanding at beginning of year | 128,202 | 286.18 |
| (4,492) | 287.94 | Options lapsed during the year | – | – |
| (86,003) | 279.13 | Options exercised during the year | (88,755) | 287.43 |
| – | – | Options expired during the year | – | – |
| 128,202 | 286.18 | Options outstanding at end of year | 39,447 | 283.37 |
| 128,202 | 286.18 | Options exercisable at end of year | 39,447 | 283.37 |
Except where the directors at their sole and absolute discretion decide otherwise, a grantee may not exercise his options until after the lapse of a period calculated from the date on which the option was granted. The scheme has come to an end during 2011 and all remaining options have been exercised. The period in which and the extent to which the options vested and were exercised were as follows:
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 28,252 | 146.28 | Options outstanding at beginning of year | 641 | 194.00 |
| – | – | Options lapsed during the year | – | – |
| (27,611) | 145.17 | Options exercised during the year | (641) | 194.00 |
| – | – | Options expired during the year | – | – |
| 641 | 194.00 | Options outstanding at end of year | – | – |
| 641 | 194.00 | Options exercisable at end of year | – | – |
No grants were made with respect to the time related scheme options and performance related options since 2005. The value of each option granted during 2002, 2003 and 2004 is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the input of subjective assumptions, including the expected term of the option award and share price volatility. The expected term of options granted is derived from historical data on employee exercise and post-vesting employment termination behaviour. Expected volatility is based on the historical volatility of AngloGold Ashanti Limited’s shares. These estimates involve inherent uncertainties and the application of management’s judgement. In addition, the company is required to estimate the expected forfeiture rate and only recognise an expense for those options expected to vest. As a result, if other assumptions had been used, the recorded share-based compensation expense could have been different from that reported.
The Black-Scholes option-pricing model used the following assumptions, at grant date:
| 2002 | 2003 | 2004 | |
|---|---|---|---|
| Risk-free interest rate | 11.00% | 11.00% | 8.18% |
| Dividend yield | 4.27% | 4.27% | 2.27% |
| Volatility factor of market share price | 0.390 | 0.390 | 0.300 |
| Weighted average expected life | 7 years | 7 years | 7 years |
| Calculated fair value | R100.20 | R77.76 | R94.65 |
A memorandum of understanding was signed with the Ghanaian employees on 28 April 2009 to usher in the Ghana ESOP under defined rules.
In terms of the rules of the scheme, every eligible employee is entitled to 20 AngloGold Ashanti Limited share appreciation rights (phantom shares), which will be paid out in four equal tranches, commencing in May 2009 and ending in May 2012.
The value of the rights are equal to the value of AngloGold Ashanti Limited American Depositary Receipts (ADRs) as listed on the New York Stock Exchange, converted into Ghanaian cedis at the prevailing US dollar exchange rate.
The share price on the day of issue as at 29 April 2009 was $32.15, whilst the share price used in the payment of the third tranche was $49.24 per share (first tranche: $28.46, second tranche: $39.50).
Accordingly, for the rights issued, the following information is available:
| Number of shares | Weighted average exercise price | Number of shares | Weighted average exercise price | |
|---|---|---|---|---|
| 2010 | 2011 | |||
| 75,115 | – | Rights outstanding at beginning of year | 49,125 | – |
| – | – | Rights granted during the year | – | – |
| (720) | – | Rights lapsed during the year | (1,355) | – |
| (25,270) | – | Rights exercised during the year | (24,245) | – |
| 49,125 | – | Rights outstanding at end of year | 23,525 | – |
| – | – | Rights exercisable at end of year | – | – |
During 2011, a total of 1,355 (2010: 720) share appreciation rights were surrendered by the participants. The income statement charge for the year was less than $1m, R3m (2010: $2m, R11m). The liability recognised in other payables in the statement of financial position in respect of unexercised rights was $1m, R7m (2010: $2m, R11m).