14 Share-based payments

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	[SAYE]	SAYE	[PSP]
Award date	10 Apr 08	29 Aug 08	29 Apr 08
Weighted average share price	132p	101p	126p
Weighted average exercise price	99p	86p	n/a
Expected volatility	26 – 33%	27 – 34%	n/a
Expected life	3 – 7 years	3 – 7 years	3 years
Risk free investment rate	4.0 – 4.3%	4.5%	n/a
Dividend yield	4.1%	4.8%	n/a

Expected volatility is a measure of the tendency of a security price to fluctuate in a random, unpredictable manner. Expected volatility is determined by calculating the historical volatility of the Group’s share price over the previous ten years. The expected life has been adjusted, based on management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.

The [Group] provides the following equity settled share-based long term incentive plans for directors and eligible employees:

Savings related share option scheme (SAYE)

The SAYE allows employees to enter into a regular savings contract over either three, five or seven years, coupled with a corresponding option over shares of the Group. The grant price is equal to 80% of the quoted market price of the Group shares on the invitation date.

Options are normally forfeited if the employee leaves the Group.

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	Options 2008	Weighted average exercise price 2008 p	Options 2007	Weighted average exercise price 2007 p
Outstanding at 1 January	36,140,337	82	34,935,949	77
Granted during the year	24,847,859	92	7,672,510	114
Forfeited during the year	(1,367,401)	97	(1,098,923)	90
Exercised during the year	(14,557,902)	60	(3,305,251)	80
Expired during the year	(15,873,248)	102	(2,063,948)	110
Outstanding at 31 December	29,189,645	90	36,140,337	82
Exercisable at 31 December	763,190	88	201,854	82

The fair values of the [SAYE] options granted during the year have been estimated using the Black-Scholes model. The assumptions used in the model are shown above. The weighted average fair value of each SAYE option granted during the year was 29p (2007: 45p). The Group recognised total expenses of £2m (2007: £2m) related to the SAYE scheme. The intrinsic value of vested SAYE options was £nil (2007: £nil) at the year end. Intrinsic value of a share option is calculated as the current share price less the option price. The options outstanding at 31 December 2008 had a weighted average remaining contractual life of 3 years.

Company share option scheme (CSOP)/Executive share option scheme (ESOS)

The [CSOP], approved by [HMRC], and unapproved [ESOS] were designed to provide a long term incentive to directors and managers of the Group. The number of options granted is based on the manager’s level, salary and performance. The options have a ten year life but do not normally vest in the first three years. In order to exercise the options, the Legal & General Total Shareholder Return (TSR) must exceed the median TSR of the [FTSE] 100 for a period of at least three years commencing on the date of the grant. Options are normally forfeited if the employee leaves the Group.

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	Options 2008	Weighted average exercise price 2008 p	Options 2007	Weighted average exercise price 2007 p
Outstanding at 1 January	38,365,089	138	41,352,016	136
Granted during the year	–	–	–	–
Forfeited during the year	(2,911,495)	146	(696,798)	149
Exercised during the year	(640,846)	86	(1,961,215)	90
Expired during the year	(371,082)	149	(328,914)	166
Outstanding at 31 December	34,441,666	139	38,365,089	138
Exercisable at 31 December	34,441,666	139	38,365,089	138

The fair values of the options granted under the CSOP/ESOS are estimated using a binomial model, reflecting the historic exercise patterns. The assumptions used in the model are disclosed above. No options have been granted since 2004 under these schemes.

The Group recognised total expenses of £nil (2007: £nil) related to the CSOP and ESOS. The intrinsic value of vested share options at the year end was £nil (2007: £4m). The options outstanding at 31 December 2008 had a weighted average remaining contractual life of 3 years.

Share bonus plan (SBP)

[SBP] grants restricted shares which vest with employees three years after the grant date; recipients are entitled to both vote and receive dividends. The rights associated with SBP grants are normally forfeited on leaving the Group.

The fair value of the shares awarded has been calculated as the market value on the grant date.

During the year, 9,512,807 shares (2007: 6,670,313 shares) were awarded under the SBP. The weighted average fair value of the shares issued was 124p (2007: 155p). The Group recognised a total expense of £11m (2007: £7m) relating to the SBP.

Performance share plan (PSP)

Conditional shares can be granted to top managers under the PSP, based upon individual and Company performance. Under the PSP, the number of performance shares transferred to the individual at the end of the three year vesting period is dependent on the Group’s relative TSR. The award will vest in full for upper quintile performance. One quarter of the award will vest for median performance. Awards will vest on a straight line prorated basis for performance between the median and upper quintile.

For awards made prior to 2008, the performance condition is based upon the FTSE 100. For awards made during or after 2008, half of each award will be measured using the existing FTSE 100 test, the remaining half is measured against a bespoke group of UK and European insurance companies. The group comprises all UK-listed life insurers that are constituents of the [FTSE] 350, plus all members of the insurance sector of the FTSE Eurotop 300. The two halves are measured independently, thus it is possible that one half may vest, whilst the other does not.

For both comparator groups, the companies used are members of the relevant indices as at the date of award.

Additionally, the Remuneration Committee assesses whether the underlying performance of the Company is reflective of the TSR result. In exceptional circumstances, the Remuneration Committee may exercise their discretion to scale back the vesting of awards, if it is felt that the Company’s performance did not justify the level of vesting. The parameters which the Remuneration Committee use in making this assessment include market share, partnerships gained and maintained, cost constraint, capital management and shareholder perception.

During the year, 2,036,380 performance shares (2007: 1,773,775) were awarded. The weighted average fair value of each award issued was 232p (2007: 306p). The Group recognised a total expense of £5m (2007: £5m) relating to the [PSP] during the year.

Employee share plan (ESP)

Under the [ESP], approved by HMRC, permanent UK employees may elect to purchase Group shares from the market at the prevailing market price on a monthly basis. The Group supplements the number of shares purchased by matching the first £20 of the employees’ contributions. From time to time, the Group may make a grant of free shares. Both the free and matching shares must be held in trust for three years before they may vest to the employee. After vesting the shares remain within the Trust until they are transferred to the employee or the employee leaves the Group. The Trust is consolidated into the results of the Group with the unvested shares disclosed as employee scheme shares.

The fair value of the granted shares is equal to the market value at the grant date.

During the year, 4,329,878 shares (2007: 4,127,529 shares) were granted under the ESP. The weighted average fair value of the shares issued was 117p (2007: 148p). The Group recognised a total expense of £5m (2007: £4m) relating to the ESP during the year.

Total recognised expense

The total recognised expense relating to share based payments in 2008 was £23m (2007: £18m) before tax, all of which related to equity settled share schemes.

Total options

Options over 63,631,311 shares are outstanding under [CSOP], [ESOS] and [SAYE] at 31 December 2008 as shown below:

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Option price pence per share	Number of shares	Option period ending in	Option price pence per share	Number of shares	Option period ending in
50.01 – 60.00	2,919,853	2009 – 2010	110.01 – 120.00	2,784,432	2009 – 2014
60.01 – 70.00	–	–	120.01 – 130.00	31,873	2009
70.01 – 80.00	6,775,880	2009 – 2013	130.01 – 140.00	–	–
80.01 – 90.00	14,203,228	2009 – 2015	140.01 – 150.00	15,956,737	2011 – 2012
90.01 – 100.00	5,753,250	2009 – 2015	150.01 – 160.00	6,579,245	2010
100.01 – 110.00	4,337,615	2009 – 2014	160.01 – 170.00	4,289,198	2009