12. Stock compensation plans
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As of 31 December 2002 and 2003, the Group had the stock-based compensation plans described below.
Fixed option plans
Under the fixed option plan, the Group may grant options for a certain number of Swiss Re shares to members of the Executive Board and to certain members of management each year. Under the plan, the exercise price of each option equals the market price of the shares on the date of the grant. Options issued vest at the end of the fourth year and have a maximum life of ten years.
A summary of the activity of the Group’s fixed stock option plan is as follows:
|
Weighted average exercise
price in CHF |
2002 shares |
Weighted average exercise
price in CHF |
2003 shares |
|
|
|
||||
| Outstanding, 1 January |
155
|
5158310
|
154
|
6777258
|
| Options granted |
144
|
1985513
|
68
|
2049900
|
| Options exercised |
76
|
-186450
|
||
| Options forfeited |
160
|
-180115
|
146
|
-338558
|
|
|
||||
| Outstanding, 31 December |
154
|
6777258
|
134
|
8488600
|
|
|
||||
| Exercisable, 31 December |
637140
|
1456540
|
||
|
Weighted average fair value of options granted during the year per share |
36 |
16 |
||
The following table summarises the status of fixed stock options outstanding as of 31 December 2003:
|
Range of exercise price in CHF |
Number of options |
Weighted average remaining contrac-
tual life in years |
Weighted average
exercise price in CHF |
||
|
|
|||||
|
60
|
-
|
74 |
2097440
|
8.9
|
68
|
|
99
|
-
|
138 |
1431060
|
6.3
|
129
|
|
140
|
-
|
187 |
4960100
|
7.0
|
163
|
|
|
|||||
|
60
|
-
|
187 |
8488600
|
7.3
|
134
|
|
|
|||||
The fair value of each option grant is estimated on the date of the grant using a binomial option-pricing model, with the following weighted average assumptions used for grants in 2002 and 2003, respectively: dividend yield of 2.3% and 2.8%; expected volatility of 25.1% and 28.7%; risk-free interest rate of 3.4% and 2.3%; expected life of 6.0 years and 6.0 years.
The Group does not recognise compensation expense for these options. If compensation expense for the options had been recognised, the Group’s net income/loss and earnings/losses per share would approximate the pro-forma amounts in the following table:
| CHF millions |
2002
|
2003
|
|
|
||
| Net income/loss, as reported |
-91
|
1702
|
|
Less: total stock-based employee compensation expenses determined under the fair value method, net of related tax effects |
-37 |
-37 |
| Pro-forma net income/loss |
-128
|
1665
|
| Earnings/losses per share | ||
| Basic - as reported |
-0.29
|
5.48
|
| Basic - pro-forma |
-0.41
|
5.36
|
| Diluted - as reported |
-0.29
|
5.43
|
| Diluted - pro-forma |
-0.41
|
5.31
|
The employee compensation expense reflects the four-year vesting period of options.
Employee participation plan
Swiss Re’s employee participation plan consists of a savings scheme lasting two or three years. Employees combine regular savings with the purchase of either actual or tracking options. Swiss Re contributes to the employee savings.
At maturity, the employee either receives shares or cash equal to the accumulated savings balance, or the employee may elect to exercise the options.
In 2002 and 2003, 361 758 and 1 381 951 options, respectively, were issued to employees and the Group contributed CHF 14 million and CHF 14 million, respectively, to the plan.
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