43 Staff expenses
Staff Expenses
| Insurance operations | Banking operations | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |
| Salaries | 2,050 | 2,012 | 2,038 | 3,646 | 3,480 | 3,286 | 5,696 | 5,492 | 5,324 |
| Pension and other staff-related benefit costs | 48 | 79 | 143 | 159 | 206 | 256 | 207 | 285 | 399 |
| Social security costs | 201 | 196 | 214 | 466 | 444 | 444 | 667 | 640 | 658 |
| Share-based compensation arrangements | 54 | 54 | 36 | 73 | 58 | 33 | 127 | 112 | 69 |
| Other staff costs | 484 | 457 | 470 | 1,080 | 932 | 726 | 1,564 | 1,389 | 1,196 |
| 2,837 | 2,798 | 2,901 | 5,424 | 5,120 | 4,745 | 8,261 | 7,918 | 7,646 | |
Share-based compensation arrangements includes an amount of EUR 110 million (2006: EUR 109 million; 2005: EUR 63 million) relating to equity-settled share-based payment arrangements and EUR 17 million (2006: EUR 4 million; 2005: EUR 6 million) relating to cash-settled share-based payment arrangements.
Pension and other staff-related benefits costs
| Pension benefits | Post-employment benefits other than pensions | Other | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |
| Current service cost | 408 | 417 | 477 | 11 | 13 | 42 | –13 | 23 | 32 | 406 | 453 | 551 |
| Past service cost | –86 | 18 | 192 | –1 | –1 | 1 | 5 | –87 | 18 | 197 | ||
| Interest cost | 739 | 703 | 643 | 13 | 11 | 40 | 9 | 7 | 35 | 761 | 721 | 718 |
| Expected return on assets | –869 | –820 | –710 | –22 | –869 | –820 | –732 | |||||
| Amortisation of unrecognised past service cost | –5 | –5 | –5 | –5 | ||||||||
| Amortisation of unrecognised actuarial (gains)/losses | 29 | 22 | 4 | 33 | 22 | |||||||
| Effect of curtailment or settlement | –32 | –6 | –12 | –147 | –396 | 4 | –3 | –32 | –149 | –411 | ||
| Other | –62 | –7 | 1 | –68 | ||||||||
| Defined benefit plans | 127 | 334 | 590 | 12 | –129 | –314 | 35 | 47 | 139 | 240 | 323 | |
| Defined contribution plans | 68 | 45 | 76 | |||||||||
| 207 | 285 | 399 | ||||||||||
Remuneration of Senior Management, Executive Board and Supervisory Board
The information on share based payment plans and remuneration of the members of the Executive Board and the Supervisory Board is included in the remuneration report in the annual report. This information is considered to be an integral part of the audited annual accounts.
Stock option and share plans
ING Group has granted option rights on ING Group shares and conditional rights on depository receipts (share awards) for ING shares to a number of senior executives (members of the Executive Board, general managers and other officers nominated by the Executive Board), to all ING Group staff in the Netherlands and to a considerable number of employees outside the Netherlands. The purpose of the option and share schemes, apart from promoting a lasting growth of ING Group, is to attract, retain and motivate senior executives and staff.
ING Group holds its own shares in order to fulfil the obligations with regard to the existing stock option plan and to hedge the position risk of the options concerned (so-called delta hedge). As at 31 December 2007, 36,028,881 own shares (2006: 52,722,755; 2005: 38,722,934) were held in connection with the option plan compared to 76,888,553 options outstanding (2006: 74,175,909; 2005: 85,128,950). As a result the granted option rights were (delta) hedged, taking into account the following parameters: strike price, opening price, zero coupon interest rate, dividend yield, expected volatility and employee behaviour. The hedge is rebalanced regularly at predetermined points in time.
In March 2008 shares will be issued in relation to the vesting of share plans. The actual number of shares to be issued is dependent on ING’s TSR ranking. Reference is made to the remuneration report in the annual report.
Exposure arising out of the share plan is not hedged. The obligations with regard to these plans will be funded by issuing own shares. On 15 March 2007 5.2 million own shares were issued in relation to the vesting of share plans.
The option rights are valid for a period of 5 or 10 years. Option rights that are not exercised within this period lapse. Option rights granted will remain valid until expiry date, even if the option scheme is discontinued. The option rights are subject to certain conditions, including a certain continuous period of service. The exercise prices of the options are the same as the quoted prices of ING Group shares at the date on which the options are granted.
The entitlement to the share awards is granted conditionally. If the participant remains in employment for an uninterrupted period of three years from the grant date, the entitlement becomes unconditional. In 2007 139,113 shares (2006: 52,100; 2005: 73,500) have been granted to the members of the Executive Board and 2,415,649 shares (2006: 2,432,686; 2005: 2,907,101) have been granted to senior management and other employees remaining in the service of ING Group.
Every year, the ING Group Executive Board will take a decision as to whether the option and share schemes are to be continued and, if so, to what extent.
Changes in option rights outstanding
| Options outstanding | Weighted average exercise price | |||||
|---|---|---|---|---|---|---|
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |
| Opening balance | 74,175,909 | 85,128,950 | 81,010,410 | 25.99 | 24.42 | 24.97 |
| Granted | 12,139,472 | 13,872,880 | 15,734,031 | 32.13 | 32.78 | 23.28 |
| Exercised | –7,163,332 | –17,213,518 | –2,820,253 | 19.73 | 20.64 | 21.15 |
| Forfeited | –2,263,496 | –1,338,877 | –298,315 | 27.68 | 25.78 | 23.60 |
| Expired | –6,273,526 | –8,496,923 | 25.99 | 30.26 | ||
| Closing balance | 76,888,553 | 74,175,909 | 85,128,950 | 26.66 | 25.99 | 24.42 |
The weighted average share price at the date of exercise for options exercised during 2007 is EUR 32.48.
Changes in option rights non-vested
| Options non-vested | Weighted average grant date fair value | |||||
|---|---|---|---|---|---|---|
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |
| Opening balance | 38,551,921 | 41,407,132 | 48,317,040 | 4.57 | 3.65 | 4.85 |
| Granted | 12,139,472 | 13,872,880 | 15,734,031 | 6.52 | 6.49 | 3.49 |
| Vested | –10,112,348 | –15,390,327 | –22,394,188 | 6.14 | 4.65 | 6.11 |
| Forfeited | –2,173,887 | –1,337,764 | –249,751 | 5.46 | 3.85 | 3.54 |
| Closing balance | 38,405,158 | 38,551,921 | 41,407,132 | 5.83 | 4.57 | 3.65 |
Summary of stock options outstanding and exercisable
| 2007 | Options outstanding as at 31 December 2007 | Weighted average remaining contractual life | Weighted average exercise price | Options exercisable as at 31 December 2007 | Weighted average remaining contractual life | Weighted average execise price |
|---|---|---|---|---|---|---|
| Range of exercise price in euros | ||||||
| 0.00 – 15.00 | 6,236,710 | 5.19 | 12.02 | 6,236,710 | 5.19 | 12.02 |
| 15.00 – 20.00 | 9,773,356 | 5.55 | 18.47 | 9,773,356 | 5.55 | 18.47 |
| 20.00 – 25.00 | 15,180,545 | 6.84 | 23.10 | 1,556,832 | 3.21 | 21.83 |
| 25.00 – 30.00 | 15,338,397 | 3.46 | 28.72 | 15,206,363 | 3.42 | 28.74 |
| 30.00 – 35.00 | 24,726,711 | 8.69 | 32.47 | 77,300 | 3.59 | 33.08 |
| 35.00 – 40.00 | 5,632,834 | 3.14 | 35.51 | 5,632,834 | 3.14 | 35.51 |
| 76,888,553 | 38,483,395 | |||||
Summary of stock options outstanding and exercisable
| 2006 | Options outstanding as at 31 December 2006 | Weighted average remaining contractual life | Weighted average exercise price | Options exercisable as at 31 December 2006 | Weighted average remaining contractual life | Weighted average execise price |
|---|---|---|---|---|---|---|
| Range of exercise price in euros | ||||||
| 0.00 – 15.00 | 7,953,108 | 6.18 | 12.72 | 7,953,108 | 6.19 | 12.72 |
| 15.00 – 20.00 | 10,162,164 | 7.20 | 18.69 | 121,471 | 6.66 | 18.49 |
| 20.00 – 25.00 | 14,820,967 | 8.24 | 23.25 | 44,875 | 5.65 | 23.12 |
| 25.00 – 30.00 | 19,937,148 | 4.44 | 28.73 | 19,796,024 | 4.43 | 28.74 |
| 30.00 – 35.00 | 13,696,046 | 9.20 | 32.78 | 102,034 | 4.59 | 32.93 |
| 35.00 – 40.00 | 7,606,476 | 4.09 | 35.58 | 7,606,476 | 4.16 | 35.58 |
| 74,175,909 | 35,623,988 | |||||
Summary of stock options outstanding and exercisable
| 2005 | Options outstanding as at 31 December 2005 | Weighted average remaining contractual life | Weighted average exercise price | Options exercisable as at 31 December 2005 | Weighted average remaining contractual life | Weighted average execise price |
|---|---|---|---|---|---|---|
| Range of exercise price in euros | ||||||
| 0.00 – 15.00 | 16,872,752 | 7.18 | 12.71 | 2,423,643 | 7.20 | 12.89 |
| 15.00 – 20.00 | 10,797,877 | 8.20 | 18.69 | 301,461 | 7.97 | 18.70 |
| 20.00 – 25.00 | 15,423,891 | 9.23 | 23.25 | 172,095 | 8.11 | 23.21 |
| 25.00 – 30.00 | 27,110,926 | 5.28 | 28.59 | 25,901,115 | 5.21 | 28.57 |
| 30.00 – 35.00 | 361,530 | 2.86 | 33.15 | 361,530 | 2.86 | 33.15 |
| 35.00 – 40.00 | 14,561,974 | 3.48 | 35.47 | 14,561,974 | 3.48 | 35.47 |
| 85,128,950 | 43,721,818 |
The aggregate intrinsic value of options outstanding and exercisable at 31 December 2007 was EUR 230 million and EUR 183 million, respectively.
As of 31 December 2007 there was EUR 69 million of total unrecognised compensation costs related to stock options (2006: EUR 90 million; 2005: EUR 50 million). These costs are expected to be recognised over a weighted average period of 1.7 years (2006: 1.9 years; 2005: 2.0 years). Cash received from stock option exercises for the year ended 31 December 2007 was EUR 131 million (2006: EUR 355 million; 2005: nil).
The fair value of options granted is recorded as an expense under staff expenses and is allocated over the vesting period of the options. The fair values of the option awards have been determined by using a Monte Carlo simulation. This model takes the risk free interest rate into account (4.04% to 4.51%), as well as the expected life of the options granted (1 year to 7 years), the exercise price, the current share price (EUR 30.02 – EUR 33.10), the expected volatility of the certificates of ING Group shares (25% – 27%) and the expected dividends yield (3.98% to 4.63%).
Due to timing differences in granting option rights and buying shares to hedge them, an equity difference can occur if shares are purchased at a different price than the exercise price of the options. However, ING Group does not intentionally create a position and occurring positions are closed as soon as possible. If option rights expire, the results on the (sale of) shares which were bought to hedge these option rights are recorded in Shareholders’ equity.
Changes in share awards
| Share awards | Weighted average grant date fair value | |||||
|---|---|---|---|---|---|---|
| 2007 | 2006 | 2005 | 2007 | 2006 | 2005 | |
| Opening balance | 8,373,146 | 6,499,469 | 3,715,896 | 24.90 | 22.92 | 19.38 |
| Granted | 2,554,762 | 2,484,786 | 2,980,601 | 19.74 | 29.62 | 27.50 |
| Performance effect | 2,463,058 | 19.35 | ||||
| Vested | –5,569,061 | –155,522 | –152,006 | 19.35 | 22.48 | 20.26 |
| Forfeited | –688,191 | –455,587 | –45,022 | 26.39 | 23.10 | 24.71 |
| Closing balance | 7,133,714 | 8,373,146 | 6,499,469 | 27.52 | 24.90 | 22.92 |
The fair value of share awards granted is recorded as an expense under staff expenses and is allocated over the vesting period of the share awards. The fair values of share awards have been determined by using a Monte Carlo Simulation based valuation model. The model takes into account the risk free interest rate, the current stock prices, expected volatilities and current divided yields of the performance peer group used to determine ING’s Total Shareholder Return (TSR) ranking.
As of 31 December 2007 there were EUR 53 million (2006: EUR 88 million; 2005: EUR 81 million) of total unrecognised compensation costs related to share awards. These costs are expected to be recognised over a weighted average period of 1.7 years (2006: 1.8 years; 2005: 1.9 years).
