Share-Based Payments

The Company has issued options and other equity incentives under three arrangements: the employee share incentive plan, the employee share purchase plans and the non-employee director stock incentive plan. When options are exercised or other equity awards (excluding phantom shares) vest, new ordinary shares are issued as the Company does not hold treasury shares. Phantom shares are settled in cash in lieu of ordinary shares upon vesting.


(a)	Employee Equity Incentives

Employee equity awards were granted under the Company’s 2003 Share Incentive Plan prior to April 24, 2013 and thereafter under the Company’s 2013 Share Incentive Plan. The total number of ordinary shares that may be issued under the 2013 Share Incentive Plan is 2,845,683 shares, which includes 595,683 shares available to grant under the 2003 Share Incentive Plan as of February 25, 2013. The number of ordinary shares that may be issued under the 2013 Share Incentive Plan is adjusted per the number of awards that may be forfeited under the 2003 Share Incentive Plan.

In accordance with the Merger Agreement, the 2013 Share Incentive Plan will be terminated following the accelerated vesting and cancellation of restricted share units, performance shares and phantom shares (as described further below) immediately prior to the consummation of the Merger.

Restricted Share Units. Restricted share units (“RSUs”) granted to employees vest over a three-year period subject to the employee’s continued service. RSUs granted to employees vest on the anniversary of the date of grant or when the Compensation Committee of the Board of Directors agrees to deliver them. Holders of RSUs will be paid one ordinary share for each RSU that vests as soon as practicable following the vesting date. Holders of RSUs generally will not be entitled to any rights of a holder of ordinary shares, including the right to vote, unless and until their RSUs vest and ordinary shares are issued but they are entitled to receive dividend equivalents. Dividend equivalents are denominated in cash and paid in cash if and when the underlying RSUs vest.

At the effective time of the Merger, all outstanding RSUs, whether vested or unvested, will become fully vested and will be converted into the right to receive $42.75 in cash, without interest and less any required withholding taxes, plus a cash amount for any accrued but unpaid dividends in respect of such awards prior to the effective time of the Merger.

The following table summarizes information about RSUs as at December 31, 2018 by year of grant:



	As at December 31, 2018
	Restricted Share Units
RSU Holder	Amount Granted	Amount Vested	Amount Forfeited	Amount Outstanding
2016 Grants	328,550	186,862	82,728	58,960
2017 Grants	200,021	62,433	37,035	100,553
2018 Grants	228,251	—	25,192	203,059
Total				362,572

The fair value of RSUs is based on the closing price on the date of the grant less a deduction for illiquidity. The fair value is expensed through the consolidated income statement evenly over the vesting period. Compensation cost in respect of RSUs charged against income was $8.9 million for the twelve months ended December 31, 2018 (2017 — $9.4 million; 2016 — $9.8 million). The total tax credit recognized by the Company in relation to RSUs for the twelve months ended December 31, 2018 was $2.2 million (2017 — $2.3 million; 2016 — $2.4 million) excluding excess tax benefits.

A summary of RSU activity for the twelve months ended December 31, 2018, 2017 and 2016 is presented below:



	Twelve Months Ended
	December 31, 2018			December 31, 2017			December 31, 2016
Restricted share unit activity	Number of Shares		Weighted Average Grant Date FV	Number of Shares		Weighted Average Grant Date FV	Number of Shares		Weighted Average Grant Date FV
Outstanding restricted stock, beginning of period	439,576		$43.22	530,340		$39.28	504,234		$40.45
Granted	228,251		33.22	200,021		49.20	328,550		37.63
Vested	(222,669	)	39.67	(245,704	)	39.63	(246,489	)	34.26
Forfeited	(82,586	)	40.04	(45,081	)	41.84	(55,955	)	39.51
Outstanding restricted stock, end of period	362,572		$38.29	439,576		$43.22	530,340		$39.28

As at December 31, 2018, unrecognized compensation cost related to non-vested RSUs was $7.9 million, which is expected to be recognized over a weighted-average period of 1.6 years.

Performance Shares. Performance share awards are subject to a three-year service vesting period with a separate annual growth in diluted BVPS test for each calendar year during the vesting period. Accordingly, one-third of the award may be earned in each calendar year. Performance share awards are not entitled to dividends before they vest and are subject to the employee’s continued employment. If performance goals are achieved, the performance shares will vest up to a maximum of 200% of target.

Notwithstanding the vesting criteria for each given year, if in any given year the shares eligible for vesting are greater than 100% or the portion of such year’s grant and the average diluted BVPS growth over such year and the preceding year is less than the average of the minimum vesting thresholds for such year and the preceding year, then only 100% (and no more) of the shares that are eligible for vesting in such year shall vest. Notwithstanding the foregoing, if in the judgment of the Compensation Committee the main reason for the BVPS metric in the earlier year falling below the minimum threshold is due to the impact of rising interest rates and bond yields, then the Compensation Committee may, in its discretion, disapply the limitation on 100% vesting. For information on the impact of the Merger Agreement on vesting criteria, please refer to Note 19(d), “Commitments and Contingencies — Contingent liabilities” of these consolidated financial statements.

At the effective time of the Merger, all outstanding performance shares, whether vested or unvested, will become fully vested (with respect to any performance period that has been completed, determined based on actual level of performance achieved, and, with respect to any performance period that has not been completed, determined based on achievement of performance-based vesting requirements at target payout levels) and will be converted into the right to receive $42.75 in cash, without interest and less any required withholding taxes.

The following table summarizes information about performance shares as at December 31, 2018 by year of grant:



	As at December 31, 2018
	Performance Share Awards
	Amount Granted	Amount Vested	Amount Forfeited	Amount Outstanding
2016 Grants	278,477	28,566	249,911	—
2017 Grants	216,878	—	163,114	53,764
2018 Grants	215,273	—	90,371	124,902
Total				178,666

The fair value of performance share awards is based on the value of the closing share price on the date of the grant less a deduction for illiquidity and expected dividends which would not accrue during the vesting period. Net compensation costs charged against income in the twelve months ended December 31, 2018 in respect of performance shares was a credit of $0.5 million (2017 — $0.4 million credit; 2016 — $2.2 million debit). The total tax charge recognized by the Company in relation to performance share awards in the twelve months ended December 31, 2018 was $0.1 million (2017 — $0.1 million charge; 2016 — $0.5 million credit) excluding excess tax benefits.

A summary of performance share activity for the twelve months ended December 31, 2018, 2017 and 2016 is presented below:



	Twelve Months Ended
	December 31, 2018			December 31, 2017			December 31, 2016
Performance Share Activity	Number of Shares		Weighted Average Grant Date FV	Number of Shares		Weighted Average Grant Date FV	Number of Shares		Weighted Average Grant Date FV
Outstanding performance shares, beginning of period	208,922		$38.71	254,988		$36.92	266,424		$24.17
Granted	215,273		30.20	216,878		47.30	278,477		34.44
Vested	—		—	—		—	(87,059	)	37.30
Forfeited	(245,529	)	36.73	(262,944	)	40.32	(202,854	)	36.93
Outstanding performance shares, end of period	178,666		$38.71	208,922		$38.71	254,988		$36.92

As at December 31, 2018, unrecognized compensation cost related to non-vested performance shares was $6.8 million, which is expected to be recognized over a weighted-average period of 1.7 years.

Phantom Shares. Phantom share awards are subject to a three-year service vesting period with a separate annual growth in diluted BVPS test for each calendar year during the vesting period. One-third of the award may be earned in each calendar year with the vested amount being paid in cash in lieu of ordinary shares. As ordinary shares are not issued, phantom shares have no dilutive effect.

At the effective time of the Merger, all outstanding phantom shares, whether vested or unvested, will become fully vested (with respect to any performance period that has been completed, determined based on actual level of performance achieved, and, with respect to any performance period that has not been completed, determined based on achievement of performance-based vesting requirements at target payout levels) and will be converted into the right to receive $42.75 in cash, without interest and less any required withholding taxes.

The following table summarizes information about phantom shares as at December 31, 2018 by year of grant:



	As at December 31, 2018
	Phantom Share Awards
	Amount Granted	Amount Vested	Amount Forfeited	Amount Outstanding
2016 Grants	147,513	15,132	132,381	—
2017 Grants	173,619	—	131,980	41,639
2018 Grants	150,185	—	78,097	72,088
Total				113,727

The fair value of the phantom shares is based on the closing share price on the date of the grant less a deduction for illiquidity. The fair value is expensed through the consolidated income statement evenly over the vesting period. As the payment to beneficiaries will ultimately be in cash rather than ordinary shares, an adjustment is required each quarter to revalue the accumulated liability to the balance sheet date fair value.

Compensation costs charged against income in the twelve months ended December 31, 2018 in respect of phantom shares was $Nil (2017 — $0.7 million; 2016 — $0.7 million) with a fair value adjustment for the twelve months ended December 31, 2018 of $0.8 million (2017 — $1.7 million; 2016 — $2.9 million). The total tax benefit recognized by the Company in relation to phantom share awards in the twelve months ended December 31, 2018 was $0.2 million (2017 — $0.2 million; 2016 — $0.7 million) excluding excess tax benefits.

A summary of phantom share activity for the twelve months ended December 31, 2018, 2017 and 2016 is presented below:



	Twelve Months Ended
	December 31, 2018			December 31, 2017			December 31, 2016
Phantom Share Activity	Number of Shares		Weighted Average Grant Date FV	Number of Shares		Weighted Average Grant Date FV	Number of Shares		Weighted Average Grant Date FV
Outstanding performance shares, beginning of period	118,680		$38.71	131,464		$35.90	130,319		$38.75
Granted	150,185		30.20	173,619		47.30	147,513		34.44
Vested	—		—	—		—	(36,159	)	36.96
Forfeited	(155,138	)	35.76	(186,403	)	40.32	(110,209	)	36.96
Outstanding performance shares, end of period	113,727		$36.46	118,680		$38.71	131,464		$35.90

As at December 31, 2018, unrecognized compensation cost related to non-vested phantom shares was $5.2 million, which is expected to be recognized over a weighted-average period of 1.8 years.

Vesting Criteria Performance and Phantom Shares. Both performance share and phantom share awards are subject to a three-year vesting period with a separate BVPS growth test each year, adjusted to add back ordinary shares and movements in AOCI to shareholders’ equity at the end of the relevant year. One-third of the grant will be eligible for vesting each year based on a formula and will only be issuable at the end of the three-year period. A summary of the increases in adjusted BVPS is presented below:



Year ended December 31,	Increase in BVPS
2014	13.3	%
2015	10.7	%
2016	5.9	%
2017	—	%
2018	—	%

Options. Stock options were last granted in 2007 with an exercise price equivalent to fair value of the share on the grant date. Stock options vested over a three-year period with a ten-year contract period, with vesting dependent on time and performance conditions established at the time of grant. During the twelve months ended December 31, 2018 no options were exercised (2017 — no options; 2016 — 29,222). No charges against income were made in respect of employee options for the twelve months ended December 31, 2018, 2017 and 2016. The intrinsic value of options exercised in the twelve months ended December 31, 2018 was $Nil (2017 — $Nil; 2016 — $0.6 million).


(b)	Employee Share Purchase Plans

Employee Share Purchase Plans. On April 30, 2008, the shareholders of the Company approved the Employee Share Purchase Plan, the 2008 Sharesave Scheme, as amended, and the International Employee Share Purchase Plan (collectively, the “ESPP”), which are implemented by a series of consecutive offering periods as determined by the Board of Directors. In respect of the ESPP, employees can save up to $500 per month over a two-year period at the end of which they will be eligible to purchase ordinary shares at a discounted price. In respect of the 2008 Sharesave Scheme, employees can save up to £500 per month over a three-year period at the end of which they will be eligible to purchase ordinary shares at a discounted price. The purchase price will be eighty-five percent 85% of the fair market value of an ordinary share on the offering date which may be adjusted upon changes in capitalization of the Company.

In accordance with the Merger Agreement, the Company did not commence any offering period to purchase the Company’s ordinary shares that would begin after the end of any offering period in effect as of the date of the Merger Agreement or accept payroll deductions to be used to purchase ordinary shares under the ESPP after the end of any offering period in effect as of the date of the Merger Agreement. In addition, the Company did not permit new participants to participate in the ESPP or allow existing participants to increase their elections with respect to any offering period in effect as of the date of the Merger Agreement.

Immediately prior to the Merger, the Company will take all actions necessary to enable and require participants in the ESPP to utilize their accumulated payroll deductions to purchase newly issued ordinary shares in accordance with the terms of the ESPP and, immediately after such purchases are completed, the Company will take all actions necessary to cause the ESPP to terminate. At the effective time of the Merger, the newly issued ordinary shares will be converted into the right to receive $42.75 in cash, without interest and less any required withholding taxes.

Under the ESPP, 38,280 ordinary shares were issued during the twelve months ended December 31, 2018 (2017 — 46,866 shares; 2016 —21,285). Compensation costs charged against income in the twelve months ended December 31, 2018 in respect of the ESPP was $0.2 million (2017 — $0.4 million; 2016 — $0.4 million). The total tax benefit recognized by the Company in relation to the ESPP in the twelve months ended December 31, 2018 was $0.1 million (2017 — $0.1 million; 2016 — $Nil).

The fair value of the employee options granted under the ESPP was estimated on the date of grant using a modified Black-Scholes option pricing model under the following assumptions:



Grant Date	Per share weighted average fair value	Risk free interest rate	Dividend yield	Expected life	Share price volatility
	($)	(%)	(%)	(in years)	(%)
March 25, 2015	8.17	0.94	1.78	3	16.00
March 25, 2015	7.08	0.60	1.78	2	16.00
March 25, 2016	7.97	1.04	1.88	3	4.21
March 25, 2016	7.00	0.87	1.88	2	2.44
April 28, 2017	6.69	1.44	1.83	3	3.67
April 28, 2017	8.70	1.44	1.83	3	3.67
April 28, 2017	8.70	1.26	1.83	2	3.52

On April 21, 2016, the shareholders of the Company approved the 2016 Stock Incentive Plan for Non-Employee Directors which provides for the granting of options, restricted share units or other share-based awards. In accordance with the Merger Agreement, the 2016 Stock Incentive Plan for Non-Employee Directors will be terminated following the accelerated vesting and cancellation of restricted share units (as described further below) immediately prior to the consummation of the Merger.

Options. No options were granted during the twelve months ended December 31, 2018, 2017 and 2016 and no options were exercised and shares issued in the twelve months ended December 31, 2018 and 2017 (2016 — 4,447). No charges or tax charges against income were made in respect of non-employee directors options for the twelve months ended December 31, 2018 (2017 — $Nil; 2016 — $Nil).

Restricted Share Units. RSUs granted to non-employee directors, including the Chairman, vest one-twelfth on each one month anniversary of the date of grant with 100% of the restricted share units becoming vested and issued on the first anniversary of the grant date or on the date of departure of a director for the amount vested through such date. The shares that are eligible to vest following final vesting date in the calendar year of the date of grant is delivered as soon as practical thereafter and the remaining shares under the RSUs are delivered on the first anniversary of the grant date. If a director leaves the Board of Directors for any reason other than “cause” (as defined in the award agreement), then the director would receive shares under the restricted share units that had vested through the date the director leaves the Board.

RSUs entitle the holder to receive one ordinary share unit for each unit that vests. Holders of RSUs are not entitled to any of the rights of a holder of ordinary shares, including the right to vote, unless and until their units vest and ordinary shares are issued but they are entitled to receive dividend equivalents with respect to their units. Dividend equivalents will be denominated in cash and paid in cash if and when the underlying units vest.

The following table summarizes information about RSUs issued to non-employee directors by year of grant as at December 31, 2018.



	As at December 31, 2018
	Restricted Share Units
	Amount Granted	Amount Vested	Amount Forfeited	Amount Outstanding
Non-Employee Directors
2016	24,456	21,352	3,104	—
2017	22,230	20,377	1,853	—
2018	29,025	24,187	—	4,838
Chairman
2016	10,952	10,952	—	—
2017	8,892	8,892	—	—
2018	12,900	10,750	—	2,150
Total	108,455	96,510	4,957	6,988

The fair value of the RSUs is based on the closing price on the date of the grant. Compensation cost charged against income was $1.5 million for the twelve months ended December 31, 2018 (2017 — $1.5 million; 2016 — $1.4 million). The total tax charge recognized by the Company in relation to non-employee RSUs in the twelve months ended December 31, 2018 was $Nil (2017 — $Nil; 2016 — $Nil).

A summary of RSU activity relating to non-employee directors under the Company’s 2013 Share Incentive Plan for the twelve months ended December 31, 2018, 2017 and 2016 is presented below:



	Twelve Months Ended
	December 31, 2018			December 31, 2017			December 31, 2016
Restricted share unit activity	Number of Shares		Weighted Average Grant Date FV	Number of Shares		Weighted Average Grant Date FV	Number of Shares		Weighted Average Grant Date FV
Outstanding restricted stock, beginning of period	4,816		$50.19	5,171		$41.07	6,636		$45.28
Granted	41,925		33.08	31,122		50.18	35,408		41.07
Vested	(39,753	)	35.15	(29,624	)	48.59	(33,769	)	41.89
Forfeited	—		0.00	(1,853	)	50.18	(3,104	)	41.07
Outstanding restricted stock, end of period	6,988		$33.08	4,816		$50.19	5,171		$41.07

As at December 31, 2018, unrecognized compensation cost related to non-vested RSUs relating to non-employee directors was $0.1 million, which is expected to be recognized over a weighted-average period of 0.1 years.