BP 2008 Annual Report Download - page 204

Financial statements
BP Annual Report and Accounts 2008
Parent company financial statements of BP p.l.c.
11. Share-based payments
Effect of share-based payment transactions on the company’s result and financial position
$ million
2008 2007 2006
Total expense recognized for equity-settled share-based payment transactions 524 412 405
Total (credit) expense recognized for cash-settled share-based payment transactions (16) 16 14
Total expense recognized for share-based payment transactions 508 428 419
Closing balance of liability for cash-settled share-based payment transactions 21 40 38
Total intrinsic value for vested cash-settled share-based payments 222 23
For ease of presentation, option and share holdings detailed in the tables within this note are stated as UK ordinary share equivalents in US dollars.
US employees are granted American Depositary Shares (ADSs) or options over the company’s ADSs (one ADS is equivalent to six ordinary shares).
The share-based payment plans that existed during the year are detailed below. All plans are ongoing unless otherwise stated.
Plans for executive directors
Executive Directors’ Incentive Plan (EDIP) – share element
An equity-settled incentive share plan for executive directors driven by one performance measure over a three-year performance period. The award of
shares is determined by comparing BP’s total shareholder return (TSR) against the other oil majors. After the performance period, the shares that vest
(net of tax) are then subject to a three-year retention period. In February 2008 it was considered appropriate to strengthen the retention element of
remuneration for two executive directors. The remuneration committee granted, on a one-off basis, a restricted share award to those two executive
directors. The shares will vest subject to continued service, in equal tranches, after three and five years. Vesting of each tranche is dependent on the
committee being satisfied, at each vesting date, with the performance of the individuals. These retention awards have been granted under EDIP which
permits awards to be made, on an exceptional basis, subject to a requirement of continued service over a specific period. The directors’ remuneration
report on pages 77 to 87 includes full details of this plan.
Executive Directors’ Incentive Plan (EDIP) – share option element
An equity-settled share option plan for executive directors that permits options to be granted at an exercise price no lower than the market price of a
share on the date that the option is granted. Options vest over three years (one-third each after one, two and three years respectively) and must be
exercised within seven years of the date of grant. Last grants were made in 2004. From 2005 onwards the remuneration committee’s policy is not to
make further grants of share options to executive directors.
Plans for senior employees
Medium Term Performance Plan (MTPP)
An equity-settled restricted share unit plan for senior employees driven by two performance measures over a three-year performance period. At the
end of the performance period units are converted into shares. The amount of units converted to shares is determined by comparing BP’s TSR against
the other oil majors and, additionally, by comparing free cash flow (FCF) against a threshold established for the period. For a small group of particularly
senior employees only the TSR measure is applicable in determining the award. The number of units converted into shares is increased to take account
of the net notional dividends that would have been received during the performance period, assuming that such dividends would have been
reinvested. With regard to leaver provisions the general rule is that leaving employment during the performance period will preclude the conversion of
units into shares. However, special arrangements apply where the participant leaves for a qualifying reason and employment ceases after completion
of the first year of the performance period. The current policy of the company, which is reflected in the terms of the MTPP, is that senior employees
subject to the plan should meet a minimum shareholding requirement. Grants will not be made under this plan after 2008.
Senior Employees Deferred Annual Bonus Plan (DAB)
An equity-settled restricted share unit plan for senior employees. In 2008 the grant value is equal to 50% (2007 and 2006 50%) of the annual cash
bonus awarded for the preceding performance year (the ‘performance period’). For 2009 this will increase to 100%. The units are restricted for a period
of three years (the ‘restriction period’), during which they accrue net notional dividends which are treated as having been reinvested. At the end of the
restriction period units are converted into shares. With regard to leaver provisions, if a participant ceases to be employed by BP prior to the end of the
performance period the general rule is that this will preclude the grant of units. If a participant ceases to be employed by BP prior to the end of the
restriction period the general rule is that this will preclude the conversion of units into shares. However, special arrangements apply where the
participant leaves for a qualifying reason.
Integrated Supply and Trading Deferred Annual Bonus Plan (IST DAB)
An equity-settled restricted share unit plan for traders in the IST function. The plan operates under the DAB but the rules differ in certain respects from
that plan. If eligible, a portion of a trader’s annual cash bonus (the ‘base grant’), awarded for the preceding performance year (the ‘performance
period’), plus an additional 25% of that amount (the ‘additional grant’),will be deferred in restricted share units. The units are restricted over a period of
three calendar years, during which they accrue net notional dividends, which are treated as having been reinvested. At the end of the restriction period
units are converted into shares. One third of the base grant vests after one and two calendar years respectively, with the final third plus the additional
grant vesting after three calendar years. With regard to leaver provisions, if a participant ceases to be employed by BP prior to the end of the restriction
period the general rule is that this will preclude the conversion of units into shares. Special arrangements apply where the participant leaves for a
qualifying reason.
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