BP 2009 Annual Report Download - page 175

38. Share-based payments continued
BP Annual Report and Accounts 2009
Notes on financial statements
Financial statements
173
BP ShareMatch Plans
These are matching share plans under which BP matches employees’ own contributions of shares up to a predetermined limit. The plans are run in the
UK and in more than 70 other countries. The UK plan is run on a monthly basis with shares being held in trust for five years before they can be released
free of any income tax and national insurance liability. In other countries the plan is run on an annual basis with shares being held in trust for three
years. The plan is operated on a cash basis in those countries where there are regulatory restrictions preventing the holding of BP shares. When the
employee leaves BP all shares must be removed from trust and units under the plan operated on a cash basis must be encashed.
Local plans
In some countries BP provides local scheme benefits, the rules and qualifications for which vary according to local circumstances.
Employee Share Ownership Plans (ESOPs)
ESOPs have been established to acquire BP shares to satisfy any awards made to participants under the BP share plans as required. The ESOPs have
waived their rights to dividends on shares held for future awards and are funded by the group. Until such time as the company’s own shares held by
the ESOP trusts vest unconditionally to employees, the amount paid for those shares is deducted in arriving at shareholders’ equity (see Note 37).
Assets and liabilities of the ESOPs are recognized as assets and liabilities of the group.
At 31 December 2009 the ESOPs held 18,062,246 shares (2008 29,051,082 shares and 2007 6,448,838 shares) for potential future awards,
which had a market value of $174 million (2008 $220 million and 2007 $79 million).
Share option transactions 2009 2008 2007
Weighted Weighted Weighted
Number average Number average Number average
of exercise price of exercise price of exercise price
options $ options $ options $
Outstanding at 1 January 326,254,599 8.70 358,094,243 8.51 426,471,462 8.25
Granted 9,679,836 6.55 8,062,899 8.96 6,004,025 9.11
Forfeited (5,954,325) 8.81 (2,502,784) 8.50 (3,924,714) 9.10
Exercised (21,293,871) 7.53 (37,277,895) 6.97 (69,715,558) 6.94
Expired (12,790,882) 8.01 (121,864) 7.00 (740,972) 8.68
Outstanding at 31 December 295,895,357 8.73 326,254,599 8.70 358,094,243 8.51
Exercisable at 31 December 274,685,068 8.80 260,178,938 8.22 238,707,055 7.70
As share options are exercised continuously throughout the year, the weighted average share price during the year of $9.10 (2008 $10.87 and 2007
$11.72) is representative of the weighted average share price at the date of exercise. For the options outstanding at 31 December 2009, the exercise
price ranges and weighted average remaining contractual lives are shown below.
Options outstanding Options exercisable
Weighted Weighted Weighted
Number average average Number average
of remaining life exercise price of exercise price
Range of exercise prices shares Years $ shares $
$6.18 – $7.61 53,511,852 3.31 6.43 43,956,777 6.40
$7.62 – $9.05 143,736,259 2.48 8.18 137,625,273 8.16
$9.06 – $10.48 27,046,156 4.10 9.83 21,501,928 10.01
$10.49 – $11.92 71,601,090 5.81 11.14 71,601,090 11.14
295,895,357 3.58 8.73 274,685,068 8.80
Fair values and associated details for options and shares granted
2009 2008 2007
ShareSave ShareSave ShareSave ShareSave ShareSave ShareSave
3 year 5 year 3 year 5 year 3 year 5 year
Option pricing model used Binomial Binomial Binomial Binomial Binomial Binomial
Weighted average fair value $1.07 $1.07 $1.82 $1.74 $3.57 $3.79
Weighted average share price $7.87 $7.87 $11.26 $11.26 $12.10 $12.10
Weighted average exercise price $6.92 $6.92 $9.70 $9.70 $9.13 $9.13
Expected volatility 32% 32% 23% 23% 21% 21%
Option life 3.5 years 5.5 years 3.5 years 5.5 years 3.5 years 5.5 years
Expected dividends 7.40% 7.40% 4.60% 4.60% 3.48% 3.48%
Risk free interest rate 3.00% 3.75% 5.00% 5.00% 5.75% 5.75%
Expected exercise behaviour 100% year 4 100% year 6 100% year 4 100% year 6 100% year 4 100% year 6
The group uses a valuation model to determine the fair value of options granted. The model uses the implied volatility of ordinary share price for the
quarter within which the grant date of the relevant plan falls. The fair value is adjusted for the expected rates of early cancellation. Management is
responsible for all inputs and assumptions in relation to the model, including the determination of expected volatility.