BP 2006 Annual Report Download - page 218

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10 Contingent liabilities
The parent company has issued guarantees under which amounts outstanding at 31 December 2006 were $20,458 million (2005 $16,878 million and
2004 $21,106 million), including $20,402 million (2005 $16,822 million and 2004 $21,050 million) in respect of borrowings by its subsidiary undertakings
and $56 million (2005 $56 million and 2004 $56 million) in respect of liabilities of other third parties.
11 Share-based payments
$ million
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Effect of share-based payment transactions on the group’s result and financial position 2006 2005 2004
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Total expense recognized for equity-settled share-based payment transactions 405 348 289
Total expense recognized for cash-settled share-based payment transactions 14 20 36
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Total expense recognized for share-based payment transactions 419 368 325
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Closing balance of liability for cash-settled share-based payment transactions 38 48 59
Total intrinsic value for vested cash-settled share-based payments 23 41 53
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 (2005 onwards)
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. In addition, for the group chief executive, 27% of
the grant is based on long-term leadership (LTL) measures. After the performance period, the shares which vest (net of tax) are then subject to a
three-year retention period. The directors’ remuneration report on pages 68-75 includes full details of this plan.
Executive Directors’ Incentive Plan (EDIP) – share element (pre-2005)
An equity-settled incentive share plan for executive directors driven by three performance measures over a three-year performance period. The primary
measure is BP’s shareholder return against the market (SHRAM) versus that of the companies within the FTSE All World Oil & Gas Index. This accounts
for nearly two-thirds of the potential total award, with the remainder being assessed on BP’s relative return on average capital employed (ROACE) and
earnings per share (EPS) growth compared with the other oil majors. After the performance period, the shares that vest (net of tax) are then subject to a
three-year retention period. The directors’ remuneration report on pages 68-75 includes full details of this plan. For 2005 and subsequent years, the
share element of EDIP was amended as described above.
Executive Directors’ Incentive Plan (EDIP) – share option element (pre-2005)
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) (2005 onwards)
An equity-settled incentive share plan for senior employees driven by two performance measures over a three-year performance period. The award of
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 shares awarded is increased to take account of the net dividends that would have been received during the performance period, assuming that such
dividends had been reinvested. With regard to leaver provisions, the general rule is that leaving employment during the performance period will preclude
an award of 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.
Long Term Performance Plan (LTPP) (pre-2005)
An equity-settled incentive share plan for senior employees driven by three performance measures over a three-year performance period. The primary
measure is BP’s SHRAM versus that of the companies within the FTSE All World Oil & Gas Index. This accounts for nearly two-thirds of the potential
total award, with the remainder being assessed on BP’s relative ROACE and EPS growth compared with the other oil majors. Shares are awarded at the
end of the performance period and are then subject to a three-year restriction period. With regard to leaver provisions, the general rule is that leaving
during the performance period will preclude an award of 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. This plan was replaced by the MTPP for 2005 onwards.
Deferred Annual Bonus Plan (DAB)
An equity-settled restricted share plan for senior employees. The award value is equal to 50% of the annual cash bonus awarded for the preceding
performance year (the ‘performance period’). The shares are restricted for a period of three years (the ‘restriction period’). Shares accrue dividends
during the restriction period and these are reinvested. With regard to leaver provisions, if a participant ceases to be employed by BP prior to the end of
the performance period, then the general rule is that this will preclude an award of shares. However, special arrangements apply where the participant
leaves for a qualifying reason. Similarly, if a participant ceases to be employed by BP prior to the end of the restriction period, the general rule is that the
restricted shares will be forfeited. Special arrangements apply where the participant leaves for a qualifying reason.