BP 2006 Annual Report Download - page 219

BP Annual Report and Accounts 2006 217
11 Share-based payments continued
Performance Share Plan (PSP)
An equity-settled restricted share plan for senior professionals and team leaders. The award takes into account the recipient’s performance in the prior
calendar year (the ‘performance period’). Shares, provided initially as share units, are restricted for a period of three years (‘the restriction period’).
Share units accrue notional dividends during the restriction period and these are reinvested. At the end of the restriction period additional units may be
awarded based on BP’s TSR performance against the other oil majors. At award, share units are converted into shares. With regard to leaver provisions,
the general rule is that leaving during the performance period will preclude an award of share units. If a participant ceases to be employed by BP prior
to the end of the restriction period, the general rule is that share units will lapse. Special arrangements apply where the participant leaves for a
qualifying reason.
Restricted Share Plan (RSP)
An equity-settled restricted share plan used predominantly for senior employees in special circumstances (such as recruitment and retention). There are
no performance conditions but the shares are subject to a three-year restriction period. During the restriction period, shares accrue dividends, which are
reinvested. With regard to leaver provisions, the general rule is that ceasing employment during the restriction period will result in the forfeit of shares.
However, special arrangements apply where the participant leaves for a qualifying reason.
BP Share Option Plan (BPSOP)
An equity-settled share option plan that applies to certain categories of employees. Participants are granted share options with an exercise price no
lower than market price of a share immediately preceding the date of grant. There are no performance conditions and the options are exercisable
between the third and 10th anniversaries of the grant date. The general rule is that the options will lapse if the participant leaves employment before the
end of the third calendar year from the date of grant (and that vested options are exercisable within 3
1
/
2
years from the date of leaving). However, special
arrangements apply where the participant leaves for a qualifying reason and employment ceases after the end of the calendar year of the date of grant.
From 2007, share options no longer form a regular element of our incentive plans.
Savings and matching plans
BP ShareSave Plan
A savings-related share option plan, under which employees save on a monthly basis, over a three- or five-year period, towards the purchase of shares
at a fixed price determined when the option is granted. This price is usually set at a 20% discount to the market price at the time of grant. The option
must be exercised within six months of maturity of the savings contract; otherwise it lapses. The plan is run in the UK and options are granted annually,
usually in June. Until 2003, a three-year savings plan was also run in a small number of other countries. Options will remain outstanding in respect of
these countries until the end of June 2007. Participants leaving for a qualifying reason will have six months in which to use their savings to exercise
their options on a pro-rated basis.
BP ShareMatch Plans
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
over 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.
The above share plans are indicated as being equity-settled. However in certain countries it is not possible to award shares to employees owing to local
legislation. In these instances the award will be settled in cash, calculated as the cash equivalent of the value to the employee of an equity-settled plan.
Cash plans
Cash Options / Stock Appreciation Rights (SARs)
These are cash-settled share-based payments available to certain employees that require the group to pay the intrinsic value of the cash option/SAR to
the employee at the date of exercise. There are no performance conditions, however participants must continue in employment with BP for the first
three calendar years of the plan for the options/SARs to vest. Special arrangements may apply for qualifying leavers. The options/SARs are exercisable
between the third and 10th anniversaries of the grant date.