BP 2005 Annual Report Download - page 156

154 Making energy more
Notes on financial statements continued
10 Share-based payments
EFFECT OF SHARE-BASED PAYMENT TRANSACTIONS ON THE GROUP’S RESULT AND FINANCIAL POSITION $ million
2005 2004 2003
Total expense recognized for equity-settled share-based payment transactions 348 289 268
Total expense recognized for cash-settled share-based payment transactions 20 36 25
Total expense recognized for share-based payment transactions 368 325 293
Closing balance of liability for cash-settled share-based transactions 48 59 51
Total intrinsic value for vested cash-settled share-based payment transactions 41 53 50
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 that vest (net of tax) are then subject to a three-year retention period. The directors’ remuneration report
on pages 164-173 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
164-173 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. For 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.