BP 2005 Annual Report Download - page 157

10 Share-based payments continued
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.
Restricted Share Plan (RSP) An equity-settled restricted share plan used predominantly for senior employees for 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 31⁄2
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. Share options are no longer offered to the most senior employees.
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.
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.
EMPLOYEE SHARE OWNERSHIP PLANS (ESOPS)
ESOPs have been established to acquire BP shares to satisfy any awards made to participants under EDIP, LTPP, MTPP, DAB and the BP
ShareMatch Plans. The ESOPs have waived their rights to dividends on shares held for future awards and are funded by the company. Until such
time as the company’s own shares held by the ESOP trusts vest unconditionally in employees, the amount paid for those shares is deducted in
arriving at shareholders’ interest. See Note 8. Assets and liabilities of the ESOPs are recognized as assets and liabilities of the company.
At 31 December 2005, the ESOPs held 14,560,003 shares (2004 8,621,219 shares and 2003 11,930,379 shares) for potential future awards, which
had a market value of $156 million (2004 $84 million and 2003 $96 million).
Share option transactions 2005 2004 2003
Weighted Weighted Weighted
Number average Number average Number average
of exercise of exercise of exercise
options price ($) options price ($) options price ($)
Outstanding at beginning of the period 470,263,808 7.16 461,885,881 6.76 410,986,179 6.70
Granted during the period 54,482,053 10.24 80,394,760 7.93 104,758,602 6.22
Forfeited during the period (4,844,827) 8.30 (7,043,911) 6.77 (20,412,529) 7.11
Exercised during the period (68,687,976) 6.40 (62,625,182) 5.18 (32,988,942) 4.11
Expired during the period (759,556) 6.75 (2,347,740) 7.55 (457,429) 6.40
Outstanding at end of the period 450,453,502 7.64 470,263,808 7.16 461,885,881 6.76
Exercisable at the end of the period 222,729,398 7.54 224,627,758 7.00 229,198,494 6.21
BP Annual Report and Accounts 2005 155