BP 2005 Annual Report Download - page 99

45 Share-based payments continued
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.
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 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
31⁄2years 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.
BP Annual Report and Accounts 2005 97