BP 2006 Annual Report Download - page 166

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44 Share-based payments continued
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 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.
Employee Share Ownership Plans (ESOPs)
ESOPs have been established to acquire BP shares to satisfy any awards made to participants under EDIP, MTPP, LTPP, 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 group. 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’ equity.
See Note 43. Assets and liabilities of the ESOPs are recognized as assets and liabilities of the group.
At 31 December 2006, the ESOPs held 12,795,887 shares (2005 14,560,003 shares and 2004 8,621,219 shares) for potential future awards, which
had a market value of $142 million (2005 $156 million and 2004 $84 million).
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Share option transactions 2006 2005 2004
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Number
of
options
Weighted
average
exercise price
$
Number
of
options
Weighted
average
exercise price
$
Number
of
options
Weighted
average
exercise price
$
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Outstanding at beginning of the year 450,453,502 7.64 470,263,808 7.16 461,885,881 6.76
Granted during the year 53,977,639 11.18 54,482,053 10.24 80,394,760 7.93
Forfeited during the year (7,169,710) 8.69 (4,844,827) 8.30 (7,043,911) 6.77
Exercised during the year (70,658,480) 6.52 (68,687,976) 6.40 (62,625,182) 5.18
Expired during the year (131,489) 7.99 (759,556) 6.75 (2,347,740) 7.55
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of the year 426,471,462 8.25 450,453,502 7.64 470,263,808 7.16
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Exercisable at the end of the year 236,726,966 7.41 222,729,398 7.54 224,627,758 7.00
Available for grant at 31 December 699,535,945 955,924,506 966,076,636