BP 2008 Annual Report Download - page 171

41. Share-based payments continued
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 the 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 tenth 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. From 2007 share options no longer form a regular element of our incentive plans.
Savings and matching plans
BP ShareSave Plan
This is a savings-related share option plan under which employees save on a monthly basis, over a three-year 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. 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
These are 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 more than 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. In certain countries however, 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-settled share-based payments/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/restricted shares to the employee at the date of exercise or on maturity. The cash options/SARs have the same rules as the BPSOP plan
and the cash restricted share plans (MTPP, DAB, PSP, RSP) have the same rules as their equity-settled counterparts.
Employee Share Ownership Plans (ESOPs)
ESOPs have been established to acquire BP shares to satisfy any awards made to participants under the BP share plans as required. 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 to employees, the amount paid for those shares is deducted in arriving at shareholders’ equity (see Note 40).
Assets and liabilities of the ESOPs are recognized as assets and liabilities of the group.
At 31 December 2008 the ESOPs held 29,051,082 shares (2007 6,448,838 shares and 2006 12,795,887 shares) for potential future awards,
which had a market value of $220 million (2007 $79 million and 2006 $142 million).
Share option transactions 2008 2007 2006
Weighted Weighted Weighted
Number average Number average Number average
of exercise price of exercise price of exercise price
options $ options $ options $
Outstanding at 1 January 358,094,243 8.51 426,471,462 8.25 450,453,502 7.64
Granted 8,062,899 8.96 6,004,025 9.11 53,977,639 11.18
Forfeited (2,502,784) 8.50 (3,924,714) 9.10 (7,169,710) 8.69
Exercised (37,277,895) 6.97 (69,715,558) 6.94 (70,658,480) 6.52
Expired (121,864) 7.00 (740,972) 8.68 (131,489) 7.99
Outstanding at 31 December 326,254,599 8.70 358,094,243 8.51 426,471,462 8.25
Exercisable at 31 December 260,178,938 8.22 238,707,055 7.70 236,726,966 7.41
BP Annual Report and Accounts 2008
Notes on financial statements
170