BP 2008 Annual Report Download - page 205

204
BP Annual Report and Accounts 2008
Parent company financial statements of BP p.l.c.
11. Share-based payments continued
Performance Share Plan (PSP)
An equity-settled restricted share unit plan for senior professionals and team leaders. The grant takes into account the recipient’s performance in the
prior calendar year (the ‘performance period’). The units are restricted for a period of three years (the ‘restriction period’), during which they accrue net
notional dividends, which are treated as having been reinvested. At the end of the restriction period additional units may be awarded based on BP’s
TSR performance against the other oil majors. At the end of the restriction period units are converted into shares. With regard to leaver provisions the
general rule is that leaving during the performance period will preclude the grant of units. If a participant ceases to be employed by BP prior to the end
of the restriction period the general rule is that this will preclude the conversion of units into shares. Special arrangements apply where the participant
leaves for a qualifying reason.
Restricted Share Plan (RSP)
An equity-settled restricted share unit plan used predominantly for senior employees in special circumstances (such as recruitment and retention).
There are generally no performance conditions but the units are subject to a three-year restriction period, during which they accrue net notional
dividends which are treated as having been reinvested. At the end of the restricted period the units are converted into shares. With regard to leaver
provisions, if a participant ceases to be employed by BP prior to the end of the restriction period the general rule is that this will preclude the
conversion of units into shares. 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 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 8).
Assets and liabilities of the ESOPs are recognized as assets and liabilities of the company.