Occidental Petroleum 2008 Annual Report Download - page 73

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RSUs
Certain employees are awarded the right to receive RSUs that vest ratably over three or five years after the grant date and can be
forfeited or accelerated under certain conditions. Dividend equivalents are paid during the vesting period. Compensation expense for RSUs is
measured using the quoted market price of Occidental's common stock on the grant date. The weighted-average, grant-date fair values of the
RSUs granted in 2008, 2007 and 2006 were $74.88, $52.68 and $50.45, respectively.
A summary of changes in Occidental’s unvested RSUs during the year ended December 31, 2008 is presented below:
RSUs
(000’s)
Weighted-Average
Grant-Date Fair Value
Unvested at January 1 1,520 $42.73
Granted 11 $74.88
Vested (1,092) $41.60
Forfeitures (6) $49.85
Unvested at December 31 433 $46.27
PERFORMANCE-BASED AWARDS
PRSUs
Certain executives are awarded PRSUs with a performance measure based on Occidental’s three-year cumulative return on equity
with payout amounts varying from 0 to 200 percent of the target award. The PRSUs vest at the end of the three-year period following the grant
date if performance targets are certified as being met. Compensation expense is initially measured using the quoted market price of
Occidental’s common stock on the grant date and the number of shares expected to be issued based on the performance criteria.
Compensation expense is adjusted during the vesting period only for changes in expected share payout. Cumulative dividend equivalents
are paid in cash at the end of the performance period for the number of shares certified for payout. PRSUs outstanding and unvested with a
weighted-average, grant-date fair value of $50.45 were 758,000 units as of both December 31, 2008 and 2007. No PRSUs were issued in
2008 and 2007. The 2005 LTIP provides that no individual may be granted awards under that plan in excess of the specified plan limits. For
purposes of applying the share limit, the target incentive value of awards, regardless of whether equity or cash awards, may be converted to a
share unit equivalent.
PSAs and TSRIs
Certain executives are awarded PSAs and TSRIs that vest at the end of the four-year period following the grant date if performance
targets are certified as being met. PSAs were granted prior to July 2007 with payouts that range from 0 to 200 percent of the target award and
include provisions to provide that the first 100 percent payout will be settled only in stock and any payout in excess of 100 percent will be
settled in cash. TSRIs were granted in July 2008 and 2007, with payouts that range from 0 to 150 percent of the target award and include
provisions to provide for settlement, once certified, equally in stock and cash. Dividend equivalents for PSA and TSRI target shares are paid
during the performance period regardless of the payout range or settlement provision.
The fair values of both the stock and cash-settled portions of PSAs and TSRIs are measured on the grant date using a Monte Carlo
simulation model using Occidental's assumptions, noted in the following table, and the volatility from corresponding peer companies. The
expected life is based on the vesting period (Term). The risk-free interest rate is the implied yield available on zero coupon T-notes (US
Treasury Strip) at the time of grant with a remaining term equal to the Term. The dividend yield is the expected annual dividend yield over the
Term, expressed as a percentage of the stock price on the grant date. Estimates of fair value are not intended to predict actual future events or
the value ultimately realized by the employees who receive the awards, and subsequent events may not be indicative of the reasonableness
of the original estimates of fair value made by Occidental.
The grant-date assumptions used in the Monte Carlo simulation models for PSAs and TSRIs were as follows:
PSAs TSRIs
Year Granted 2007 2006 2008 2007
Assumptions used:
Risk-free interest rate 4.1% 4.0% 3.0% 4.4%
Dividend yield 1.9% 1.7% 1.7% 1.7%
Volatility factor 25% 32% 31% 26%
Expected life (years) 4 4 4 4
Grant-date fair value of underlying Occidental common stock $48.83 $39.94 $77.00 $61.93
59
The fair value of the cash-settled portion of the PSAs and TSRIs are further measured using a Monte Carlo simulation model each