2012 Registration document and annual financial report - BNP Paribas

CONSOLIDATED FINANCIAL STATEMENTS - YEAR ENDED 31 DECEMBER 2012Notes to the financial statements4➤ EXPENSE OF SHARE-BASED PAYMENTExpense in millions of eurosStocksubscrip tionand purchaseoption plansShare awardplansVariabledeferredcompensationplansYear to31 Dec. 2012TotalexpenseYear to31 Dec. 2011TotalexpensePrior deferred compensation plans - - 160 160 (285)Deferred compensation plan for the year - - 294 294 287Global Share-Based Incentive Plan 27 45 - 72 69TOTAL 27 45 454 526 71Valuation of stock option and performanceshares plansAs required under IFRS 2, BNP Paribas attributes a value to stock optionsand performance shares granted to employees and recognises anexpense, determined at the date of grant, calculated respectively on thebasis of the fair value of the options and shares concerned. This initial fairvalue may not subsequently be adjusted for changes in the quoted marketprice of BNP Paribas shares. The only assumptions that may result in arevision to fair value during the vesting period, and hence an adjustmentin the expense, are those related to the population of grantees (loss ofrights) and internal performance conditions. The Group’s share-basedpayment plans are valued by an independent specialist firm.Measurement of stock subscription optionsBinomial or trinomial tree algorithms are used to build in the possibilityof non-optimal exercise of options from the vesting date. The Monte-Carlomethod is also used to price in the characteristics of certain secondarygrants linking options to the performance of the BNP Paribas sharerelative to a sector index.The implied volatility used in measuring stock option plans is estimatedon the basis of a range of ratings prepared by various dealing rooms. Thelevel of volatility used by the Group takes account of historical volatilitytrends for the benchmark index and BNP Paribas shares over a 10-yearperiod.Stock subscription options granted in 2011 were valued at betweenEUR 11.03 and EUR 12.13 depending on whether or not they are subjectto performance conditions according to the various secondary awardtranches.No stock subscription options were granted in 2012.4Year to 31 Dec. 2011Plan granted on 4 March 2011BNP Paribas share price on the grant date (in euros) 54.49Option exercise price (in euros) 56.45Implied volatility of BNP Paribas shares 28.5%Expected option holding period8 yearsExpected dividend on BNP Paribas shares (1) 4.1%Risk-free interest rate 3.5%Expected proportion of options that will be forfeited 1.3%(1) The dividend yield indicated above is the average of a series of estimated annual dividends .2012 Registration document and annual financial report - BNP PARIBAS 173