MOL GROUP Annual Report

2010 2009HUF millionHUF millionSalaries and other short-term employee benefits 964 1,575Termination benefits - -Post-employment benefits - -Other long-term benefits - -Share-based payments 3 -Total 967 1,575Loans to the members of the Board of Directors and Supervisory BoardNo loans have been granted to Directors or members of the Supervisory Board.Details of the share option rights granted during the year were as follows:Number ofshares inconversionoptionsWeightedaverage exercisepriceNumber ofshares inconversionoptionsWeightedaverageexerciseprice2010 2010 2009 2009share HUF/share share HUF/shareOutstanding at the beginning of the year 658,112 18,410 451,165 22,974Granted during the year 214,402 15,893 248,573 10,960Forfeited during the year (27,375) 17,506 (41,626) 23,392Exercised during the year (100,746) 20,170 - -Expired during the year (4,124) 20,170 - -Outstanding at the end of the year 740,269 17,465 658,112 18,410Exercisable at the end of the year 133,882 21,146 115,040 20,17039 Share-based payment plansThe expense recognized for employee services received during the year is shown in the following table:2010 2009HUF millionHUF millionExpense arising from equity-settled share-based payment transactions - -Expense / (reversal of expense) arising from cash-settled share-based payment transactions 2,197 1,960Total expense / (reversal of expense) arising from share-based payment transactions 2,197 1,960As required by IFRS 2, this share-based compensation is accounted for as cash-settled payments, expensing the fair value ofthe benefit as determined at vesting date during the vesting period. As a consequence of increasing share prices, HUF 2,197million expenses have been incurred in 2010, recorded as personnel-type expenses with a corresponding increase in Tradeand other payables. In 2009 HUF 1,960 million expenses was recorded with respect to this scheme. Liabilities in respect ofshare-based payment plans amounted to HUF 5,435 million as at 31 December 2010 (31 December 2009: HUF 2,742 million),recorded in Other non-current liabilities and Other current liabilities.Fair value as of the balance sheet date was calculated using the binomial option pricing model. The inputs to the model wereas follows:2010 2009Notes to the financialstatementsThe share-based payments are described below.The share-based payments serve the management’s long term incentive. The Complex long term managerial incentivesystem employs two incentive systems in parallel: profit sharing incentive – based on value added methodology – and theoption based incentive.Weighted average exercise price (HUF / share) 17,465 18,410Share price as of 31 December (HUF / share) 20,870 17,247Expected volatility based on historical data 44.79% 44.25%Expected dividend yield 1.26% 1.93%Estimated maturity (years) 2.72 2.82Risk free interest rate 1.46% 2.08%Share Option Incentive Schemes for managementThe incentive system based on stock options launched in 2006 ensures the interest of the management of the MOL Group inthe long-term increase of MOL stock price.Profit sharing incentiveThe profit sharing incentive relates to long-term, sustainable increase of profitability, based on the value added methodology,thus ensuring that the interest of the participants of the incentive system corresponds with that of shareholders of the Group.The incentive stock option is a material incentive disbursed in cash, calculated based on call options concerning MOL shares,with annual recurrence, with the following characteristics.It is a cash-settled annual net bonus calculated on the basis of increase in the value added. (Value added: recognises a profitperformance generated on top of the cost of capital invested)– covers a 5-year period starting annually, where periods split into:– a 3-year waiting period and a 2-year redemption period in case of managers staying in the previous systemfor 2009,– a 2-year waiting period and a 3-year redemption period in case of managers choosing the new systemalready for 2009, and it is valid for all of the entitled managers from 2010.– its rate is defined by the quantity of units specified by MOL job category– the value of the units is set annually (in each year since the initiation of the scheme, 1 unit equals to 100 MOLshares).Since the basis of determining one unit of the profit-sharing incentive for any given year is the audited financial statement forthat year approved by the Annual General Meeting of the parent company, the incentive should be disbursed subsequent tosuch Meeting closing the given year.No payment is expected with respect to 2010 based on this new incentive system.According to the new system it is not possible to redeem the share option until the end of the second year (waiting period);the redemption period lasts from 1 January of the 3rd year until 31 December of the 5th year.The incentive is paid in the redemption period according to the declaration of redemption. The paid amount of the incentiveis determined as the product of the defined number and price increase (difference between the redemption price and theinitial price) of shares.162 MOL Group annual report 2010 163