BP Annual Report and Form 20-F 2011 - Company Reporting

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Notes on financial statements40. Share-based paymentsEffect of share-based payment transactions on the group’s result and financial position$million2011 2010 2009Total expense recognized for equity-settled share-based payment transactions 579 577 506Total expense (credit) recognized for cash-settled share-based payment transactions 5 (1) 15Total expense recognized for share-based payment transactions 584 576 521Closing balance of liability for cash-settled share-based payment transactions 12 16 32Total intrinsic value for vested cash-settled share-based payments 1 1 7For ease of presentation, options and shares detailed in the tables within this note are stated as UK ordinary share equivalents in US dollars. USemployees are granted American Depositary Shares (ADSs) or options over the company’s ADSs (one ADS is equivalent to six ordinary shares). The mainshare-based payment plans that existed during the year are detailed below.Plans for executive directorsFor further information on the Executive Directors’ Incentive Plan (EDIP) see the Directors’ remuneration report on pages 139 to 151.Plans for senior employeesThe group operates a number of equity-settled share plans under which share units are granted to its senior leaders and certain other employees. Theseplans typically have a three-year performance or restricted period during which the units accrue net notional dividends which are treated as having beenreinvested. Leaving employment will normally preclude the conversion of units into shares, but special arrangements apply for participants that leave forqualifying reasons. Grants are settled in cash where the regulatory environment prohibits participants to hold BP shares.Performance unit plansThe number of units granted is related to the level of seniority of employees. The number of units converted to shares is determined by reference toperformance measures over the three-year performance period. The main performance measure used is BP’s total shareholder return (TSR) compared tothe other oil majors. Plans included in this category are the Competitive Performance Plan (CPP) and, in part, the Performance Share Plan (PSP).Restricted share unit plansShare unit grants under BP’s restricted plans typically take into account the employee’s performance in either the current or the prior year, track recordof delivery, business and leadership skills and potential. One restricted share unit plan for senior employees, used in special circumstances such asrecruitment and retention, normally has no performance conditions. Plans included in this category are the Executive Performance Plan (EPP), theRestricted Share Plan (RSP), the Deferred Annual Bonus Plan (DAB) and, in part, the Performance Share Plan (PSP).BP Share Option Plan (BPSOP)Share options with an exercise price equivalent to the market price of a BP share immediately preceding the date of grant were granted to participants annuallyuntil 2006. These options are not subject to any performance conditions and are exercisable between the third and tenth anniversaries of the grant date.BP Plan 2011Share options with an exercise price equivalent to the market price of a BP share immediately preceding the date of grant were granted to participants in2011. These options are not subject to any performance conditions and will be exercisable between the third and tenth anniversaries of the grant date.Share Value PlanIn 2012, the group will launch a new performance plan known as the Share Value Plan (SVP) which will grant restricted share units with a three-yearperformance period. The number of units granted is dependent on grade and country of operation. The performance measures are grade specific andinclude individual rating, balanced scorecard and TSR criteria. For the 2012 performance year, no further grants will be made under DAB; and from1 January 2012, no further grants will be made under CPP, EPP or PSP.Other plansFor further information on BP’s savings and matching plans, including the BP ShareMatch plans and the BP ShareSave Plan, see page 158.246 BP Annual Report and Form 20-F 2011
Notes on financial statements40. Share-based payments continuedShare option transactionsDetails of share option transactions for the year under the share options plans are as follows:Share option transactions 2011 2010 2009WeightedWeightedWeightedNumberofoptionsaverageexercise price$Numberofoptionsaverageexercise price$Numberofoptionsaverageexercise price$Outstanding at 1 January 263,306,722 8.75 295,895,357 8.73 326,254,599 8.70Granted a 152,472,556 6.03 10,420,287 6.08 9,679,836 6.55Forfeited (9,058,406) 7.22 (9,499,661) 7.88 (5,954,325) 8.81Exercised (2,502,306) 7.64 (31,839,034) 7.97 (21,293,871) 7.53Expired (29,717,854) 8.26 (1,670,227) 8.71 (12,790,882) 8.01Outstanding at 31 December 374,500,712 7.73 263,306,722 8.75 295,895,357 8.73Exercisable at 31 December 209,776,014 9.01 242,530,635 8.90 274,685,068 8.80aShare options granted during 2011 include 142.5 million options awarded under the BP Plan 2011 with a fair value of $1.02 per option at the date of grant, determined using a binomial option pricing modelincluding assumptions for share price volatility, dividends and cancellations.The weighted average share price at the date of exercise was $7.71 (2010 $9.54 and 2009 $9.10).For options outstanding at 31 December 2011, the exercise price ranges and weighted average remaining contractual lives were as shown below:NumberofsharesWeightedaverageremaining lifeYearsOptions outstanding aWeightedaverageexercise price$Options exercisableWeightedNumber averageof exercise priceshares$Range of exercise prices$5.66 – $7.22 199,571,741 7.51 6.11 37,283,772 6.37$7.23 – $8.79 81,608,110 1.21 8.13 81,608,110 8.13$8.80 – $10.35 22,264,187 2.73 9.83 19,827,458 9.92$10.36 – $11.92 71,056,674 3.81 11.14 71,056,674 11.14374,500,712 5.15 7.73 209,776,014 9.01aIncluded within options outstanding at 31 December 2011 are options granted under the BPSOP of 208 million options (2010 239 million options).Fair values and associated details for restricted share units grantedFor restricted share units granted in 2011, the number of units and weighted average fair value at the date of grant were as shown below:Restricted share units granted in 2011 CPP EPP RSP DAB PSPNumber of restricted share units granted (million) 1.4 8.9 20.0 17.5 19.2Weighted average fair value $11.99 $7.51 $6.86 $7.51 $7.51Fair value measurement basisMonte Carlo Market value Market value Market value Market valueRestricted share units granted in 2010 CPP EPP RSP DAB PSPNumber of restricted share units granted (million) 1.3 7.6 21.4 24.5 16.0Weighted average fair value $19.81 $9.43 $6.78 $9.43 $9.43Fair value measurement basis Monte Carlo Market value Market value Market value Market valueRestricted share units granted in 2009 CPP EPP RSP DAB PSPNumber of restricted share units granted (million) 1.4 7.6 2.4 38.9 16.5Weighted average fair value $9.76 $6.56 $8.76 $6.56 $8.32Fair value measurement basis Monte Carlo Market value Market value Market value Monte CarloThe group uses the observable market price for ordinary shares at the date of grant to determine the fair value of non-TSR restricted share units.The group used a Monte Carlo simulation to determine the fair values of the TSR elements of the 2011, 2010 and 2009 CPP and EDIP grants andthe 2009 PSP grant. In accordance with the plans’ rules, the model simulates BP’s TSR and compares it against its principal strategic competitors over thethree-year period of the plans. The model takes into account the historical dividends, share price volatilities and covariances of BP and each comparatorcompany to produce a predicted distribution of relative share performance. This is applied to the reward criteria to give an expected value of the TSRelement.Accounting expense does not necessarily represent the actual value of share-based payments made to recipients, which are determined by theremuneration committee according to established criteria.Financial statementsEmployee Share Ownership Plan Trusts (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 havewaived 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 theESOPs vest unconditionally to employees, the amount paid for those shares is shown as a reduction in shareholders’ equity (see Note 39). Assets andliabilities of the ESOPs are recognized as assets and liabilities of the group.At 31 December 2011, the ESOPs held 27,784,503 shares (2010 11,477,253 shares and 2009 18,062,246 shares) for potential future awards,which had a market value of $197 million (2010 $82 million and 2009 $174 million).BP Annual Report and Form 20-F 2011 247
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Cover imagePhotograph of DeepseaSta
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Cross reference to Form 20-FPageIte
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Miscellaneous termsIn this document
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6 BP Annual Report and Form 20-F 20
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Chairman’s letterCarl-Henric Svan
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During the year, the remuneration c
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Business review: Group overviewBP A
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SafetyDuring the year, we reorganiz
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In Refining and Marketing, our worl
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Crude oil and gas prices,and refini
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In detailFor more information, seeR
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Our market: Longer-term outlookThe
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BP’s distinctive capabilities and
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Technology will continue to play a
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In detailFor more information,see C
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In detailFind out more online.bp.co
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BP Annual Report and Form 20-F 2011
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Below BP has asignificant presencei
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What you can measure6 Active portfo
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Business review: Group overview2012
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Our risk management systemOur enhan
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Our current strategic priorities ar
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Our performance2011 was a year of f
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Left BP employeesat work in Prudhoe
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We continued to sell non-core asset
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Reported recordableinjury frequency
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Business reviewBP in more depth56 F
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Business reviewBusiness continuity
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Directors andsenior management114 D
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Directors and senior managementDire
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Directors and senior managementH L
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Corporate governanceCorporate gover
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Corporate governanceAntony Burgmans
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Corporate governanceBoard oversight
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Corporate governanceBoard and commi
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Corporate governancefinancial repor
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Corporate governancechairs and secr
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Corporate governance• Oversee GCR
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Corporate governanceCommittee’s r
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Corporate governanceControls and pr
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Corporate governanceThe Act require
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Directors’ remuneration reportRem
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Directors’ remuneration reportSum
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Financial statements174 Statement o
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