Tullow Oil plc Annual Report 2011 - The Group

5Note 27. Share-based payments2005 Performance Share Plan (PSP)Under the PSP, senior executives can be granted nil exercise price options (normally exercisable between three to ten yearsfollowing grant). At the 2011 Annual General Meeting, the annual grant limit for an individual was increased to 300,000 shares.Awards made before 8 March 2010 were made as conditional awards to acquire free shares on vesting. To provide flexibility toparticipants, those awards have been converted into nil exercise price options. Awards vest subject to a Total Shareholder Return(TSR) performance condition. 50% (70% for awards granted to Directors in 2011) of an award is tested against a comparatorgroup of oil and gas companies. The remaining 50% (30% for awards granted to Directors in 2011) is tested against constituentsof the FTSE 100 index (excluding investment trusts). Performance is measured over a fixed three-year period starting on1 January prior to grant, and an individual must normally remain in employment for three years from grant for the shares tovest. No dividends are paid over the vesting period. There are further details of PSP award measurement in the Directors’Remuneration Report on pages 88 to 99.The shares outstanding under the PSP are as follows:FINANCIAL STATEMENTS2011Averageweighted share2011 price at grantPSP sharesp2010Averageweighted share2010 price at grantPSP sharesp2009Averageweighted share2009 price at grantPSP sharespOutstanding at 1 January 4,101,876 978.6 4,305,486 687.0 3,856,913 552.9Granted 2,173,954 1342.6 1,274,971 1281.0 1,572,567 785.8Exercised during the year (389,126) 942.5 (1,441,136) 371.2 (1,095,350) 354.1Forfeited/expired during the year (29,170) 1249.8 (37,445) 1120.7 (28,644) 780.3Outstanding at 31 December 5,857,534 1116.0 4,101,876 978.6 4,305,486 687.0The inputs of the option valuation model were:Risk free interest rate 1.6% pa 1.9% pa 1.9% paExpected volatility 49% 52% 54%Dividend yield 0.4% pa 0.5% pa 0.8% paThe expected life is the period from date of grant to vesting. Expected volatility was determined by calculating the historicalvolatility of the Company’s share price over a period commensurate with the expected life of the awards. The weighted averagefair value of the awards granted in 2011 was 728.8p per share subject to an award (2010: 700.8p, 2009: 579.9p).The Group recognised a total charge of $17.0 million (2010: $12.6 million, 2009: $9.4 million) in respect of the PSP.2005 Deferred Share Bonus Plan (DSBP)Under the DSBP, the portion of any annual bonus above 75% of the base salary of a senior executive nominated by theRemuneration Committee is deferred into shares. Awards normally vest following the end of three financial years commencingwith that in which they are granted. They are granted as nil exercise price options, normally exercisable from when they vest until10 years from grant. Awards granted before 8 March 2010 as conditional awards to acquire free shares have been converted intonil exercise price options to provide flexibility to participants.The shares outstanding under the DSBP are as follows:2011DSBP shares2011Share priceat grantp2010DSBP shares2010Share priceat grantp2009DSBP shares2009Share priceat grantpOutstanding at 1 January 301,951 896.6 231,457 716.3 200,633 507.9Granted 65,926 1362.0 92,939 1281.0 135,291 778.0Exercised during the year – – (22,445) 629.5 (104,467) 396.0Outstanding at 31 December 367,877 980.0 301,951 896.6 231,457 716.3The inputs of the option valuation model were:Dividend yield 0.4% pa 0.5% pa 1.0% paThe expected life is the period from the date of grant to the vesting date. The fair value of the awards granted in 2011 was 1344.1pper share subject to an award (2010: 1263.1p, 2009: 760.2p).The Group recognised a total charge of $1.7 million (2010: $1.3 million, 2009: $0.8 million) in respect of the DSBP.151www.tullowoil.com