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C. NOTES TO THE CONSOLIDATED BALANCE SHEET
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24. Stock Based Compensation Plans
Employee Discounted Stock Purchase Programs
The Company acquires SAP AG ordinary shares and ADRs
under various employee stock purchase plans and transfers
the shares to employees. Discounts provided to employees
through such plans do not exceed 15% and are treated as a
direct reduction of equity.
Stock Appreciation Right (STAR) Plans
In February 2003 and February 2002, the Company granted approximately 3.8 million and 3.6 million stock appreciation rights (“2003 STARs” and “2002 STARs” respectively) to selected employees who are not participants in the LTI 2000 Plan or SAP SOP 2002. The 2003 and 2002 STAR grant values of €84.91 and €158.80, respectively, are based upon the average fair market value of one ordinary share over the 20 business days commencing the day after the announcement of the Company’s preliminary results for the preceding fiscal year. The valuation of the STARs is calculated quarterly, over a period of two years. Each quarterly valuation is weighted as follows in determining the final valuation:
The valuations for the quarterly periods ending December 31 are based on the amount by which the grant price is exceeded by the average fair market value of one ordinary share as quoted on Xetra, the trading system of the Frankfurt Stock Exchange, over the 20 consecutive business days commencing on the day after the announcement of the Company’s preliminary annual results. The other quarterly valuations are based on the amount by which the grant price is exceeded by the average fair market value of one ordinary share quoted on Xetra over the five consecutive business days commencing on the day after the announcement of the Company’s quarterly results. Because each quarterly valuation is measured independently, it is unaffected by any other quarterly valuation.
The cash payout value of each STAR will be calculated quarterly as follows: (i) 100% of the first €50 value appreciation for such quarter; (ii) 50% of the next €50 value appreciation; and (iii) 25% of any additional value appreciation. Participants will receive payments with respect to the 2003 STARs as follows: 50% each on both, March 31, 2005 and January 31, 2006. Under the terms of the 2002 STAR Plan, participants were scheduled to receive an initial payment of 50% on March 31, 2004 and a second installment on January 31, 2005. Participants will receive STAR payments provided that, subject to certain exceptions, they continue to be actively employed by the Company on the payment dates.
As SAP’s STAR Plans are settled in cash rather than by issuing equity instruments a liability is recorded for such plans, based on the current value of the STARs at the reporting date. Compensation expense – including effects of the changes in the value of the STAR – is accrued over the period the employee performs the related service (“vesting period”).
As of December 31, 2003 a STAR provision in the amount of €51million is recorded. The related STAR expense was reduced by the effects of the STAR hedge – as described in Note 33 – and therefore totaled only €36 million. No compensation expenses were recorded in 2002 as the grant price of STARs outstanding in that period exceeded the average fair market value of SAP shares on all relevant measurement dates. Accordingly no accrual was recorded as of December 31, 2002 for the 2002 STAR.
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