1. Stock Option Plan 2010
Under the SAP Stock Option Plan 2010, we grant to members of the Senior Leadership Team, to SAP’s Top Rewards (employees with an exceptional rating) and to members of the Executive Board cash-based virtual stock options, the value of which depends on the multi-year performance of the SAP share.
The awards granted in 2010 had a grant-base value of €35.48, which is based on the average fair market value of one common share over the five3 business days prior to the Board resolution date. SAP granted 4.8 million virtual Stock Options to employees and 0.6 million virtual Stock Options to members of the Executive Board.
The virtual stock options granted under the SOP 2010 give the employees the right to receive a certain amount of money by exercising the options under the terms and conditions of this plan. After a three-year vesting period (four years for members of the Executive Board), the plan provides for 11 predetermined exercise dates every calendar year (one date per month except in April) until the rights lapse six years after the grant date (seven years for members of the Executive Board).
The exercise price is 110% of the grant base value (115% for members of the Executive Board) (€39.03 and €40.80 respectively per option for the 2010 grant)
Monetary benefits will be capped at 100% of the exercise price (150% for members of the Executive Board).
Basic Accounting Principles in Connection with the SAP SOP 2007 Plan
According to International Financial Reporting Standards (IFRS) accounting rules, compensation expenses related to rights are recorded over the vesting period (3 and 4 years respectively) and fair value is revised at every reporting date until the last payment occurs.
2. SAP Stock Option Plan 2007 (SAP SOP 2007)
Grants 2007 and 2008
Under the SAP Stock Option Plan 2007, we granted in 2007 and 2008 to top executives and top performers cash-based virtual stock options, the value of which was dependent on the multi-year performance of the SAP share.
The virtual stock options granted under the SOP give the employees the right to receive a certain amount of money by exercising the options under the terms and conditions of this plan. After a vesting period of two years, the plan provides for 11 predetermined exercise dates every calendar year (one date per month except in April) until the rights lapse five years after the grant date.
The exercise price is 110% of the grant base value, which is derived from the average fair market value of one common share over the 20 business days following the announcement date of the Company’s preliminary results for the preceding fiscal year. The awards granted in 2008 and 2007 have a grant-base value of €32.69 and €35.71, respectively. Under this plan, SAP granted 7.0 million Virtual Stock Options in 2007 and 8.7 million in 2008.
Monetary benefits under the SOP are capped at 100% of the exercise price (€39.28 for options granted in 2007, and €35.96 for options granted in 2008).
Basic Accounting Principles in Connection with the SAP SOP 2007 Plan
According to IFRS accounting rules, compensation expenses related to rights are recorded over the vesting period. SAP purchased various call options to hedge certain anticipated cash flow exposure relating to the SAP SOP 2007 Plan. The call options have been structured to replicate the payouts required, if any, under the terms of the rights. Through the hedging program the change in fair value of the stock appreciation rights offsets the compensation expense on the options recognized.
3. SOP Performance Plan 2009 (SAP SOP 2009)
Under the SOP Performance Plan 2009, we granted to top executives and top performers cash-based virtual stock options, the value of which depends on the multi-year performance of the SAP share relative to an industry-specific share price index, the Tech Peer Group Index (Tech PGI), which includes ten public competitors in the technology industry.
Under the SOP Performance Plan 2009, we granted to top executives and top performers cash-based virtual stock options, the value of which depends on the multi-year performance of the SAP share relative to an industry-specific share price index, the Tech Peer Group Index (Tech PGI), which includes ten public competitors in the technology industry.
Monetary benefits are capped at 110% of the exercise price (€30.80).
Basic Accounting Principles in Connection with the Incentive Plan 2010
According to IFRS accounting rules, compensation expense related to rights is recorded over the vesting period (two years) and fair value is revised at every reporting date until the last payment occurs.
4. Business Objects cash-settled awards based on former Business Objects option and Restricted Stock Unit plans
Prior to being acquired by SAP, the employees of Business Objects companies were granted equity awards giving rights to Business Objects shares. Following the Business Objects acquisition and the squeeze out on February 18, 2008, the Business Objects shares were no longer publicly traded. Therefore, SAP implemented mechanisms to allow the employees to cash out their equity awards, either by receiving cash instead of Business Objects shares (cash payment mechanism or CPM) or by receiving Business Objects shares that they subsequently sell to SAP (liquidity agreement mechanism or LAM). The implementation of CPM and LAM resulted in substance in a conversion of the 5.1 million equity awards outstanding at February 18, 2008 to an equal number of cash-settled share-based payment awards (replacing awards) to replace the stock options and Restricted Stock Units (RSUs) granted to them by Business Objects prior to SAP's acquisition of Business Objects (replaced awards).
The replaced awards comprised the following categories of awards:
- Stock options with a four-year monthly graded vesting schedule from grant date, subject to a minimum of one year of continued service with the Company. The contractual terms range from seven to ten years. The exercise price for one subcategory of the awards was equal to 100% of the closing price of the Business Objects stock as reported on the Eurolist by Euronext on the last trading day prior to the option grant date; for the other subcategory of awards the exercise price was 100% of the average of the opening share price as reported on such market over the 20 trading days immediately preceding the historical grant date.
- International RSUs were subject to a three-year graded vesting schedule. These rights were provided free of charge to the employees (no exercise price).
- French RSUs had a two-year vesting period followed by a two-year holding period. These rights were also provided to the employees free of charge (no exercise price).
The replacing awards closely mirror the terms of the replaced awards (including conditions such as exercise price and vesting) except that:
- The replaced awards were planned to be settled by issuing equity instruments whereas the replacing awards are settled in cash either via the CPM or via the LAM mechanism.
- The replaced awards were indexed to Business Objects' share price whereas the replacing awards are indexed to SAP's stock price as follows: SAP's offering price for Business Objects shares during the tender offer (€42.00) is divided by SAP AG's share price at the tender offer closing date (€32.28) and the result is multiplied by the weighted average SAP share closing price during the 20 trading days preceding the exercise or disposition date.
In countries where the CPM applies, the benefit resulting from the stock option exercise or the RSU vesting is usually paid directly to the employees by SAP.
In countries where the LAM applies, an equity settlement was retained but supplemented by the LAM. In these cases, the employees continue to receive shares of Business Objects upon stock options exercise and RSU vesting and have a put option on these shares to resell the shares to SAP France within three months from the exercise or vesting date, except for some stock options exercise subject to French tax law, for which the put option period is two years and three months. SAP has a call option on these shares during 30 days after the end of the put option period.
Basic Accounting Principles in Connection with Business Objects replacing awards
Both under the CPM and the LAM mechanism, these awards are accounted for as a cash-settled award under IFRS 2 because the obligation to the employee will ultimately be settled in cash only. Any change in fair value is booked through stock-based compensation expense in operating income.
1. Employee Discounted Stock Purchase Programs (EDSP)
The SAP Employee Discounted Stock Purchase plan is a compensation plan, which allows SAP employees to become shareholders of the company. SAP offers eligible employees in certain countries the opportunity to purchase SAP shares at a 15% discount. This benefit is limited to 10% of their monthly base salary.
Employees are eligible to participate in the EDSP plan after six months of continuous service at SAP if they are under an unlimited employment contract.
Basic Accounting Principles in Connection with SAP EDSP
According to the provision of IFRS 2, the discount is realized as stock based compensation expense in the period when the employee exercises this right.
2. Share Matching Plan 2010 (SMP 2010)
Under the Share Matching Plan (SMP) implemented in 2010, SAP offers its employees the opportunity to purchase SAP shares at a discount of 40%. The number of SAP shares an eligible employee may purchase through the SMP is limited to a percentage of the employee’s annual base salary. After a three-year holding period, such plan participants will receive one free matching share of SAP for every three SAP shares acquired. The terms for the members of the Senior Leadership Team (SLT) are slightly different than those for the employees. Members of the SLT do not receive a discount when purchasing the shares. However, after a three-year holding period, members of the SLT receive two free matching shares of SAP stock for every three SAP shares acquired. This plan is not open to members of the SAP Executive Board.
The purchase price set by the SAP Executive Board (before discount) was €35.12 per share in 2010. At the end of offering period, SAP employees purchased 1.6 million shares in 2010. Approximately, 0.5 million bonus shares were granted in 2010. They will be transferred at the end of the three-year vesting period if these shares continue to be held during the three-year holding period. The fair value of the free matching shares as estimated at the grant date was €33.71 per share.
Basic Accounting Principles in Connection with SMP 2010
In accordance with IFRS 2, the discount granted at purchase date is immediately recognized as a compensation expense. As the bonus shares will be equity-settled at vesting date, their fair value is measured at grant date without subsequent remeasurement. Compensation expense related to bonus shares is recorded over the vesting period using the fair value at grant date.
3. Long Term Incentive 2000 Plan (LTI 2000 Plan)
LTI 2000 Plan was introduced to augment SAP's existing stock-based compensation package to attract, retain, and motivate senior managers and top performers to grow the value of the enterprise and to secure their commitment to SAP. The LTI 2000 Plan is a stock-based compensation program that allowed eligible employees a choice between two different kinds of awards, stock options and convertible bonds. The last awards under the LTI Plan were granted in 2002. By March 14, 2002, a total of 12.3 million convertible bonds and stock options have been issued under the LTI 2000 Plan. The last rights granted under LTI plan can be exercised until 2012, but SAP will not grant new rights under that program.
If stock options were chosen, the participant receives 25% more stock options than convertible bonds. Under the LTI 2000 Plan, each convertible bond having a €1 nominal value may be converted into four ordinary shares over a maximum of 10 years, subject to vesting requirements. The conversion price is equal to the market price of an ordinary share as quoted on the XETRA trading system the day immediately preceding the granting. Each stock option may be exercised in exchange for four ordinary shares over a maximum of 10 years, subject to the same vesting requirements. The exercise price varies according to the outperformance of the ordinary share price appreciation versus the appreciation of the S&P North Software-Software Index (former Goldman Sachs Software Index, GSTI Software Index) from the day immediately preceding granting to the day in which the exercise price is being determined. Both the convertibles bonds and stock options vested as follows from the date of grant: 33% after two years, 33% after three years, and 34% after four years. Forfeited convertible bonds or stock options were disqualified and could not be reissued.
Basic Accounting Principles in Connection with LTI 2000 Plan
According to IFRS accounting rules, the convertible bond program and the stock option plan are considered an Equity-Based" program and were therefore measured at grant date fair value without subsequent remeasurement. Compensation expense was recorded over the vesting period using the fair value at grant date.