1. Stock Option Plan 2010 (SOP 2010)
2010 and 2011 Tranche
Under the SAP Stock Option Plan 2010, in 2010 and 2011 we granted members of the Senior Leadership Team, SAP’s Top Rewards (employees with an exceptional rating) and 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 grant-base value is based on the average fair market value of one common share over the five business days prior to the Board resolution date.
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). Employees can only exercise their virtual stock options provided they are employed by SAP; if they leave the company, they forfeit them. Executive Board members’ options are non-forfeitable once granted – if the service agreement ends in the grant year, the number of options is reduced pro rata temporis. Any options not exercised at the end of the respective term expire.
The exercise price is 110% of the grant base value (115% for members of the Executive Board) which is €46.23 (€48.33) for the 2010 tranche and €39.03 (€40.80) for the 2011 tranche.
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 SOP 2010 Plan
According to International Financial Reporting Standards (IFRS) accounting rules, compensation expenses related to rights are recorded over the vesting period (3 and for members of the Executive Board 1 year(s) respectively) and fair value is revised at every reporting date until the last payment occurs. SAP purchased various call options to hedge certain anticipated cash flow exposure relating to the SAP SOP 2010 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.
2. SOP Performance Plan 2009 (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 TechPGI.
The future payout at the exercise date will be based on the outperformance of the SAP share price over the TechPGI. Exercise is only possible if the SAP share price has outperformed the TechPGI. For that purpose, the SOP PP 2009 agreement defines the initial value of the TechPGI (€97.54) as well as the SAP initial exercise price (€28.00 per share). After a vesting period of two years, the plan provides for 12 predetermined exercise dates every calendar year (one date per month) until the rights lapse five years after the grant date.
Monetary benefits are capped at 110% of the exercise price (€30.80).
Basic Accounting Principles in Connection with the SOP 2009 Plan
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.
3. SAP Stock Option Plan 2007 (SOP 2007)
2007 and 2008 Tranche
Under the SAP Stock Option Plan 2007, in 2007 and 2008 we granted 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.
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 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.
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-settled awards giving rights to Business Objects shares. Following the Business Objects acquisition in 2008, the Business Objects shares were no longer publicly traded and mechanisms were implemented to allow the employees to cash out their 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 France (liquidity agreement mechanism or LAM). In substance, the implementation of CPM and LAM resulted in a conversion of the equity-settled awards to cash-settled share-based payment awards (replacing awards) that replaced the stock options and Restricted Stock Units (RSUs) originally granted (replaced awards).
The replaced awards had vesting periods in the range of two to five years, and contractual terms in the range of two to ten years.
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.
- The replaced awards were indexed to Business Objects’ share price whereas the replacing awards are indexed to SAP’s share price as follows: SAP’s offering price for Business Objects shares during the tender offer (€42) 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 closing price of the SAP share during the 20 trading days preceding the exercise or disposition date.
The benefit resulting from the stock option exercise or the RSU vesting is either paid directly to the employees (in countries where the CPM applies) or the employees continue to receive shares of Business Objects on stock options exercise or RSU vesting (in countries where the LAM applies). In these cases, the employees have a put option to resell the shares to SAP within three months from exercise, while SAP has a call option on these shares.
In both cases, these awards are accounted for as a cash-settled award because the obligation to the employee is ultimately settled in cash, both under the CPM and the LAM mechanism.
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.
5. LTI Plan (LTI 2015) and Employee Participation Plan 2015 (EPP 2015)
In January 2012, our Supervisory Board implemented a new share-based payment plan (the LTI Plan 2015) for Executive Board members.
The Plan is designed to award members restricted share units (RSUs) each year from 2012 through 2015, with a budget of RSUs already awarded for each year at the beginning of the Plan. The number of RSUs that actually vest with the member after each year depends on our performance against objectives, defined at the beginning of the Plan, in terms of non-IFRS total revenue and non-IFRS operating profit. These objectives are derived from our Company strategy for the years through 2015. Each year, if SAP outperforms or underachieves against the objectives, the number of RSUs awarded is adjusted up or down to an actual number in the range between 80% and 150% of the initial target number. If the actual level of target achievement for a given year is below 80%, none of the initially allocated RSUs for that year vests. Each RSU that does vest entitles the beneficiary Executive Board member to a payout corresponding to the SAP share price after the end of a three-year holding period. For more information, see the Compensation Report section.
Also in January 2012, the Executive Board announced a new share-based payment plan for employees. The plan for employees, like the LTI Plan 2015 for Executive Board members, is designed to award restricted share units (RSUs). The number of RSUs that actually vest after the end of a year depends on the same objectives as are defined for the LTI Plan 2015 for Executive Board members. The Executive Board decided in December 2011 on the size of the 2012 tranche.
Basic Accounting Principles in Connection with the LTI Plan and Employee Participation Plan 2015
The total budget so far allocated for the LTI Plan 2015 and the employee plan is €179 million. The eventual financial effect cannot be estimated as it will depend on the number of vested RSUs that actually pay out and on the SAP share price, and thus the final amount paid may be above or below the budgeted amounts. All of the expense will be recorded in the period 2012 through 2015, most of it in 2012.
Share Matching Plan (SMP)
Under the Share Matching Plan (SMP) implemented in 2010, SAP offers its employees the opportunity to purchase SAP AG 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 (in regards to the 40th anniversary in 2012: five) 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 (in regards to the 40th anniversary in 2012: five) free matching shares of SAP stock for every three SAP shares acquired. This plan is not open to members of the SAP Executive Board.
Basic Accounting Principles in Connection with SMP
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.