27 Share-based compensation
Under the DSM Stock Incentive Plan, performance-related and non-performance-related stock options or Stock Appreciation Rights (SARs) are granted to senior management. Such a grant takes place on the first day on which the DSM stock is quoted ex-dividend following the Annual General Meeting of Shareholders. The opening price of the DSM stock on that day is the exercise price of the stock options and SARs.
Stock Options and SARs have a term of eight years and are subject to a vesting period of three years. After this 3-year period one third of the stock options and SARs (non-performance-related) will vest and two thirds of the stock options and SARs that are performance-related will become exercisable in whole, in part, or not at all, depending on the Total Shareholder Return (TSR) achieved by DSM in comparison with a peer group. Non-vested stock options and SARs will be forfeited. If employment is terminated prior to the vesting date, specific rules regarding vesting and forfeitures apply. Stock options and SARs will partly vest and may therefore be exercised immediately upon termination of employment in connection with retirement or early retirement. The exercise of stock incentives is regulated.
Besides stock options tied to performance, performance shares have been granted to the members of the Managing Board. Performance shares vest after three years upon the realization of a predefined performance measure (same performance schedule as operated for stock options).
Overview of stock options and Stock Appreciation Rights for management
Year of
issue
Out-
standing
on 31 Dec.
2006
In 2007
Out-
standing
on 31 Dec.
2007
Fair value
on grant
date (€)
Exercise
price (€)
Expiry date
Granted
Exercised
Forfeited
Expired
 
 
 
 
 
 
 
 
 
 
1999
4,000
-
(4,000)
-
-
-
1.62
13.005
14 Jan.
2007
2000
81,000
-
(66,000)
-
-
15,000
3.52
18.240
31 Mar.
2008
2001
395,350
-
(165,725)
-
-
229,625
3.88
19.990
30 Mar.
2009
2002
688,800
-
(178,500)
-
-
510,300
5.22
23.505
4 Apr.
2010
2003
1,056,323
-
(424,323)
-
-
632,000
3.09
18.195
4 Apr.
2011
20031
188,150
-
(95,950)
-
-
92,200
3.64
19.770
3 Nov.
2011
200423
2,753,826
-
(1,456,055)
(16,950)
(2,500)
1,278,321
2.97
17.895
2 Apr.
2012
20052
2,681,278
-
(80,000)
(160,250)
-
2,441,028
6.15
29.050
8 Apr.
2013
20062
2,984,975
-
(2,500)
(164,750)
-
2,817,725
8.95
38.300
31 Mar.
2014
20072
-
3,271,300
(6,000)
(88,500)
-
3,176,800
7.69
33.600
30 Mar.
2015
 
 
 
 
 
 
 
 
 
 
2007 Total
10,833,702
3,271,300
(2,479,053)
(430,450)
(2,500)
11,192,999
 
 
 
Of which
vested
 
 
 
 
 
 
 
 
 
2,831,473
 
 
 
 
3,330,396
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
at 31 Dec. 2005
 
 
 
 
at 31 Dec. 2006
 
 
 
2006 Total
10,936,871
3,122,725
(2,526,944)
(698,950)
-
10,833,702
 
 
 
Of which
vested
 
 
 
 
 
 
 
 
 
2,342,541
 
 
 
 
2,831,473
 
 
 
1 On 3 November 2003 a select group of DSM Nutritional Products employees received stock options and SARs on a one-off basis.
2 Stock options will partly vest, and may therefore immediately be exercised, upon termination of employment in connection with retirement or early retirement.
3 The remaining term to exercise stock options and SARs after their vesting as a result of retirement or early retirement is limited to three years (the remaining term to exercise in the case of regular vesting is five years).
Certain employees in the Netherlands are entitled to employee stock options that are granted on the first day on which the DSM stock is quoted ex-dividend following the Annual General Meeting of Shareholders. The opening price of the DSM stock on that day is the exercise price of the stock options. Employee stock options can immediately be exercised and have a term of 5 years.
Overview of stock options for employees
Year of issue
Outstanding
on 31 Dec.
2006
In 2007
Outstanding
on 31 Dec.
2007
Fair value
on grant date (€)
Exercise price (€)
Exercise period
Granted
Exercised
Forfeited
Expired
 
 
 
 
 
 
 
 
 
 
2002
128,116
-
(117,272)
-
(10,844)
-
3.67
23.11
until Apr. 2007
2003
63,522
-
(13,188)
(120)
-
50,214
2.33
18.19
until Apr. 2008
2005
205,248
-
(19,320)
(1,516)
-
184,412
4.29
29.05
until Apr. 2010
2006
605,084
-
(4,560)
(15,991)
-
584,533
6.03
38.30
until Mar. 2011
2007
-
648,828
(43,863)
(5,477)
-
599,488
4.27
33.60
until Mar. 2012
 
 
 
 
 
 
 
 
 
 
Total
1,001,970
648,828
(198,203)
(23,104)
(10,844)
1,418,647
 
 
 
 
 
 
 
 
 
 
 
 
 
Changes in 2006
 
639,471
(167,120)
(41,877)
(5,962)
 
 
 
 
Based on the 2006 result, 648,828 employee option rights were granted in 2007.
Measurement of fair value
The costs of option plans are measured by reference to the fair value of the options at the date at which the options are granted. The fair value is determined using the Black-Scholes model, taking into account market conditions linked to the price of the DSM share. Stock-price volatility is determined on the basis of historical volatilities of the DSM share price measured each month over a period equal to the expected option life. The costs of these options are recognized in the income statement (Employee-benefits costs).
The following assumptions were used in the Black-Scholes model:
 
2007
2006
 
 
 
Risk-free interest rate (6 years risk free)
4.20%
3.93%
Expected option life of management option rights
6 years
6 years
Nominal option life of management option rights
8 years
8 years
Expected option life of employee option rights
2.5 years
2.5 years
Nominal option life of employee option rights
5 years
5 years
Stock-price volatility of management option rights
26%
26%
Stock-price volatility of employee option rights
20%
26%
In the costs for wages and salaries an amount of €9 million is included for share-based compensation (2006: €21 million).