About 35 managers will receive a payment due to the lapse of future rights linked to previously allocated stock options. The compensation scheme for Hydro's top managers will from now on consist of fixed salary and a performance-based bonus not exceeding the equivalent of 50 percent of the annual salary.
Stock options were allocated to approximately 35 managers during the period from 2003 to 2006 as part of the company's incentive scheme for top management. Under the terms of the current scheme, options allocated in 2003 and 2004 could be exercised on July 1 of this year, while options allocated in 2005 and 2006 could be exercised from 2008 and 2009, respectively. With this payment, all stock options in Hydro have been terminated.
The total payment related to exercising stock options allocated in 2003 and 2004, as well as payment in connection with the phasing out of options allocated in 2005 and 2006, amounts to NOK 210 million. A provision related to the stock option scheme has been accrued in Hydro's accounts on an ongoing basis, in accordance with the valuation method and accounting rules as described in Hydro's 2006 annual report.
The cash payment will be accounted for in the third quarter and represents a pre-tax charge of NOK 62 million. The valuation of the option payments for 2003 and 2004 is based on the average Hydro share closing price for the period July 4-10 this year, which is NOK 234.40. For options allocated in 2005 and 2006, the valuation is based on an estimated stock option value derived from the closing price of Hydro's share on July 2, NOK 228.75.
The payment will be made both to managers joining StatoilHydro and to managers continuing in Hydro after the merger of Hydro's oil and gas activities with Statoil. Hydro's stock option scheme would in any case have been terminated for the managers joining StatoilHydro on October 1. The payment will be taxed as salary.
For members of Hydro's corporate management who constitute the company's primary insiders, payment will be as follows:
Name Number of options Amount Eivind Reiten (CEO): 235,000 27,773,800 Odd Ivar Biller (Legal): 45,000 5,214,600 Svein Richard Brandtzaeg (Aluminium Products): 85,000 9,055,175 Cecilie Ditlev-Simonsen (Communication): 37,500 4,345,500 Anne Harris (Human Resources): 37,500 4,345,500 John Ove Ottestad (CFO): 185,000 23,334,800 Torstein Dale Sjoetveit (Aluminium Metal): 85,000 9,055,175 Tore Torvund (Oil & Energy): 150,000 17,382,000
The Board of Directors has also decided that President and CEO Eivind Reiten's salary will be adjusted from NOK 4.6 million to NOK 5.6 million from January 1, 2007. The increase comprises a regular annual salary increase and an adjustment for the fact that stock options will no longer be part of Hydro's compensation scheme. When the option scheme was implemented in 2001, the intention was an annual allocation of options, which would give a profit worth 25 percent of the annual salary at expected share-price development. Reiten's potential bonus, at up to a maximum of 50 percent of annual salary, remains unchanged. Reiten's bonus for 2006, which is linked to results based on predefined targets and has been set by the Board of Directors at NOK 1.3 million.
Salaries and potential bonuses for remaining managers who have been included in the option scheme will be adjusted in connection with the termination of the stock option scheme.
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