Note 24 - Stock-based payment, and remuneration


Audited by PwC
Novozymes has established stock option programs for Executive Management, other managers, and other employees. The purpose of the stock option programs is to ensure common goals for Executive Management, other managers, other employees, and shareholders. Allocation of options is, and has been, dependent on profit and value-creation targets being achieved, and the achievement of selected sustainability targets.
A new stock option program for all employees was launched in 2009. This program forms part of the program announced previously covering the period 2007–2010, with annual allocations conferring the right to purchase one share at a nominal price of DKK 10 per stock option. Allocations are made on the basis of the individual employee's basic salary and in accordance with the business targets – both financial and nonfinancial – set by the Board of Directors for each year. The stock options have a vesting period of four years, followed by an exercise period of five years. In order to exercise the options, the employee must still be employed on the exercise date. This does not apply to persons who have retired, taken a voluntary early retirement pension, or been given notice.
The targets set for 2009 were partly achieved, triggering an allocation of 81% of the maximum possible allocation to other managers and other employees, while the allocation to Executive Management is 99% of the possible maximum.
Executive Management has previously also been allocated stock options with a maturity period of between six and eight years. For other managers and other employees the stock options have previously been allocated with a maturity of eight years.
The above-mentioned stock option programs are primarily equity settled, and no liability is recognized for these. In the case of allocations in countries where ownership of foreign stock is not permitted, the value of the stock options is settled in cash, and a liability of DKK 25 million has been recognized for this in 2009 (DKK 19 million in 2008). The intrinsic value of the programs in 2009 was DKK 26 million (DKK 15 million in 2008).
All the liabilities relating to Novo Nordisk stock options (DKK 29 million in 2008) and divestment of stock relating to stock options granted to Novo A/S employees (1,700 in 2008) have expired.
 

Number Exercise Remaining
of options price per term to
Executive Other Other that can be option maturity
Stock options in Novozymes A/S Management managers employees Total exercised in DKK  (years)
Outstanding at January 1, 2008 210,148  1,246,483  1,154,656  2,611,287  1,623,842   266*  5**
Additions during the year 245,857  302,079  248,389  796,325 
Options exercised in 2008 (91,611) (74,192) (165,803)  152*
Terminations in 2008   (53,332) (31,390) (84,722)      
Outstanding at December 31, 2008 456,005  1,403,619  1,297,463  3,157,087  1,447,748   298*  5**
  
Additions during the year 157,581  159,523  125,079  442,183 
Options exercised in 2009 (17,380) (76,555) (137,742) (231,677)  161*
Terminations in 2009   (18,158) (14,537) (32,695)      
Outstanding at December 31, 2009 596,206  1,468,429  1,270,263  3,334,898  1,211,474   327*  5**

Number Exercise Remaining Market
of options price per term to value in
Executive Other Other that can be option maturity DKK
Stock options in Novozymes A/S Management managers employees Total exercised in DKK  (years) million  
Outstanding program 2001   -  34,968    -  34,968  34,968  159    - 13 
Outstanding program 2001   -    -  149,094  149,094  149,094  186    - 53 
Outstanding program 2002 7,700  73,000  148,893  229,593  229,593  169  84 
Outstanding program 2003 24,720  314,750  458,349  797,819  797,819  148  310 
Outstanding program 2006 10,437  349,453    -  359,890    -  344  72 
Outstanding program 2006   -  4,290    -  4,290    -  400 
Outstanding program 2007 149,911  220,031  167,528  537,470    -  495  61 
Outstanding program 2007   -  26,244    -  26,244    -  585 
Outstanding program 2007   -  8,349    -  8,349    -  596 
Outstanding program 2008 245,857  255,527  221,620  723,004    -  390  135 
Outstanding program 2008   -  17,294    -  17,294    -  417 
Outstanding program 2008   -  8,544    -  8,544    -  403 
Outstanding program 2009 157,581  152,695  124,779  435,055    -  443  73 
Outstanding program 2009   -  3,284    -  3,284    -  529 
Outstanding at December 31, 2009 596,206  1,468,429  1,270,263  3,334,898  1,211,474   327*  5** 807 

* The exercise price is a weighted average of several option programs.
** Remaining term to maturity is stated as a weighted average of the outstanding options. 

Market value is calculated on the basis of the Black–Scholes model for valuation of options. The historical volatility over the last year is used when calculating the value of the options at year-end. The risk-free interest is based on Danish government bonds with a maturity equivalent to the option's expected remaining term to maturity. The expected maturity is fixed at one year after the expiry of the binding period, or the option's expiry date if this is within one year.

The following assumptions are used when calculating market value at the end of the period:


          2009 2008  
Dividend per share, DKK 5.75  5.25
Volatility, % 30.3  55.4
Average risk-free interest, % 1.6  2.9
Share price 540  418 
   

Holdings of and trading in Novozymes A/S stock by the Board of Directors and Executive Management
Number of shares       Board of Directors Executive Management Total  
Stock portfolio at January 1, 2008 15,665  22,411  38,076 
Change in Board of Directors (920)   -  (920)
Purchase of stock during the year 820  16,351  17,171 
Sale of stock during the year         -  (10,200) (10,200)  
Stock portfolio at December 31, 2008 15,565  28,562  44,127 
Purchase of stock during the year   -  2,027  2,027 
Sale of stock during the year         -  (2,027) (2,027)  
Stock portfolio at December 31, 2009 15,565  28,562  44,127 
The stock portfolio had a market value of DKK 18 million at December 31, 2008, and DKK 24 million at December 31, 2009, based on the listed share price at year-end 2008 and 2009 respectively.

Holdings, exercise, and allocations of Novozymes A/S stock options by and to Executive Management
Options at Additions Exercised Options at Market
January 1, during during Dec. 31, value in
Number of stock options     2009  the year  the year 2009 DKK million  
Steen Riisgaard 137,456  36,366  (8,500) 165,322  31.1 
Per Falholt 79,438  24,243  (8,880) 94,801  14.9 
Benny D. Loft 73,917  24,243    -  98,160  15.5 
Peder Holk Nielsen 79,438  24,243    -  103,681  18.3 
Thomas Nagy 42,878  24,243    -  67,121  12.0 
Thomas Videbæk     42,878  24,243    -  67,121  12.0   
Holdings of stock options 456,005  157,581  (17,380) 596,206  103.8 
     
The employee-elected board members also hold stock options in Novozymes A/S, granted in connection with stock option allocations in previous years covering all employees in Novozymes A/S on the relevant dates.

2009 2008
          DKK million DKK million  
Remuneration to Executive Management:
Salaries 25  24 
Pensions          
Total remuneration to Executive Management 30  29 
Total remuneration to the Board of Directors
2009 2008
          No. No.  
Number of Executive Management members
In 2007 a new four-year stock option program was adopted with annual allocations to Executive Management. A general condition for the annual allocations was that the budget for the coming year would in all probability lead to revenue of DKK 10 billion in 2010. Additionally, the allocation is based on achievement of financial and nonfinancial targets that are set each year. The exercise price is calculated on the basis of the average closing price on NASDAQ OMX Copenhagen A/S on the first five trading days after the publication of the financial statements. The annual allocation for 2010 has been canceled as the general condition for the allocation has not been met.
The program contains a maximum clause that allows the Board of Directors to limit the number of stock options that are allocated to Executive Management over the four years. This limitation can be implemented if the intrinsic value of the total allocated stock options exceeds DKK 200 million at the time of computation in January 2011.
 
In 2009 the financial targets had a weighting of 0–75% and the nonfinancial targets a weighting of 0–25%. As the financial targets were achieved but one of the nonfinancial targets was not, the Board of Directors decided to allocate 157,581 stock options, corresponding to 99% of the maximum available allocation, to Executive Management.
The total value of the options allocated for 2009, based on the Black–Scholes model, was DKK 31 million at the grant date, DKK 7 million of which has been recognized in the income statement for 2009. The intrinsic value of the 553,349 stock options that have been allocated to the current Executive Management over the four-year program was DKK 59 million at December 31, 2009.
 
Members of Executive Management have contracts of employment containing standard conditions for members of Executive Management of Danish listed companies, including the periods of notice that both parties are required to give and competition clauses. If the executive officer's contract of employment is terminated by the company, without there having been misconduct on the part of the executive officer, the executive officer has the right to compensation, which, depending on the circumstances, may amount to a maximum of three years' salary and pension contributions.
 

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