Audited by PwC

Note 24 - Stock-based payment, and remuneration

Novozymes has established stock option programs for Executive Management, managers, and other employees. The purpose of the stock option programs is to ensure common goals for Management, 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 2008. 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 finanial and nonfinancial – set by the Board of Directors for 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 publication of the 2008 financial statements. 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.
All the financial targets set for 2008 were achieved, but not all the nonfinancial targets, triggering an allocation of 97% of the maximum possible allocation to Executive Management and other managers. The allocation to other employees 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 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 19 million has been recognized for this in 2008 (DKK 33 million in 2007). The intrinsic value of the programs in 2008 was DKK 15 million (DKK 32 million in 2007).
At December 31, 2008, the Group's outstanding Novo Nordisk A/S stock options totaled 170,766, with an average exercise price of DKK 99 per share of DKK 1 and a market value of DKK 29 million, which is recognized as a liability. This liability is hedged by the Group's holding of Novo Nordisk A/S stock, which is recognized at market value. Executive Management and managers exercised 177,420 Novo Nordisk A/S options in 2008.
The Group is obliged to divest stock to Novo A/S with regard to stock options allocated to employees who were transferred to Novo A/S in connection with the Demerger. The stock will be divested if these employees exercise their employee options, and Novozymes A/S is committed to reimbursing expenses equivalent to the value of the stock at the time of the transition of the employees to Novo A/S. A total of 600 shares were divested in 2008, such that the obligation at December 31, 2008 totaled, 1,700 shares.

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, 2007 67,379  1,213,379  1,509,729  2,790,487  857,939   183*  5**
Additions during the year 179,374  244,642  200,034  624,050 
Change in Executive Management (19,005) 19,005    -    -
Options exercised in 2007 (17,600) (205,125) (532,529) (755,254)  153*
Terminations in 2007   -  (25,418) (22,578) (47,996)        
Outstanding at December 31, 2007 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**

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 2000 2,200  11,317    -  13,517  13,517  101    -
Outstanding program 2001 6,300  71,918    -  78,218  78,218  159  20 
Outstanding program 2001   -    -  210,761  210,761  210,761  186  50 
Outstanding program 2002 7,700  87,650  170,286  265,636  265,636  169  67 
Outstanding program 2003 33,600  330,705  515,311  879,616  879,616  148  238 
Outstanding program 2006 10,437  356,907    -  367,344    -  344  58 
Outstanding program 2006   -  4,290    -  4,290    -  400 
Outstanding program 2007 149,911  219,909  170,381  540,201    -  495  72 
Outstanding program 2007   -  26,244    -  26,244    -  585 
Outstanding program 2007   -  8,349    -  8,349    -  596 
Outstanding program 2008 245,857  260,492  230,724  737,073    -  390  135 
Outstanding program 2008   -  17,294    -  17,294    -  417 
Outstanding program 2008   -  8,544    -  8,544    -  403   
Outstanding at December 31, 2008 456,005  1,403,619  1,297,463  3,157,087  1,447,748   298*  5** 649 

* The exercise price is an 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 for 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:

          2008 2007  
Dividend per share, DKK 5.25 5.00
Volatility, % 55.4 25.8
Average risk-free interest, % 2.9 4.2
Stock price 418  582 

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, 2007 7,997  911  8,908 
Change in Executive Management   -  (14,420) (14,420)
Purchase of stock during the year 7,668  5,100  12,768 
Stock granted during the year   -  152,145  152,145 
Sale of stock during the year         -  (121,325) (121,325)  
Stock portfolio at December 31, 2007 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 
The stock portfolio had a market value of DKK 22 million at December 31, 2007, and DKK 18 million at December 31, 2008, based on the listed market price at year-end 2007 and 2008 respectively.

Holdings, exercise, and allocations of Novozymes A/S stock options by the Board of Directors and Executive Management
Options at Additions Exercised Options at Market
January 1, during during Dec. 31, value in
Number of stock options     2008  the year  the year 2008 DKK million  
Steen Riisgaard 80,719  56,737    -  137,456  25.4
Per Falholt 41,614  37,824    -  79,438  13.7
Benny D. Loft 36,093  37,824    -  73,917  11.8
Peder Holk Nielsen 41,614  37,824    -  79,438  13.7
Thomas Nagy 5,054  37,824    -  42,878  7.7
Thomas Videbæk     5,054  37,824    -  42,878  7.7  
Holdings of stock options 210,148  245,857    -  456,005  80.0
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.

2008 2007
          DKK million DKK million  
Number of Executive Management members
Remuneration to Executive Management:
Salaries 29  20 
Total remuneration to Executive Management 34  25 
Total remuneration to the Board of Directors
A stock-based incentive program was adopted for Executive Management for the period 2004–2006. The targets for the program, which were based on the economic value added, were achieved in 2006, and the allocation of stock took place in 2007. Executive Management received a total of 152,145 B shares in 2007.
In 2007 a new four-year stock option program was adopted with annual allocations to Executive Management. A general condition for the annual allocations is that the budget for the coming year will 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 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 2008 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 some of the nonfinancial targets were not, the Board of Directors decided to allocate 245,857 stock options, corresponding to 97% of the maximum available allocation, to Executive Management.
The total value of the options allocated for 2008, based on the Black–Scholes model, was DKK 30 million at grant date, DKK 7 million of which has been recognized in the income statement for 2008. The intrinsic value of the 392,618 stock options that have been allocated to the current Executive Management over the four-year program was DKK 7 million at December 31, 2008.
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.