Ally Bank 2014 Annual Report Download - page 150

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
138
We file tax returns in the U.S. federal jurisdiction and various states and foreign jurisdictions. Our most significant operations remaining
following our divestitures of various international operations are the United States and Canada. The oldest tax years that remain subject to
examination for those jurisdictions are 2010 and 2011, respectively.
24. Share-based Compensation Plans
Based on our transactions with Treasury during 2009, we were required to comply with certain limitations on executive pay as
determined by the Special Master of Troubled Asset Relief Program (TARP) Compensation (Special Master). On December 24, 2014, as a
result of Treasury completing the sale of all of its remaining shares in Ally's common stock, Ally exited TARP. We have established stock
salary, or Deferred Stock Units (DSUs), and TARP Stock, or Incentive Restricted Stock Units (IRSUs), as forms of compensation to our
senior executives, which were approved by the Special Master. We also granted Restricted Stock Units (RSUs) to executives under the Long-
Term Equity Compensation Incentive Plan (LTIP), and have adopted the Ally Financial 2014 Incentive Compensation Plan, which allows us
to grant an array of equity-based and cash incentive awards to our named executive officers and other employees and service providers (other
than our non-employee directors). Each of our approved compensation plans and awards were designed to provide our executives with an
opportunity to share in the future growth in the value of Ally, which is necessary to attract and retain key executives. For the year ended
December 31, 2014, we did not amend our share-based compensation plans upon exiting TARP.
Prior to our IPO in April 2014, all share-based awards were settled in cash and required liability treatment under the accounting
guidance. Accounting treatment for liability-classified awards requires compensation expense to be adjusted each period until the awards are
settled based on the value of the underlying share price. Pursuant to the terms of the LTIP, the Ally Board of Directors is required to determine
a share price valuation (Share Price Valuation) for share-based compensation awards not less than annually. The Share Price Valuation
determined by the Board prior to the IPO, assisted by an independent advisor, considered, among other things, the stock price performance, on
an indexed basis, of publicly traded common stock issued by certain comparative companies and considered Ally’s common stock as if it were
freely tradable in the public markets. After the IPO, the share price valuation is based on the trading price for our stock. Also, after the IPO,
certain awards, both existing and future grants, will be settled in stock and, as a result, will be accounted for as equity awards under the
accounting guidance. For equity-classified awards, the compensation expense to be recognized over the vesting and service period is
determined on the grant date. Certain awards will continue to require liability treatment and receive the same treatment as previously noted.
For valuation purposes, we utilize Ally’s share price as of the grant date and the end of each reporting period for determining the necessary
share-based compensation expense, depending on the classification of the awards. The per-share fair value based on market price for purposes
of share-based compensation was $23.62 as of December 31, 2014. We had 38,492,672 shares authorized and available for future grants of
incentive-based equity awards at December 31, 2014.
During 2014, we entered into prepaid equity forward contracts to economically hedge a portion of the price risk driven by fluctuations in
the fair value of our DSU and IRSU awards. The prepaid equity forward contracts are hybrid instruments containing an embedded forward
contract, which is considered a derivative instrument. The embedded derivative instrument is bifurcated from the host contract and is recorded
at fair value with changes in fair value recorded as compensation and benefits expense in our Consolidated Statement of Income. For further
information on our derivative instruments, refer to Note 22.
RSU Awards
RSU awards are incentive awards that have been granted to employees as phantom shares of Ally. Prior to our IPO, these awards were
paid in cash. As a result, RSU awards required liability treatment and were remeasured quarterly at the Share Price Valuation until they were
paid. The compensation costs related to these awards were ratably charged to expense over the applicable service period. Changes in the value
related to the portion of the awards that had vested and had not been paid were recognized in earnings in the period in which the changes
occurred. After the IPO, the majority of existing RSU awards will settle in the form of Ally common stock, which changed the award
classification from a liability award to an equity award. As a result of this classification change, a modification to the accounting for the
existing awards was required. As part of the modification, the stock closing price on the date of the IPO (April 10, 2014) of $23.98 was used
as the modification date value, which resulted in the recording of an increase to additional paid-in capital of $62 million, with a corresponding
decrease in the liability. The remaining RSU cost for these awards, based on the modification date value, will be ratably charged to expense
over the applicable service periods with an offset to additional paid-in capital. RSU awards granted in 2012 can vest in one of two different
methods. The first method allows vesting ratably over a three-year period starting on the date the award was issued, with awards fully vesting
in February 2015. The second method allows vesting ratably over a two-year period, starting on the date the award was issued, with awards
fully vesting in February 2014. RSU awards granted in 2013 and 2014 vest using a single method where vesting is ratable over a two-year
period starting on the date the award was issued, with the majority of the awards fully vesting in January 2015 and January 2016. At
December 31, 2014, there were a total of 4,293,216 RSU award shares outstanding, composed of 17,571 shares awarded during 2009, 17,219
shares awarded during 2010, 0 shares awarded during 2011, 453,735 shares awarded during 2012, 2,053,271 shares awarded during 2013, and
1,751,420 shares awarded during 2014. At December 31, 2013, there were a total of 4,606,360 RSU award shares outstanding, composed of
17,571 shares awarded during 2009, 179,099 shares awarded during 2010, 581,839 shares awarded during 2011, 1,719,428 shares awarded
during 2012, and 2,108,423 shares awarded during 2013. We recognized expense related to RSU awards of $46 million, $64 million, and $78
million for the years ended December 31, 2014, 2013, and 2012, respectively. These costs were recorded as compensation and benefits
expense in our Consolidated Statement of Income.