Bank of Montreal 2010 Annual Report Download - page 150

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Notes
148 BMO Financial Group 193rd Annual Report 2010
Options outstanding and options exercisable as at October 31, 2010 and 2009 by range of exercise price were as follows:
(Canadian $, except as noted) 2010 2009
Options outstanding Options exercisable Options outstanding Options exercisable
Weighted- Weighted- Weighted- Weighted-
average Weighted- average Weighted- average Weighted- average Weighted-
Number remaining average Number remaining average Number remaining average Number remaining average
of stock contractual exercise of stock contractual exercise of stock contractual exercise of stock contractual exercise
Range of exercise prices options life (years) price options life (years) price options life (years) price options life (years) price
$20.01 to $30.00 – – – – – – 347,862 0.1 25.60 347,862 0.1 25.60
$30.01 to $40.00 5,389,919 3.5 35.46 3,530,925 2.0 35.71 9,555,366 3.2 36.28 7,188,519 1.7 36.77
$40.01 to $50.00 1,590,797 2.4 41.22 1,371,877 2.3 41.08 1,974,686 3.4 41.16 1,730,075 3.2 40.97
$50.01 to $60.00 4,447,969 5.8 54.53 1,258,120 3.6 55.24 2,867,545 4.6 55.21 1,380,358 4.6 55.22
$60.01 and over 3,803,454 6.1 63.95 1,372,776 5.9 64.23 3,833,154 7.1 63.95 928,419 6.8 64.39
The following table summarizes nonvested stock option activity for the
years ended October 31, 2010 and 2009:
(Canadian $, except as noted) 2010 2009
Weighted- Weighted-
average average
Number of grant date Number of grant date
stock options fair value stock options fair value
Nonvested at
beginning of year 7,003,380 7.38 5,723,625 8.36
Granted 1,737,204 9.97 2,220,027 5.57
Vested 1,023,394 7.61 934,062 9.05
Forfeited/cancelled 18,749 11.65 6,210 8.35
Nonvested at end of year 7,698,441 7.93 7,003,380 7.38
The following table summarizes further information about our
Stock Option Plan:
(Canadian $ in millions, except as noted) 2010 2009 2008
Unrecognized compensation cost
for nonvested stock option awards 11 11 8
Weighted-average period over
which it will be recognized (in years) 2.6 2.5 2.7
Total intrinsic value of
stock options exercised 107 52 30
Cash proceeds from stock
options exercised 186 84 56
Actual tax benefits realized
on stock options exercised 1 2 3
Weighted-average share price
for stock options exercised 58.6 46.7 49.4
The fair value of options granted was estimated using an option pricing
model. The weighted-average fair value of options granted during the
years ended October 31, 2010, 2009 and 2008 was $9.97, $5.57 and $8.24,
respectively. The following weighted-average assumptions were used
to determine the fair value of options on the date of grant:
2010 2009 2008
Expected dividend yield 6.6% 5.9% 4.1%
Expected share price volatility 27.5% 23.8% 19.5%
Risk-free rate of return 2.9% 2.6% 4.0%
Expected period until exercise (in years) 6.5 6.5 7.3
Changes to the input assumptions can result in different fair value estimates.
Expected dividend yield is determined using the historic yield for
the prior year. Expected volatility is based on an equal weighting of the
implied volatility from traded options on our common shares and the
historical volatility of our share price. The risk-free rate is based on
the yields of Canadian strip bonds with a maturity similar to the expected
period until exercise of the options. The weighted-average exercise
price on the grant date for the years ended October 31, 2010, 2009 and
2008 was $53.45, $34.12 and $59.14, respectively.
Other Stock-Based Compensation Plans
Share Purchase Plan
We offer our employees the option of directing a portion of their gross
salary toward the purchase of our common shares. We match 50%
of employee contributions up to 6% of their individual gross salary.
The shares held in the employee share purchase plan are purchased
on the open market and are considered outstanding for purposes of
computing earnings per share. The dividends earned on our common
shares held by the plan are used to purchase additional common
shares on the open market.
We account for our contribution as employee compensation
expense when it is contributed to the plan.
Employee compensation expense related to this plan for the
years ended October 31, 2010, 2009 and 2008 was $41 million, $42 million
and $41 million, respectively. There were 17,244,042, 17,360,921 and
14,958,315 common shares held in this plan for the years ended
October 31, 2010, 2009 and 2008, respectively.
Mid-Term Incentive Plans
We offer mid-term incentive plans for executives and certain senior
employees. Depending on the plan, these pay either a single cash
payment at the end of the three-year period of the plan, or three annual
cash payments in each of the three years of the plan. The amount
of the payment is adjusted to reflect reinvested dividends and changes
in the market value of our common shares. For units granted prior to
2009, for certain executive and some senior employee grants, a portion
of the incentive payment
also varies based on performance targets
driven by annualized total share
holder return compared with that of
our Canadian competitors.
Mid-term incentive plan units granted during the years ended
October 31, 2010, 2009 and 2008 totalled 5,651,067, 5,950,028 and
4,548,827, respectively. We entered into agreements with third parties
to assume most of our obligations related to these plans in exchange
for cash payments of $268 million, $187 million and $267 million in the
years ended October 31, 2010, 2009 and 2008, respectively. Amounts
paid under these agreements were recorded in our Consolidated Balance
Sheet in other assets and are recorded as employee compensation
expense evenly over the period prior to payment to employees.
Amounts related to units granted to employees who are eligible to retire
are expensed at the time of grant. We no longer have any liability for
the obligations transferred to third parties because any future payments
required will be the responsibility of the third parties. The amount
deferred and recorded in other assets in our Consolidated Balance Sheet
totalled $127 million and $106 million as at October 31, 2010 and 2009,
respectively. The deferred amount as at October 31, 2010 is expected to
be recognized over a weighted-average period of 1.8 years (1.7 years
in 2009). Employee compensation expense related to these plans
for the years ended October 31, 2010, 2009 and 2008 was $234 million,
$202 million and $239 million before tax, respectively ($164 million,
$137 million and $160 million after tax, respectively).