Bank of Montreal 2012 Annual Report Download - page 162

Notes
The following table summarizes nonvested stock option activity for the
years ended October 31, 2012 and 2011:
(Canadian $, except as noted) 2012 2011
Number of
stock
options
Weighted-
average
grant date
fair value
Number of
stock
options
Weighted-
average
grant date
fair value
Nonvested at beginning
of year 7,678,258 8.70 7,698,441 7.93
Granted 2,526,345 5.53 1,798,913 10.60
Vested 2,299,347 8.28 1,819,096 7.33
Forfeited/cancelled 4,000 9.46 ––
Nonvested at end of
year 7,901,256 7.81 7,678,258 8.70
The following table summarizes further information about our Stock
Option Plan:
(Canadian $ in millions, except as noted) 2012 2011
Unrecognized compensation cost for nonvested stock
option awards 912
Weighted-average period over which it will be
recognized (in years) 2.3 2.5
Total intrinsic value of stock options exercised 31 72
Cash proceeds from stock options exercised 71 114
Actual tax benefits realized on stock options exercised 44
Weighted-average share price for stock options
exercised 57.8 60.9
The fair value of options granted was estimated using a binomial
option pricing model. The weighted-average fair value of options
granted during the years ended October 31, 2012 and 2011 was
$5.54 and $3.87, respectively; of which, the weighted-average fair value
of options granted as part of the M&I acquisition in 2011 was $2.22, for
a total of 3,676,632 stock options. To determine the fair value of the
stock option tranches (i.e. the 25% portion that vests each year) on the
grant date, the following ranges of values were used for each option
pricing assumption:
2012 2011
Expected dividend yield 6.8% – 7.2% 5.5% – 6.4%
Expected share price volatility 21.3% – 22.3% 18.7% – 22.8%
Risk-free rate of return 1.5% – 1.8% 1.8% – 3.0%
Expected period until exercise (in
years) 5.5 – 7.0 4.6 – 7.0
Changes to the input assumptions can result in different fair value estimates.
Expected dividend yield is based on market expectations of future
dividends on our common shares. Expected volatility is determined
based on the market consensus implied volatility for traded options on
our common shares. The risk-free rate is based on the yields of Canadian
swap curve with maturities 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, 2012 and 2011 was $56.00 and $57.78,
respectively. The weighted-average exercise price on the grant date for
the options granted as part of the M&I acquisition was $193.12 for the
year ended October 31, 2011.
Stock-Based Compensation
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, 2012 and 2011 was $48 million and $45 million,
respectively. There were 19,311,585 and 18,288,382 common shares held
in this plan for the years ended October 31, 2012 and 2011, 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 cash
payments over 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.
Mid-term incentive plan units granted during the years ended
October 31, 2012 and 2011 totalled 6,379,562 and 5,154,479,
respectively. We entered into agreements with third parties to assume
most of our obligations related to these plans in exchange for cash
payments of $310 million and $267 million in the years ended
October 31, 2012 and 2011, 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 $152 million and
$137 million as at October 31, 2012 and 2011, respectively. The deferred
amount as at October 31, 2012 is expected to be recognized over a
weighted-average period of 1.8 years (1.8 years in 2011). Employee
compensation expense related to these plans for the years ended
October 31, 2012 and 2011 was $280 million and $245 million before
tax, respectively ($204 million and $176 million after tax, respectively).
For the remaining obligations related to plans for which we have
not entered into agreements with third parties, the fair value of the
amount of compensation expense is recognized as an expense and a
liability over the period from the grant date to payment date to
employees. This liability is re-measured to fair value each reporting
period. Amounts related to employees who are eligible to retire are
expensed at the time of grant. Mid-term incentive plan units granted
under these plans during the years ended October 31, 2012 and 2011
totalled 1,133,980 and 769,933, respectively. The weighted-average
grant date fair value of the units granted during the years ended
October 31, 2012 and 2011 was $65 million and $46 million,
respectively. Payments made under these plans for the years ended
October 31, 2012 and 2011 were $44 million and $22 million,
respectively. The intrinsic value of the vested plan units recorded in
other liabilities in our Consolidated Balance Sheet as at October 31, 2012
and 2011 was $85 million and $71 million, respectively.
Employee compensation expense related to plans for which we
have not entered into agreements with third parties for the years ended
October 31, 2012 and 2011 was $48 million and $40 million before tax,
respectively ($35 million and $29 million after tax, respectively). We
economically hedge the impact of the change in the market value of our
common shares by entering into total return swaps with an external
counterparty. Hedging gains recognized for the years ended October 31,
2012 and 2011 were $3 million and $1 million, respectively, resulting
in net employee compensation expense of $45 million and $39 million
before tax, respectively ($33 million and $28 million after
tax, respectively).
A total of 14,695,481 and 14,586,051 mid-term incentive plan
units were outstanding for the years ended October 31, 2012 and
2011, respectively.
BMO Financial Group 195th Annual Report 2012 159