JP Morgan Chase 2010 Annual Report Download - page 210

Notes to consolidated financial statements
210 JPMorgan Chase & Co./2010 Annual Report
Estimated future benefit payments
The following table presents benefit payments expected to be paid, which include the effect of expected future service, for the years indicated.
The OPEB medical and life insurance payments are net of expected retiree contributions.
U.S. Non-U.S.
Year ended December 31, defined benefit defined benefit OPEB before
Medicare
(in millions) pension plans pension plans Medicare Part D subsidy
Part D subsidy
2011 $ 1,001 $ 84 $ 99 $ 10
2012 1,011 92 97 11
2013 587 98 95 12
2014 593 102 94 13
2015 592 111 92 14
Years 2016–2020 3,013 640 418 78
Note 10 – Employee stock-based incentives
Employee stock-based awards
In 2010, 2009, and 2008, JPMorgan Chase granted long-term
stock-based awards to certain key employees under the 2005 Long-
Term Incentive Plan (the “2005 Plan”). The 2005 Plan became
effective on May 17, 2005, and was amended in May 2008. Under
the terms of the amended 2005 plan, as of December 31, 2010,
113 million shares of common stock are available for issuance
through May 2013. The amended 2005 Plan is the only active plan
under which the Firm is currently granting stock-based incentive
awards. In the following discussion, the 2005 Plan, plus prior Firm
plans and plans assumed as the result of acquisitions, are referred
to collectively as the “LTI Plans,” and such plans constitute the
Firm’s stock-based incentive plans.
Restricted stock units (“RSUs”) are awarded at no cost to the recipi-
ent upon their grant. RSUs are generally granted annually and gener-
ally vest at a rate of 50% after two years and 50% after three years
and convert into shares of common stock at the vesting date. In
addition, RSUs typically include full-career eligibility provisions, which
allow employees to continue to vest upon voluntary termination,
subject to post-employment and other restrictions based on age or
service-related requirements. All of these awards are subject to
forfeiture until vested. An RSU entitles the recipient to receive cash
payments equivalent to any dividends paid on the underlying com-
mon stock during the period the RSU is outstanding and, as such, are
considered participating securities as discussed in Note 25 on page
269 of this Annual Report.
Under the LTI Plans, stock options and stock appreciation rights
(“SARs”) have generally been granted with an exercise price equal
to the fair value of JPMorgan Chase’s common stock on the grant
date. The Firm typically awards SARs to certain key employees once
per year, and it also periodically grants discretionary stock-based
incentive awards to individual employees, primarily in the form of
both employee stock options and SARs. The 2010, 2009 and 2008
grants of SARs to key employees vest ratably over five years (i.e.,
20% per year). The 2010 grants of SARs contain full-career eligibil-
ity provisions; the 2009 and 2008 grants of SARs do not include
any full-career eligibility provisions. SARs generally expire 10 years
after the grant date.
The Firm separately recognizes compensation expense for each
tranche of each award as if it were a separate award with its own
vesting date. Generally, for each tranche granted, compensation
expense is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided that the
employees will not become full-career eligible during the vesting
period. For awards with full-career eligibility provisions and awards
granted with no future substantive service requirement, the Firm
accrues the estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration to the
impact of post-employment restrictions. For each tranche granted
to employees who will become full-career eligible during the vest-
ing period, compensation expense is recognized on a straight-line
basis from the grant date until the earlier of the employee’s full-
career eligibility date or the vesting date of the respective tranche.
The Firm’s policy for issuing shares upon settlement of employee
stock-based incentive awards is to issue either new shares of com-
mon stock or treasury shares. During 2010, 2009 and 2008, the
Firm settled all of its employee stock-based awards by issuing
treasury shares.
In January 2008, the Firm awarded to its Chairman and Chief
Executive Officer up to 2 million SARs. The terms of this award
are distinct from, and more restrictive than, other equity grants
regularly awarded by the Firm. The SARs, which have a 10-year
term, will become exercisable no earlier than January 22, 2013,
and have an exercise price of $39.83. The number of SARs that
will become exercisable (ranging from none to the full 2 million)
and their exercise date or dates may be determined by the Board
of Directors based on an annual assessment of the performance
of both the CEO and JPMorgan Chase. The Firm recognizes this
award ratably over an assumed five-year service period, subject
to a requirement to recognize changes in the fair value of the
award through the grant date. The Firm recognized $4 million,
$9 million and $1 million in compensation expense in 2010,
2009 and 2008, respectively, for this award.