PNC Bank 2007 Annual Report Download - page 107

portion of their plan account invested in shares of PNC
common stock into other investments available within the
plan. Prior to this amendment, only participants age 50 or
older were permitted to exercise this diversification option.
Employee benefits expense related to this plan was $52
million in 2007, $52 million in 2006 and $47 million in 2005.
We measured employee benefits expense as the fair value of
the shares and cash contributed to the plan by PNC.
Hilliard Lyons sponsors a contributory, qualified defined
contribution plan that covers substantially all of its employees
who are not covered by the plan described above.
Contributions to this plan are made in cash and include a base
contribution for those participants employed at December 31,
a matching of employee contributions, and a discretionary
profit sharing contribution as determined by Hilliard Lyons’
Executive Compensation Committee. Employee benefits
expense for this plan was $6 million in 2007, $5 million in
2006 and $6 million in 2005. See Note 2 Acquisitions and
Divestitures regarding our pending sale of Hilliard Lyons.
We have a separate qualified defined contribution plan that
covers substantially all US-based PFPC employees not
covered by our plan. The plan is a 401(k) plan and includes an
ESOP feature. Under this plan, employee contributions of up
to 6% of eligible compensation as defined by the plan may be
matched annually based on PFPC performance levels.
Participants must be employed as of December 31 of each
year to receive this annual contribution. The performance-
based employer matching contribution will be made primarily
in shares of PNC common stock held in treasury, except in the
case of those participants who have exercised their
diversification election rights to have their matching portion in
other investments available within the plan. Mandatory
employer contributions to this plan are made in cash and
include employer basic and transitional contributions.
Employee-directed contributions are invested in a number of
investment options available under the plan, including a PNC
common stock fund and several BlackRock mutual funds, at
the direction of the employee. Effective November 22, 2005,
we amended the plan to provide all participants the ability to
diversify the matching portion of their plan account invested
in shares of PNC common stock into other investments
available within the plan. Prior to this amendment, only
participants age 50 or older were permitted to exercise this
diversification option. Employee benefits expense for this plan
was $10 million in 2007, $9 million in 2006 and $12 million
in 2005. We measured employee benefits expense as the fair
value of the shares and cash contributed to the plan.
We also maintain a nonqualified supplemental savings plan
for certain employees.
N OTE 18 S TOCK -B ASED C OMPENSATION
P LANS
We have long-term incentive award plans (“Incentive Plans”)
that provide for the granting of incentive stock options,
nonqualified stock options, stock appreciation rights, incentive
shares/performance units, restricted stock, restricted share
units, other share-based awards and dollar-denominated
awards to executives and, other than incentive stock options,
to non-employee directors. Certain Incentive Plan awards may
be paid in stock, cash or a combination of stock and cash. We
grant a substantial portion of our stock-based compensation
awards during the first quarter of the year. As of
December 31, 2007, no incentive stock options or stock
appreciation rights were outstanding.
N ONQUALIFIED S TOCK O PTIONS
Options are granted at exercise prices not less than the market
value of common stock on the grant date. Generally, options
granted since 1999 become exercisable in installments after
the grant date. Options granted prior to 1999 are mainly
exercisable 12 months after the grant date. No option may be
exercisable after 10 years from its grant date. Payment of the
option exercise price may be in cash or shares of common
stock at market value on the exercise date. The exercise price
may be paid in previously owned shares.
Generally, options granted under the Incentive Plans vest
ratably over a three-year period as long as the grantee remains
an employee or, in certain cases, retires from PNC. For all
options granted prior to the adoption of SFAS 123R, we
recognized compensation expense over the three-year vesting
period. If an employee retired prior to the end of the three-
year vesting period, we accelerated the expensing of all
unrecognized compensation costs at the retirement date. As
required under SFAS 123R, we recognize compensation
expense for options granted to retirement-eligible employees
after January 1, 2006 in the period granted, in accordance with
the service period provisions of the options.
A summary of stock option activity follows:
Per Option
Options outstanding at
December 31
Shares in thousands Exercise Price
Weighted-
Average
Exercise
Price Shares
December 31, 2006 $37.43 – $76.00 $59.29 14,950
Granted 68.06 – 76.23 72.95 2,170
Exercised 37.43 – 74.59 54.34 (2,625)
Cancelled 38.17 – 75.85 69.15 (169)
December 31, 2007 $37.43 –$76.23 $62.15 14,326
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