PNC Bank 2008 Annual Report Download - page 134

by the plan may be matched annually based on Global
Investment Servicing 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. Employee benefits expense for this
plan was $11 million in 2008, $10 million in 2007 and $9
million in 2006. 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.
We also maintain a defined contribution plan for National City
legacy employees. Substantially all National City legacy
employees are eligible to contribute a portion of their pretax
compensation to the plan. PNC may make contributions to the
plan for employees with one or more years of service in the
form of company common stock in varying amounts
depending on participant contribution levels. PNC reserves the
right to terminate or make plan changes at any time.
N OTE 16 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, 2008, no 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 during the first twelve months
subsequent to the grant, in accordance with the service period
provisions of the options.
During the third quarter of 2008, we granted approximately
one million options to certain senior executives. While these
options generally contain the same terms and conditions as
previous option grants, cliff vesting will occur on or after the
third anniversary from the grant date if the market price of
PNC stock exceeds the grant date price by 20% or more over a
specified time period. These options were approved by the
Personnel and Compensation Committee of the Board of
Directors. The grant date fair value was $6.59 per option.
O PTIONS I SSUED FOR S TERLING A CQUISITION
On April 4, 2008, in connection with the closing of the
Sterling acquisition, we issued 325,489 PNC stock options
upon conversion of all outstanding and unexercised Sterling
options at that date. Of the total options issued, 159,676 were
issued as nonqualified stock options, and the remaining
165,813 were issued as incentive stock options. These PNC
options carry generally the same terms and conditions as the
original Sterling options. Per the merger agreement, all
outstanding options were deemed fully vested at the
acquisition date. Accordingly, no ongoing stock option
expense will be recognized for these options. The purchase
price consideration for the Sterling acquisition included
approximately $3.3 million related to these options.
O PTIONS I SSUED FOR N ATIONAL C ITY A CQUISITION
On December 31, 2008, in connection with the closing of the
National City acquisition, we issued approximately 1.7 million
PNC stock options upon conversion of all outstanding and
unexercised National City options at that date. Of the total
options issued, approximately 1.4 million were issued as
nonqualified stock options, and the remaining 0.3 million
were issued as incentive stock options. These PNC options
carry generally the same terms and conditions as the original
National City options. Per the merger agreement, all
outstanding options were deemed fully vested at the
acquisition date. Accordingly, no ongoing stock option
expense will be recognized for these options. The purchase
price consideration for the National City acquisition included
approximately $2.0 million related to these options.
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