Sun Life 2012 Annual Report Download - page 149

The activities in the stock option plans for the years ended December 31 are as follows:
2012 2011
Number of
Stock
Options
(Thousands)
Weighted
Average
Exercise
Price
Number of
Stock
Options
(Thousands)
Weighted
Average
Exercise
Price
Balance, January 1, 13,195 $ 32.49 14,193 $ 31.87
Granted 2,164 $ 21.52 1,704 $ 31.35
Exercised (484) $ 19.70 (1,654) $ 25.20
Forfeited (705) $ 34.58 (745) $ 35.09
Expired (954) $ 31.47 (303) $ 31.78
Balance, December 31, 13,216 $ 31.10 13,195 $ 32.49
Exercisable, December 31, 7,955 $ 34.86 7,434 $ 35.69
The average share price at the date of exercise of stock options for the year ended December 31, 2012 was $23.88 ($31.25 for 2011).
Compensation expense for stock options was $10 for the year ended December 31, 2012 ($15 for 2011). $9 of this compensation
expense is related to the continuing operations ($15 in 2011).
The stock options outstanding as at December 31, 2012 by exercise price, are as follows:
Range of exercise prices
Number of
Stock
Options
(Thousands)
Weighted
Average
Remaining
Contractual
Life (Years)
Weighted
Average
Exercise
Price
$18.00 to $24.00 4,793 7.2 $ 20.65
$24.01 to $30.00 1,261 3.7 $ 27.93
$30.01 to $35.00 3,840 7.4 $ 30.80
$35.01 to $45.00 748 2.1 $ 40.58
$45.01 to $53.00 2,574 4.2 $ 49.79
Total stock options 13,216 6.1 $ 31.10
The weighted average fair values of the stock options, calculated using the Black-Scholes option-pricing model, granted during the
year ended December 31, 2012, was $4.85 ($7.74 for 2011). The Black-Scholes option-pricing model used the following assumptions
to determine the fair value of options granted during the years ending December 31:
Weighted average assumptions 2012 2011
Risk-free interest rate 1.6% 2.9%
Expected volatility 35.1% 35.3%
Expected dividend yield 4% 4%
Expected life of the option (in years) 6.2 6.3
Exercise price $ 21.52 $ 31.35
Expected volatility is based on historical volatility of the common shares, implied volatilities from traded options on the common shares
and other factors. The expected term of options granted is derived based on historical employee exercise behaviour and employee
termination experience. The risk-free rate for periods within the expected term of the option is based on the Canadian government
bond yield curve in effect at the time of grant.
20.B Employee Share Ownership Plan
In Canada, we match eligible employees’ contributions to the Sun Life Financial Employee Stock Plan. The match is provided for
employees who have met two years of employment eligibility and is equal to 50% of the employee’s contributions up to 5% of an
employee’s annual compensation. The match is further capped by a one thousand five hundred dollar annual maximum. Employees
may elect to contribute from 1% to 20% of their target annual compensation to the Sun Life Financial Employee Stock Plan. Our
contributions vest immediately and are expensed. We recorded an expense of $4 for the year ended December 31, 2012 ($4 for 2011).
20.C Other Share-Based Payment Plans
All other share-based payment plans use notional units that are valued based on the common share price on the TSX. Any fluctuation
in the common share price changes the value of the units, which affects our share-based payment compensation expense. Upon
redemption of these units, payments are made to the employees with a corresponding reduction in the accrued liability. We use equity
swaps and forwards to hedge our exposure to variations in cash flows due to changes in the common share price for all of these plans.
Details of these plans are as follows:
Senior Executives’ Deferred Share Unit (“DSU”) Plan: Under the DSU plan, designated executives may elect to receive all or a
portion of their annual incentive award in the form of DSUs. Each DSU is equivalent in value to one common share and earns dividend
equivalents in the form of additional DSUs at the same rate as the dividends on common shares. The designated executives must elect
Notes to Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2012 147