TD Bank 2010 Annual Report Download - page 123

TD BANK GROUP ANNUAL REPORT 2010 FINANCIAL RESULTS 121
maturity date, the participant receives cash representing the value of
the share units. As a result of the TD Banknorth privatization, share units
were converted to the equivalent of the Bank’s common shares using the
exchange ratio set out in the merger agreement. In addition, for future
performance periods, the final number of performance share units will
be adjusted based on the Bank’s total shareholder return relative to the
average of the other major Canadian banks.
TD Banknorth also offered a performance-based restricted share unit
plan to certain executives that provided for the grant of share units
equivalent to the Bank’s common shares which vest at the end of three
years. The number of performance share units for the first two years
of the performance period was adjusted to reflect the performance of
TD Banknorth against an annual operating earnings per share growth
target. As a result of the TD Banknorth privatization, the number of
performance share units for the third and final year of the performance
period will be adjusted based on the Bank’s total shareholder return
relative to the average of the other major Canadian banks.
The number of TD Banknorth share units under these plans as
at October 31, 2010 was 8 thousand (2009 – 0.4 million; 2008 –
0.5 million). Compensation expense for these plans is recorded in the
year the incentive award is earned by the plan participant. Changes
in the value of share units are recorded, net of the effects of related
hedges, in the Consolidated Statement of Income. During the year,
TD Banknorth recognized compensation expense, net of the effects
of hedges, for these plans of $1 million (2009 – $14 million; 2008 –
$32 million). The compensation expense recognized before the effects
of hedges was $2 million (2009 – $4 million; 2008 – $12 million).
EMPLOYEE OWNERSHIP PLAN
The Bank also operates a share purchase plan available to employees.
Employees can contribute any amount of their eligible earnings
(net of source deductions) to the Employee Ownership Plan. The Bank
matches 100% of the first $250 of employee contributions each year
and the remainder of employee contributions at 50% to an overall
maximum of 3.5% of the employee’s eligible earnings or $2,250,
whichever comes first. The Bank’s contributions vest once an employee
has completed two years of continuous service with the Bank. For
the year ended October 31, 2010, the Bank’s contributions totalled
$55 million (2009 – $52 million; 2008 – $52 million) and were
expensed as salaries and employee benefits. As at October 31, 2010,
an aggregate of 8.8 million common shares were held under the
Employee Ownership Plan (2009 – 8.7 million; 2008 – 7.4 million).
The shares in the Employee Ownership Plan are purchased in the open
market and are considered outstanding for computing the Bank’s basic
and diluted earnings per share. Dividends earned on Bank common
shares held by the Employee Ownership Plan are used to purchase
additional common shares for the Employee Ownership Plan in the
open market.
OTHER STOCK-BASED COMPENSATION PLANS
a) The Bank
The Bank operates restricted share unit and performance share unit
plans which are offered to certain employees of the Bank. Under
these plans, participants are awarded share units equivalent to the
Bank’s common shares that generally vest over three years. A liability
is accrued by the Bank related to such share units awarded and an
incentive compensation expense is recognized in the Consolidated
Statement of Income over the vesting period. At the maturity date,
the participant receives cash representing the value of the share units.
The final number of performance share units will vary from 80% to
120% of the initial number awarded based on the Bank’s total share-
holder return relative to the average of the North American peer
group. Beginning with units granted in December 2009, the Human
Resources Committee of the Board (HRC) has the discretion to adjust
the number of restricted share units and performance share units
within a +/- 20% range at maturity at the plan or individual level
based on a review of the risk taken to achieve business results over
the life of the award; and, dividends will be re-invested in additional
units that will be paid at maturity. The number of such share units
outstanding under these plans as at October 31, 2010 is 12 million
(2009 – 11 million; 2008 – 9 million).
The Bank also offers deferred share unit plans to eligible employees
and non-employee directors. Under these plans, a portion of the
participant’s annual incentive award and/or maturing share units may
be deferred as share units equivalent to the Bank’s common shares.
The deferred share units are not redeemable by the participant until
retirement, permanent disability or termination of employment or
directorship and must be redeemed for cash by the end of the next
calendar year. Dividend equivalents accrue to the participants in the
form of additional units. As at October 31, 2010, 2.9 million deferred
share units were outstanding (2009 – 2.5 million; 2008 – 2.3 million).
Compensation expense for these plans is recorded in the year the
incentive award is earned by the plan participant. Changes in the value
of these plans are recorded, net of the effects of related hedges, in
the Consolidated Statement of Income. For the year ended October 31,
2010, the Bank recognized compensation expense, net of the effects
of hedges, for these plans of $245 million (2009 – $235 million;
2008 – $191 million). The compensation expense recognized
before the effects of hedges was $418 million (2009 – $309 million;
2008 – $77 million).
b) TD Banknorth
TD Banknorth offered restricted share units and performance share unit
plans for certain employees of TD Banknorth. Under these plans, partici-
pants were granted units equivalent to TD Banknorth common shares
that generally vest at the end of three years. The number of performance
share units was adjusted to reflect the performance of TD Banknorth
against an annual operating earnings per share growth target. At the
ensuring that the liabilities of the plan are adequately funded over time.
The Bank’s contributions to the principal pension plans during 2010
were $168 million (2009 – $626 million). These contributions were
made in accordance with the actuarial valuation reports for funding
purposes as at October 31, 2008 and March 1, 2009 for the Society and
the TDPP, respectively. The next valuation dates for funding purposes
are as at October 31, 2011 for both of the principal pension plans.
The Bank also provides certain post-retirement benefits and post-
employment benefits (non-pension employee benefits), which are
generally non-funded. Non-pension employee benefit plans, where
offered, generally include health care, life insurance and dental
benefits. Employees must meet certain age and service requirements
to be eligible for post-retirement benefits and are generally required
to pay a portion of the cost of the benefits. Employees eligible for
post-employment benefits are those on disability and child-care leave.
DEFINED BENEFIT PENSION AND OTHER POST EMPLOYMENT
BENEFIT (OPEB) PLANS
The Bank’s principal pension plans, consisting of The Pension Fund
Society of The Toronto-Dominion Bank (the Society) and the TD Pension
Plan (Canada) (the TDPP), are defined benefit plans. In addition, the
Bank maintains other partially funded and non-funded pension plans
for eligible employees, for which pension benefits are paid by the Bank.
The Society was closed to new members on January 30, 2009 and the
TDPP commenced on March 1, 2009. Benefits under the principal
pension plans are determined based upon the period of plan participa-
tion and the average salary of the member in the best consecutive five
years in the last 10 years of combined plan membership.
Funding for the Bank’s principal pension plans is provided by contri-
butions from the Bank and members of the plans as applicable. In
accordance with legislation, the Bank contributes amounts determined
on an actuarial basis to the plans and has the ultimate responsibility for
EMPLOYEE FUTURE BENEFITS
NOTE 24