3M 2010 Annual Report Download - page 117

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was recorded as debt, and shares pledged as collateral were reported as unearned compensation in the
Consolidated Balance Sheet and Consolidated Statement of Changes in Equity. Unearned compensation was
reduced symmetrically as the ESOP made principal payments on the debt. Expenses related to the ESOP included
total debt service on the notes, less dividends. The Company contributed treasury shares (accounted for at fair
value) and cash (in 2010 and 2009) to employee savings plans to cover obligations not funded by the ESOP
(reported as an employee benefit expense).
Employee Savings and Stock Ownership Plans
(Millions)
2010
2009
2008
Dividends on shares held by the ESOP ........................................
$
—
$
31
$
33
Company contributions to the ESOP ............................................
—
16
14
Interest incurred on ESOP notes ..................................................
1
3
Amounts reported as an employee benefit expense:
Expenses related to ESOP debt service ...................................
—
10
9
Expenses related to treasury shares .........................................
—
25
3
Expenses for Company contributions made in cash .................
97
6
—
ESOP Debt Shares
2010
2009
2008
Allocated ........................................................................................
—
14,473,474
14,240,026
Committed to be released .............................................................
—
—
27,201
Unreleased ....................................................................................
—
—
1,333,692
Various international countries participate in defined contribution plans. Expenses related to employer contributions
to these plans were $36 million, $22 million and $23 million for 2010, 2009 and 2008, respectively.
NOTE 16. Stock-Based Compensation
In May 2008, shareholders approved 35 million shares for issuance under the “3M 2008 Long-Term Incentive Plan”,
which replaced and succeeded the 2005 Management Stock Ownership Program (MSOP), the 3M Performance Unit
Plan, and the 1992 Directors Stock Ownership Program. In May 2010, shareholders approved an additional 29
million shares for issuance under the 2008 Plan, increasing the number of approved shares from 35 million to 64
million shares. Awards under this plan may be issued in the form of Incentive Stock Options, Nonqualified Stock
Options, Progressive Stock Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, Other
Stock Awards, and Performance Units and Performance Shares. Awards denominated in shares of common stock
other than options and Stock Appreciation Rights, per the 2008 Plan, count against the 64 million share limit as 3.38
shares for every one share covered by such award (for full value awards with grant dates prior to May 11, 2010), or
as 2.87 shares for every one share covered by such award (for full value awards with grant dates of May 11, 2010, or
later). The remaining total shares available for grant under the 2008 Long Term Incentive Plan Program are
31,825,085 as of December 31, 2010.
The Company’s annual stock option and restricted stock unit grant is made in February to provide a strong and
immediate link between the performance of individuals during the preceding year and the size of their annual stock
compensation grants. The grant to eligible employees uses the closing stock price on the grant date. Stock options
vest over a period from one to three years with the expiration date at 10 years from date of grant. Accounting
rules require recognition of expense under a non-substantive vesting period approach, requiring compensation
expense recognition when an employee is eligible to retire. Employees are considered eligible to retire at age 55 and
after having completed five years of service. Approximately 25 to 30 percent of the stock-based compensation award
expense dollars are for this retiree-eligible population; therefore, higher stock-based compensation expense is
recognized in the first quarter. Beginning in 2007, the Company reduced the number of traditional stock options
granted under the MSOP plan by reducing the number of employees eligible to receive annual grants and by shifting
a portion of the annual grant away from traditional stock options primarily to restricted stock units. However,
associated with the reduction in the number of eligible employees, the Company provided a one-time “buyout” grant
in 2007 of restricted stock units to the impacted employees. 3M also has granted progressive (reload) options. These
options are nonqualified stock options that were granted to certain participants under the 1997 or 2002 MSOP, but
for which the reload feature was eliminated in 2005 (on a prospective basis only). Participants who had options
granted prior to this effective date may still qualify to receive new progressive (reload) stock options.