Air Canada 2014 Annual Report Download - page 119

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119
2014 Consolidated Financial Statements and Notes 119
2014 Consolidated Financial Statements and Notes
14. SHARE-BASED COMPENSATION
AIR CANADA LONG-TERM INCENTIVE PLAN
Certain of the Corporation’s employees participate in the Air Canada Long-term Incentive Plan (the “Long-term
Incentive Plan”). The Long-term Incentive Plan provides for the grant of options, performance share units and
restricted share units to senior management and officers of Air Canada. 20,011,623 shares are authorized for
issuance under the Long-term Incentive Plan in respect of either of stock options, performance or restricted
share units.
STOCK OPTIONS
The options to purchase shares granted under the Long-term Incentive Plan have a maximum term of seven
years and an exercise price based on the fair market value of the shares at the time of the grant of the options.
Fifty per cent of options are time-based and vest over four years. The remaining options will vest based upon
performance conditions. The performance vesting conditions are based on operating margin (operating income
over operating revenues) targets established by the Air Canada Board over the same time period. Each option
entitles the employee to purchase one common share at the stated exercise price. The terms of the Long-term
Incentive Plan specify that following retirement an employee may exercise options granted with the rights to
exercise continuing for the three years after the retirement date.
The number of Air Canada stock options granted to employees, the related compensation expense recorded
and the assumptions used to determine stock-based compensation expense, using the Black-Scholes option
valuation model are as follows:
2014 2013
Compensation expense ($ millions) $ 3 $ 3
Number of stock options granted to Air Canada employees 1,170,710 4,052,085
Weighted average fair value per option granted ($) $ 2.18 $1.29
Aggregated fair value of options granted ($ millions) $ 3 $ 5
WEIGHTED AVERAGE ASSUMPTIONS:
Share price $ 5.56 $ 2.95
Risk-free interest rate 1.44%-2.06% 1.20%-2.21%
Expected volatility 53.0%-72.4% 48.8%-74.2%
Dividend yield 0% 0%
Expected option life (years) 5.25 5.25
Expected volatility was determined at the time of grant using the Air Canada share price on a historical basis. It
reflects the assumption that the historical volatility is indicative of future trends, which may not necessarily be
the actual outcome.