Bank of Montreal 2008 Annual Report Download - page 142

The following table summarizes further information about our Stock
Option Plan:
(Canadian $ in millions, except as noted) 2008 2007 2006
Unrecognized compensation cost
for nonvested stock option awards $8 $ 10 $ 12
Weighted-average period over
which it is recognized (in years) 2.7 2.6 3.0
Total intrinsic value of
stock options exercised $30 $ 138 $ 170
Cash proceeds from
stock options exercised $56 $ 120 $ 155
Actual tax benefits realized on
stock options exercised $14 $ 4 $ 14
We determine the fair value of options granted using a trinomial option
pricing model. Expected volatility is based on the implied volatility
from traded options on our share price and the historical volatility of
our share price. The weighted-average fair value of options granted
during the years ended October 31, 2008, 2007 and 2006 was $8.24, $7.56
and $10.17, respectively. The following weighted-average assumptions
were used to determine the fair value of options on the date of grant:
2008 2007 2006
Expected dividend yield 4.1% 4.2% 3.4%
Expected share price volatility 19.5% 15.6% 20.2%
Risk-free rate of return 4.0% 4.0% 4.0%
Expected period until exercise (in years) 7.3 7.4 7.2
Changes to the input assumptions can result in materially different fair value estimates.
Other Stock-Based Compensation Plans
Share Purchase Plan
We offer our employees the option of directing a portion of their
gross salary toward the purchase of our common shares. We match 50%
of employee contributions up to 6% of their individual gross salaries.
The shares in the employee share purchase plan are purchased on the
open market and are considered outstanding for purposes of computing
earnings per share. The dividends earned on our common shares held
by the plan are used to purchase additional common shares on the
open market.
We account for our contribution as employee compensation
expense when it is contributed to the plan.
Employee compensation expense related to this plan for the
years ended October 31, 2008, 2007 and 2006 was $41 million,
$36 million and $35 million, respectively. There were 14,958,315,
13,148,902 and 12,852,477 common shares held in this plan for the
years ended October 31, 2008, 2007 and 2006, respectively.
Mid-Term Incentive Plans
We offer mid-term incentive plans for executives and certain senior
employees. Depending on the plan, these pay either a single cash pay-
ment at the end of the three-year period of the plan, or three annual
cash payments in each of the three years of the plan. The amount of
the payment is adjusted to reflect dividends and changes in the market
value of our common shares. For the majority of executive and some
senior employee grants, a portion of the incentive payment also varies
based on performance targets driven by annualized total shareholder
return compared with that of our competitors.
Mid-term incentive plan units granted during the years ended
October 31, 2008, 2007 and 2006 totalled 4,548,827, 3,210,864 and
3,387,493, respectively. We entered into agreements with third parties
to assume most of our obligations related to these plans in exchange
for cash payments of $267 million, $220 million and $202 million in the
years ended October 31, 2008, 2007 and 2006, respectively. Amounts
paid under these agreements were recorded in our Consolidated
Balance Sheet in other assets and are recorded as employee compensa-
tion expense evenly over the period prior to payment to employees.
Amounts related to units granted to employees who are eligible
to retire are expensed at the time of grant. We no longer have any
liability for the obligations transferred to third parties because any
future payments required will be the responsibility of the third parties.
The amount deferred and recorded in other assets in our Consolidated
Balance Sheet totalled $135 million and $104 million as at October 31,
2008 and 2007, respectively. The deferred amount as at October 31, 2008
is expected to be recognized over a weighted-average period of
1.8 years (1.8 years in 2007). Employee compensation expense related
to these plans for the years ended October 31, 2008, 2007 and 2006
was $239 million, $202 million and $185 million before tax, respectively
($160 million, $131 million and $119 million after tax, respectively).
For the remaining obligations related to plans for which we
have not entered into agreements with third parties, the amount of
compensation expense is amortized over the period prior to payment
to employees and adjusted to reflect the current market value of our
common shares. The liability related to these plans as at October 31, 2008
and 2007 was $24 million and $19 million, respectively.
Employee compensation expense related to plans for which
we have not entered into agreements with third parties for the years
ended October 31, 2008, 2007 and 2006 was $4 million, $10 million and
$5 million before tax, respectively ($3 million, $7 million and $3 million
after tax, respectively). We commenced economically hedging the
impact of the change in the market value of our common shares in
fiscal 2008 by entering into total return swaps with an external counter-
party. Hedging gains (losses) of $(4) million before tax ($(3) million
after tax) were recognized for the year ended October 31, 2008.
A total of 9,900,297, 8,298,718 and 8,272,824 share units
were outstanding for the years ended October 31, 2008, 2007 and
2006, respectively.
Deferred Incentive Plans
We offer deferred incentive plans for members of our Board of Directors,
certain senior executives, and key employees in our BMO Capital
Markets and Private Client Groups. Under these plans, fees, annual
incentive payments and/or commissions can be deferred as stock
units of our common shares. The amount of fees, deferred incentive
payments and/or commissions is adjusted to reflect dividends and
changes in the market value of our common shares.
Depending on the plan, deferred incentive payments can be paid
upon retirement or resignation, over the three-year period of the plan or
at the end of the three-year period of the plan. The deferred incentive
payments can be made in cash, shares or a combination of both.
Employee compensation expense for these plans is recorded in
the year the incentive payment and/or commission is earned. Changes
in the amount of the incentive payments as a result of dividends and
share price movements are recorded as employee compensation
expense in the period of the change.
Deferred incentive plan units granted during the years ended
October 31, 2008, 2007 and 2006 totalled 379,034, 442,583 and 471,662,
respectively. We have entered into derivative instrument contracts to
hedge our exposure to these plans. Changes in the fair value of these
derivatives are recorded as employee compensation expense in the
period in which they arise.
Liabilities related to these plans are recorded in other liabilities in
our Consolidated Balance Sheet and totalled $136 million and $169 million
as at October 31, 2008 and 2007, respectively.
Employee compensation expense (recovery) related to these plans
for the years ended October 31, 2008, 2007 and 2006 was $(46) million,
$13 million and $33 million before tax, respectively ($(31) million,
$8 million and $21 million after tax, respectively). Hedging gains (losses)
of $(52) million, $6 million and $25 million before tax, respectively,
were also recognized, resulting in net employee compensation expense
of $6 million, $7 million and $8 million before tax, respectively
($4 million, $5 million and $5 million after tax, respectively).
A total of 3,101,995, 2,686,903 and 2,542,696 deferred stock
units were outstanding for the years ended October 31, 2008, 2007
and 2006, respectively.
Notes
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
138 | BMO Financial Group 191st Annual Report 2008