Bank of Montreal 2010 Annual Report Download - page 151

Notes
BMO Financial Group 193rd Annual Report 2010 149
For the remaining obligations related to plans for which we have
not entered into agreements with third parties, the amount of com-
pensation expense is amortized over the period prior to payment to
employees and adjusted to reflect reinvested dividends and the current
market value of our common shares. Mid-term incentive plan units
granted under these plans during the years ended October 31, 2010,
2009 and 2008 totalled 512,649, 572,348 and 255,286, respectively.
The weighted-average grant date fair value of the units granted during
the years ended October 31, 2010, 2009 and 2008 was $27 million,
$22 million and $16 million, respectively. Payments made under these
plans for the years ended October 31, 2010, 2009 and 2008 were
$18 million, $13 million and $11 million, respectively. The liability related
to these plans as at October 31, 2010 and 2009 was $52 million and
$32 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, 2010, 2009 and 2008 was $32 million, $24 million
and $4 million before tax, respectively ($22 million, $16 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 of $7 million were recognized for the year
ended
October 31, 2010 (hedging gains of $11 million in 2009 and hedging
losses of $4 million in 2008), resulting in net employee compensation
expense of $25 million before tax ($17 million after tax) ($13 million
before tax ($9 million after tax) in 2009 and $8 million before tax
($6 million after tax) in 2008).
A total of 14,343,868, 12,491,078 and 9,900,297 mid-term incentive
plan units were outstanding for the years ended October 31, 2010, 2009
and 2008, respectively.
Deferred Incentive Plans
We offer deferred incentive plans for members of our Board of Directors,
executives, and key employees in BMO Capital Markets and Private
Client Group. Under these plans, fees, annual incentive payments and/or
commissions can be deferred as stock units of our common shares.
Note 23: Employee Compensation – Pension and
Other Employee Future Benefits
Pension and Other Employee Future Benefit Plans
We have a number of arrangements in Canada, the United States and
the United Kingdom that provide pension and other employee future
benefits to our retired and current employees.
Pension arrangements include defined benefit statutory pension
plans, as well as supplemental arrangements that provide pension
benefits in excess of statutory limits. Generally, under these plans
we provide retirement benefits based on an employee’s years of service
and average annual earnings over a period of time prior to retirement.
We are responsible for ensuring that the statutory pension plans
have sufficient assets to pay the pension benefits upon retirement of
employees. Voluntary contributions can be made by employees but
are not required.
We also provide defined contribution pension plans to employees
in some of our subsidiaries. Under these plans, we are responsible
for contributing a predetermined amount to a participant’s retirement
savings, based on a percentage of that employee’s salary.
We recognize the cost of our pension plans in employee compen-
sation expense as the employees work for us.
We also provide other employee future benefits, including
health and dental care benefits and life insurance, for current and
retired employees.
These stock units are fully vested on the grant date. The value of these
stock units is adjusted to reflect reinvested dividends and changes in
the market value of our common shares.
Deferred incentive payments are paid upon retirement or resig-
nation. The deferred incentive payments can be made in cash or shares.
Employee compensation expense for these plans is recorded
in the year the fees, incentive payments and/or commissions are
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, 2010, 2009 and 2008 totalled 283,791, 456,943 and 379,034,
respectively. The weighted-average grant date fair value of the units
granted during the years ended October 31, 2010, 2009 and 2008
was $16 million, $19 million and $20 million, respectively.
Liabilities related to these plans are recorded in other liabilities in
our Consolidated Balance Sheet and totalled $233 million and $172 million
as at October 31, 2010 and 2009, respectively. Payments made under
these plans for the years ended October 31, 2010, 2009 and 2008 were
$3 million, $12 million and $5 million, respectively.
Employee compensation expense (recovery) related to these plans
for the years ended October 31, 2010, 2009 and 2008 was $52 million,
$38 million and $(46) million before tax, respectively ($36 million,
$26 million and $(31) million after tax, respectively). We have entered
into derivative instruments 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. Hedging gains
(losses) for the years ended October 31, 2010, 2009 and 2008 of
$48 million, $36 million and $(52) million before tax, respectively, were
also recognized, resulting in net employee compensation expense of
$4 million, $2 million and $6 million before tax, respectively ($3 million,
$1 million and $4 million after tax, respectively).
A total of 3,544,651, 3,139,730 and 3,101,995 deferred incentive plan
units were outstanding for the years ended October 31, 2010, 2009 and
2008, respectively.
Pension and Other Employee Future Benefit Liabilities
We have the following types of benefit liabilities: defined benefit
and defined contribution pension liabilities and other employee future
benefit liabilities. These benefit liabilities represent the amount of
pension and other employee future benefits that our employees and
retirees have earned as at year end.
Our actuaries perform valuations of our benefit liabilities for
pension and other employee future benefits as at October 31 of each
year for our Canadian plans (September 30 for our U.S. plans), using the
projected benefit method prorated on service, based on management’s
assumptions about discount rates, rate of compensation increase,
retirement age, mortality and health care cost trend rates.
The discount rates for the main Canadian and U.S. pension and
other employee future benefit plans were selected using high-quality
corporate bonds with terms matching the plans’ specific cash flows.
Components of the change in our benefit liabilities year over
year and our pension and other employee future benefit expense are
as follows:
Benefits earned by employees represent benefits earned in the
current year. They are determined with reference to the current workforce
and the amount of benefits to which employees will be entitled upon
retirement, based on the provisions of our benefit plans.