JP Morgan Chase 2012 Annual Report Download - page 231

JPMorgan Chase & Co./2012 Annual Report 241
Note 10 – Employee stock-based incentives
Employee stock-based awards
In 2012, 2011 and 2010, JPMorgan Chase granted long-
term stock-based awards to certain key employees under
the 2005 Long-Term Incentive Plan, which was last
amended in May 2011 (“LTIP”). Under the terms of the LTIP,
as of December 31, 2012, 283 million shares of common
stock are available for issuance through May 2015. The LTIP
is the only active plan under which the Firm is currently
granting stock-based incentive awards. In the following
discussion, the LTIP, plus prior Firm plans and plans
assumed as the result of acquisitions, are referred to
collectively as the “LTI Plans,” and such plans constitute the
Firm’s stock-based incentive plans.
Restricted stock units (“RSUs”) are awarded at no cost to
the recipient upon their grant. RSUs are generally granted
annually and generally vest at a rate of 50% after two years
and 50% after three years and convert into shares of
common stock at the vesting date. In addition, RSUs
typically include full-career eligibility provisions, which
allow employees to continue to vest upon voluntary
termination, subject to post-employment and other
restrictions based on age or service-related requirements.
All of these awards are subject to forfeiture until vested and
contain clawback provisions that may result in cancellation
prior to vesting under certain specified circumstances. RSUs
entitle the recipient to receive cash payments equivalent to
any dividends paid on the underlying common stock during
the period the RSUs are outstanding and, as such, are
considered participating securities as discussed in Note 24
on page 301 of this Annual Report.
Under the LTI Plans, stock options and stock appreciation
rights (“SARs”) have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase’s
common stock on the grant date. The Firm typically awards
SARs to certain key employees once per year; the Firm also
periodically grants employee stock options and SARs to
individual employees. The 2012, 2011 and 2010 grants of
SARs to key employees vest ratably over five years (i.e.,
20% per year) and contain clawback provisions similar to
RSUs. The 2012, 2011 and 2010 grants of SARs contain
full-career eligibility provisions. SARs generally expire ten
years after the grant date.
The Firm separately recognizes compensation expense for
each tranche of each award as if it were a separate award
with its own vesting date. Generally, for each tranche
granted, compensation expense is recognized on a straight-
line basis from the grant date until the vesting date of the
respective tranche, provided that the employees will not
become full-career eligible during the vesting period. For
awards with full-career eligibility provisions and awards
granted with no future substantive service requirement, the
Firm accrues the estimated value of awards expected to be
awarded to employees as of the grant date without giving
consideration to the impact of post-employment
restrictions. For each tranche granted to employees who
will become full-career eligible during the vesting period,
compensation expense is recognized on a straight-line basis
from the grant date until the earlier of the employee’s full-
career eligibility date or the vesting date of the respective
tranche.
The Firm’s policy for issuing shares upon settlement of
employee stock-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2012, 2011 and 2010, the Firm settled all of its employee
stock-based awards by issuing treasury shares.
In January 2008, the Firm awarded to its Chairman and
Chief Executive Officer up to 2 million SARs. The terms of
this award are distinct from, and more restrictive than,
other equity grants regularly awarded by the Firm. Effective
January 2013, the Compensation Committee and Board of
Directors determined that, while all the requirements for
vesting of these awards have been met, vesting should be
deferred for a period of up to 18 months (i.e., up to July 22,
2014), to enable the Firm to make progress against the
Firm’s strategic priorities and performance goals, including
remediation relating to the CIO matter. The SARs, which
have a 10-year term, will become exercisable no earlier
than July 22, 2014, and have an exercise price of $39.83
(the price of JPMorgan Chase common stock on the date of
grant). Vesting will be subject to a Board determination
taking into consideration the extent of such progress and
such other factors as it deems relevant. The expense related
to this award is dependent on changes in fair value of the
SARs through the date at which the award is finalized, and
the cumulative expense is recognized ratably over the
service period, which was initially assumed to be five years
but, effective in the first quarter of 2013, has been
extended to six and one-half years. The Firm recognized
$5 million, $(4) million and $4 million in compensation
expense in 2012, 2011 and 2010, respectively, for this
award.