JP Morgan Chase 2013 Annual Report Download - page 241

JPMorgan Chase & Co./2013 Annual Report 247
Note 10 – Employee stock-based incentives
Employee stock-based awards
In 2013, 2012 and 2011, JPMorgan Chase granted long-
term stock-based awards to certain employees under its
Long-Term Incentive Plan, which was last amended in
May 2011 (“LTIP”). Under the terms of the LTIP, as of
December 31, 2013, 266 million shares of common stock
were 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. Generally, RSUs are granted
annually and vest at a rate of 50% after two years and
50% after three years and are converted into shares of
common stock as of 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 RSUs awards are subject to forfeiture until vested and
contain clawback provisions that may result in cancellation
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 311 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 2013, 2012 and 2011 grants of
SARs become exercisable ratably over five years (i.e., 20%
per year) and contain clawback provisions similar to RSUs.
The 2013, 2012 and 2011 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
2013, 2012 and 2011, 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 will
expire in January 2018, 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 when the vested number of SARs are
determined, if any, 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 $14 million, $5 million and
$(4) million in compensation expense in 2013, 2012 and
2011, respectively, for this award.