TD Bank 2014 Annual Report Download - page 193

TD BANK GROUP ANNUAL REPORT 2014 FINANCIAL RESULTS 191
For fiscal 2014, the Bank recognized compensation expense for
stock option awards of $25.6 million (2013 – $24.8 million; 2012 –
$22.1 million). During 2014, 2.6 million (2013 – 3.3 million;
2012 – 3.8 million) options were granted by the Bank at a weighted-
average fair value of $9.29 per option (2013 – $7.83 per option;
2012 – $7.26 per option).
The following table summarizes the assumptions used for estimating
the fair value of options for the twelve months ended October 31.
Assumptions Used for Estimating Fair Value of Options
(in Canadian dollars, except as noted) 2014 2013 2012
Risk-free interest rate 1.90% 1.43% 1.50%
Expected option life (years) 6.2 years 6.3 years 6.3 years
Expected volatility1 27.09% 27.23% 27.40%
Expected dividend yield 3.66% 3.51% 3.40%
Exercise price/share price $ 47.59 $ 40.54 $ 36.64
1
Expected volatility is calculated based on the average daily volatility measured over
a historical period corresponding to the expected option life.
OTHER SHARE-BASED COMPENSATION PLANS
The Bank operates restricted share unit and performance share unit
plans which are offered to certain employees of the Bank. Under
these plans, participants are awarded share units equivalent to the
Bank’s common shares that generally vest over three years. During the
vesting period, dividend equivalents accrue to the participants in the
form of additional share units. At the maturity date, the participant
receives cash representing the value of the share units. The final
number of performance share units will vary from 80% to 120% of
the number of units outstanding at maturity (consisting of initial units
awarded plus additional units in lieu of dividends) based on the Bank’s
total shareholder return relative to the average of a peer group of
large financial institutions. The number of such share units outstanding
under these plans as at October 31, 2014, was 26 million (2013 –
27 million).
The Bank also offers deferred share unit plans to eligible employees
and non-employee directors. Under these plans, a portion of the
participant’s annual incentive award and/or maturing share units may
be deferred as share units equivalent to the Bank’s common shares.
The deferred share units are not redeemable by the participant until
termination of employment or directorship. Once these conditions are
met, the deferred share units must be redeemed for cash no later than
the end of the next calendar year. Dividend equivalents accrue to the
participants in the form of additional units. As at October 31, 2014,
7.6 million deferred share units were outstanding (October 31, 2013 –
7.1 million).
Compensation expense for these plans is recorded in the year the
incentive award is earned by the plan participant. Changes in the
value of these plans are recorded, net of the effects of related hedges,
on the Consolidated Statement of Income. For the year ended
October 31, 2014, the Bank recognized compensation expense, net
of the effects of hedges, for these plans of $415 million (2013 –
$336 million; 2012 – $326 million). The compensation expense
recognized before the effects of hedges was $718 million (2013 –
$621 million; 2012 – $429 million). The carrying amount of the
liability relating to these plans, based on the closing share price, was
$1.8 billion at October 31, 2014 (October 31, 2013 – $1.5 billion)
and is reported in Other liabilities on the Consolidated Balance Sheet.
EMPLOYEE OWNERSHIP PLAN
The Bank also operates a share purchase plan available to employees.
Employees can contribute any amount of their eligible earnings (net of
source deductions), subject to an annual cap of 10% of salary effective
January 1, 2014, to the Employee Ownership Plan. The Bank matches
100% of the first $250 of employee contributions each year and the
remainder of employee contributions at 50% to an overall maximum of
3.5% of the employee’s eligible earnings or $2,250, whichever comes
first. The Bank’s contributions vest once an employee has completed
two years of continuous service with the Bank. For the year ended
October 31, 2014, the Bank’s contributions totalled $65 million (2013 –
$63 million; 2012 – $61 million) and were expensed as salaries and
employee benefits. As at October 31, 2014, an aggregate of 20 million
common shares were held under the Employee Ownership Plan (Octo-
ber 31, 2013 – 20 million). The shares in the Employee Ownership Plan
are purchased in the open market and are considered outstanding for
computing the Bank’s basic and diluted earnings per share. Dividends
earned on the Bank’s common shares held by the Employee Ownership
Plan are used to purchase additional common shares for the Employee
Ownership Plan in the open market.
DEFINED BENEFIT PENSION AND OTHER POST-EMPLOYMENT
BENEFIT (OPEB) PLANS
The Bank’s principal pension plans, consisting of The Pension Fund
Society of The Toronto-Dominion Bank (the “Society”) and the TD
Pension Plan (Canada) (TDPP), are defined benefit plans for Canadian
Bank employees. In addition, the Bank maintains other partially funded
and non-funded pension plans for eligible employees. The Society
was
closed to new members on January 30, 2009, and the TDPP
commenced
on March 1, 2009. Benefits under the principal pension
plans are determined based upon the period of plan participation
and the average salary of the member in the best consecutive five
years in the last ten years of combined plan membership.
Funding for the Bank’s principal pension plans is provided by contri-
butions from the Bank and members of the plans, as applicable. In
accordance with legislation, the Bank contributes amounts determined
on an actuarial basis to the plans and has the ultimate responsibility
for ensuring that the liabilities of the plan are adequately funded over
time. The Bank’s contributions to the principal pension plans during
2014 were $302 million (2013 – $340 million). The 2014 contributions
were made in accordance with the actuarial valuation reports for fund-
ing purposes as at October 31, 2013, and October 31, 2011, for the
Society and the TDPP, respectively. The 2013 contributions were made
in accordance with the actuarial valuation reports for funding purposes
as at October 31, 2012, and October 31, 2011, for the Society and the
TDPP, respectively. The next valuation date for funding purposes is as
at October 31, 2014, for both of the principal pension plans.
The Bank also provides certain post-retirement benefits and post-
employment benefits (non-pension employee benefits), which are
generally non-funded. Non-pension employee benefit plans, where
offered, generally include health care and dental benefits. Employees
must meet certain age and service requirements to be eligible for
post-retirement benefits and are generally required to pay a portion
of the cost of the benefits. Employees eligible for post-employment
benefits are those on disability and child-care leave.
EMPLOYEE BENEFITS
NOTE 26