Waste Management 2006 Annual Report Download - page 134

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with either (i) grants of restricted stock units and performance share units or (ii) an enhanced cash compensation
award. Stock option grants in connection with new hires and promotions were replaced with grants of restricted
stock units.
Restricted stock units — During the year ended December 31, 2006, we granted approximately 755,000
restricted stock units. These restricted stock units provide the award recipients with dividend equivalents during the
vesting period, but the units may not be voted or sold until time-based vesting restrictions have lapsed. The
restricted stock units vest ratably over a four-year period, and unvested units are subject to forfeiture in the event of
voluntary or for-cause termination. These restricted stock units are subject to pro-rata vesting upon an employee’s
retirement or involuntary termination other than for cause and become immediately vested in the event of an
employee’s death or disability.
Compensation expense associated with restricted stock units is measured based on the grant-date fair value of
our common stock and is recognized on a straight-line basis over the required employment period, which is
generally the vesting period. Compensation expense is only recognized for those awards that we expect to vest,
which we estimate based upon an assessment of current period and historical forfeitures.
A summary of our restricted stock units is presented in the table below (units in thousands):
Units
Weighted
Average
Fair
Value Units
Weighted
Average
Fair
Value Units
Weighted
Average
Fair
Value
2006 2005 2004
Years Ended December 31,
Unvested, Beginning of year ........... 767 $29.04 80 $29.60 — N/A
Granted .......................... 755 $31.82 762 $28.97 80 $29.60
Vested(a) ......................... (214) $29.11 (7) $28.97 — N/A
Forfeited ......................... (29) $30.85 (68) $28.97 — N/A
Unvested, End of year ............... 1,279 $30.63 767 $29.04 80 $29.60
(a) The total fair market value of the shares issued upon the vesting of restricted stock units during the year ended
December 31, 2006 was $7 million. This amount was not material in 2005.
Performance share units — During the year ended December 31, 2006, we granted approximately 724,000
performance share units. The performance share units are payable in shares of common stock based on the
achievement of certain financial measures, after the end of a three-year performance period. Performance share
units do not provide award recipients with either dividend equivalents or voting rights during the required
performance period. These performance share units are payable to an employee (or his beneficiary) upon death or
disability as if that employee had remained employed until the end of the performance period, subject to pro-rata
vesting upon an employee’s retirement or involuntary termination other than for cause and subject to forfeiture in
the event of voluntary or for-cause termination.
Compensation expense associated with performance share units that continue to vest based on future
performance is measured based on the grant-date fair value of our common stock, net of the present value of
expected dividend payments on our common stock during the vesting period. Compensation expense is recognized
ratably over the performance period based on our estimated achievement of the established performance criteria.
Compensation expense is only recognized for those awards that we expect to vest, which we estimate based upon an
assessment of both the probability that the performance criteria will be achieved and current period and historical
forfeitures.
100
WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)