Waste Management 2014 Annual Report Download - page 201

WASTE MANAGEMENT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Performance Share Units — Three types of PSUs are currently outstanding: (i) PSUs for which payout is
dependent on total shareholder return relative to the S&P 500 (“TSR PSUs”); (ii) PSUs for which payout is
dependent on the Company’s performance against pre-established return on invested capital metrics (“ROIC
PSUs”) and (iii) PSUs for which payout is dependent on the Company’s performance against pre-established
adjusted cash flow metrics (“Cash Flow PSUs”). All types of PSUs are payable in shares of common stock after
the end of a three-year performance period, when the Company’s financial performance for the entire
performance period is reported, typically in mid- to late-February of the succeeding year. At the end of the
performance period, the number of shares awarded can range from 0% to 200% of the targeted amount,
depending on the performance against the pre-established targets. A summary of our PSUs is presented in the
table below (units in thousands):
Units Weighted Average Fair Value
Unvested at January 1, 2014 ..................... 1,826 $43.41
Granted ..................................... 695 $45.83
Vested ...................................... (317) $42.42
Forfeited .................................... (171) $46.20
Unvested at December 31, 2014 .................. 2,033 $46.28
The determination of achievement of performance results and corresponding vesting of PSUs for the three-
year performance period ended December 31, 2014 was performed by the Management Development and
Compensation Committee in February 2015. Accordingly, vesting information for such awards is not included in
the table above as of December 31, 2014. The “vested” PSUs are for the three-year performance period ended
December 31, 2013, as achievement of performance results and corresponding vesting was determined in
February 2014. The Company’s financial results, as measured for purposes of these awards, were lower than the
target levels established but in excess of the threshold performance criteria. Accordingly, recipients of these PSU
awards were entitled to receive a payout of approximately 60% of the vested PSUs. In early 2014, we issued
approximately 106,000 shares of common stock for these vested PSUs, net of units deferred and units used for
payment of associated taxes.
The shares of common stock that were earned during the years ended December 31, 2014, 2013 and 2012 on
account of PSU awards had a fair market value of $8 million, $14 million and $32 million, respectively. PSUs
have no voting rights. PSUs receive dividend equivalents that are paid out in cash based on actual performance at
the end of the awards’ performance period. PSUs 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, are subject to pro-
rata vesting upon an employee’s retirement or involuntary termination other than for cause and are subject to
forfeiture in the event of voluntary or for-cause termination.
Compensation expense associated with our ROIC PSUs and Cash Flow PSUs that continue to vest based on
future performance is measured based on the fair value of our common stock at the end of each reporting period
until the performance period ends. 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 expected forfeitures.
The grant-date fair value of our TSR PSUs is based on a Monte Carlo valuation and compensation expense
is recognized on a straight-line basis over the vesting period. Compensation expense is recognized for all TSR
PSUs whether or not the market conditions are achieved less expected forfeitures.
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