Compensation Plans

9 Months Ended

Aug. 31, 2011

Note 16. Compensation Plans

We sponsor the following share-based compensation plans: incentive compensation plan, director plan, employee stock purchase plan and the deferred compensation plan. The fair value of share based awards is estimated on the date of grant based on the market price of our common stock less the impact of selling restrictions subsequent to vesting, if any, and is amortized as compensation expense over the related requisite service periods.

Total compensation cost related to share-based compensation plans was $49.8 million and $33.4 million for the three months ended August 31, 2011 and 2010, respectively, and $160.7 million and $92.8 million for the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively. The net tax (deficiency) benefit related to share-based compensation plans recognized in additional paid-in capital was ($0.8) million and $0.1 million during the three months ended August 31, 2011 and 2010, respectively, and $31.6 million and $2.8 million during the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively. Cash flows resulting from tax deductions in excess of the grant date fair value of share-based awards are included in cash flows from financing activities; accordingly, we reflected the excess tax benefit of $33.3 million and $2.1 million related to share-based compensation in cash flows from financing activities for the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively. Effective for the year ended November 30, 2010, we changed our tax year end to coincide with the recent change in our fiscal year end. As a result of this change, the timing of certain deductions related to share-based compensation plans have changed in certain jurisdictions. Consequently, approximately $20.9 million of the net tax benefit recognized in additional paid-in capital during the three months ended February 28, 2011 relates to share-based compensation awards that vested during the eleven months ended November 30, 2010; including $15.4 million of net tax benefit related to share-based compensation initially recorded to additional paid-in capital in the three months ended March 31, 2010 and reversed upon our change in fiscal year end in the second quarter 2010. Additionally, we expect to recognize a net tax benefit of $26.2 million related to share-based compensation awards that vested during January through August 2011 in additional paid-in capital during the three month period ending February 29, 2012.

As of August 31, 2011, we had $185.1 million of total unrecognized compensation cost related to nonvested share-based awards, which is expected to be recognized over a remaining weighted average vesting period of approximately 3.3 years. We have historically and generally expect to issue new shares of common stock when satisfying our issuance obligations pursuant to share based awards, as opposed to reissuing shares from our treasury stock.

In addition, we sponsor nonshare-based compensation plans. Nonshare-based compensation plans sponsored by us include an employee stock ownership plan, a profit sharing plan, and other forms of deferred cash awards.

The following are descriptions of the compensation plans sponsored by us and the activity of such plans for the three and nine months ended August 31, 2011 and three and eight months ended August 31, 2010:

Incentive Compensation Plan. We have an Incentive Compensation Plan (“Incentive Plan”) which allows awards in the form of incentive stock options (within the meaning of Section 422 of the Internal Revenue Code), nonqualified stock options, stock appreciation rights, restricted stock, unrestricted stock, performance awards, restricted stock units, dividend equivalents or other share-based awards. The plan imposes a limit on the number of shares of our common stock that may be subject to awards. An award relating to shares may be granted if the aggregate number of shares subject to then outstanding awards (as defined in the Incentive Plan) plus the number of shares subject to the award being granted do not exceed 30% of the number of shares issued and outstanding immediately prior to the grant.

Restricted Stock and Restricted Stock Units

The Incentive Plan allows for grants of restricted stock awards, whereby employees are granted restricted shares of common stock subject to forfeiture. The Incentive Plan also allows for grants of restricted stock units. Restricted stock units give a participant the right to receive fully vested shares at the end of a specified deferral period. One advantage of restricted stock units, as compared to restricted stock, is that the period during which the award is deferred as to settlement can be extended past the date the award becomes nonforfeitable, allowing a participant to hold an interest tied to common stock on a tax deferred basis. Prior to settlement, restricted stock units carry no voting or dividend rights associated with the stock ownership, but dividend equivalents are accrued to the extent there are dividends declared on our common stock.

We grant restricted stock and restricted stock units as part of year-end compensation. Restricted stock and restricted stock units granted as part of year-end compensation are not subject to service requirements that employees must fulfill in exchange for the right to those awards. As such, employees who terminate their employment or are terminated without cause may continue to vest in year-end compensation awards, so long as the awards are not forfeited as a result of the other forfeiture provisions of those awards (e.g. competition). We determined that the service inception date precedes the grant date for restricted stock and restricted stock units granted as part of year-end compensation, and, as such, the compensation expense associated with these awards is accrued over the one-year period prior to the grant date. We accrued compensation expense of approximately $37.5 million and $21.0 million for the three months ended August 31, 2011 and 2010, respectively, and $112.5 million and $64.0 million for the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively, related to restricted stock and restricted stock units expected to be granted as part of our year-end compensation.

In addition to year end compensation awards, we grant restricted stock and restricted stock units to new employees as “sign-on” awards, to existing employees as “retention” awards and to certain executive officers as awards for multiple years. Sign-on and retention awards are generally subject to annual ratable vesting upon a four year service requirement and are amortized as compensation expense on a straight line basis over the related four years. Restricted stock and restricted stock units are granted to certain senior executives with both performance and service conditions. We amortize these awards granted to senior executives over the service period as we have determined it is probable that the performance condition will be achieved.

The total compensation cost associated with restricted stock and restricted stock units amounted to $49.6 million and $33.1 million for the three months ended August 31, 2011 and 2010, respectively, and $159.0 million and $91.5 million for the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively. Total compensation cost includes estimated year-end compensation and the amortization of sign-on, retention and senior executive awards, less forfeitures and clawbacks.

The following table details the activity of restricted stock:


	Nine Months Ended			Weighted Average Grant
	August 31, 2011			Date Fair Value
	(Shares in 000s)
Restricted stock
Balance, beginning of period		4,918		$	22.82
Grants (1)		2,798		$	22.96
Forfeited		(55	)	$	23.29
Fulfillment of service requirement (1)		(1,307	)	$	22.41

Balance, end of period (2)		6,354		$	22.96


(1)		Includes approximately 444,000 shares of restricted stock granted with no future service requirements during the nine months ended August 31, 2011. These shares are shown as granted and vested during the period. The weighted average grant date fair value of these shares was approximately $23.53.

(2)		Represents restricted stock with a future service requirement.

The following table details the activity of restricted stock units:


							Weighted
	Nine Months Ended						Average Grant
	August 31, 2011						Date Fair Value
	(Shares in 000s)
	Future			No Future			Future		No Future
	Service			Service			Service		Service
	Required			Required			Required		Required
Restricted stock units
Balance, beginning of period		3,998			24,730		$	24.04	$	14.74
Grants		1,356			303	(1)	$	21.13	$	21.78
Distribution of underlying shares		—			(4,953	)	$	—	$	16.28
Forfeited		(16	)		(279	)	$	16.54	$	19.23
Fulfillment of service requirement		(301	)		301		$	20.06	$	20.06

Balance, end of period		5,037			20,102		$	23.53	$	14.47


(1)		Includes approximately 280,000 dividend equivalents declared on restricted stock units during the nine months ended August 31, 2011. The weighted average grant date fair value of these dividend equivalents was approximately $21.60.

The aggregate fair value of restricted stock and restricted stock units granted with a service requirement that vested during the nine months ended August 31, 2011 and eight months ended August 31, 2010 was $27.0 million and $8.5 million, respectively. In addition, we granted restricted stock and restricted stock units with no future service requirements (excluding dividend equivalents) with an aggregate fair value of $11.0 million and $3.4 million during the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively.

Stock Options

The fair value of all option grants were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for all fixed option grants in 2004: dividend yield of 0.9%; expected volatility of 32.6%; risk free interest rates of 3.0%; and expected lives of 4.8 years. There are no option grants subsequent to 2004. A summary of our stock option activity for the nine months ended August 31, 2011 is presented below (amounts in thousands, except per share data):


	Nine Months Ended
(Shares in 000s)	August 31, 2011
				Weighted
				Average
	Options			Exercise Price
Outstanding at beginning of period		26		$	9.89
Exercised		(12	)	$	8.03

Outstanding at end of period		14		$	11.44

Options exercisable at end of period		14		$	11.44

The total intrinsic value of stock options exercised during the nine months ended August 31, 2011 and eight months ended August 31, 2010 was $161,000 and $449,000, respectively. Cash received from the exercise of stock options during the nine months ended August 31, 2011 and eight months ended August 31, 2010 totaled $95,000 and $108,000, respectively. During the nine months ended August 31, 2011, we realized a tax benefit of $181,000 related to stock option exercises that occurred during the eleven months ended November 30, 2010; including $99,000 of tax benefits related to stock options exercises initially recorded to additional paid-in capital during the three months ended March 31, 2010 and reversed upon our change in fiscal year end in the second quarter 2010 (see above for discussion on the timing of certain deductions as a result of our change in year-end). We did not realize a tax benefit related to stock options exercised during the nine months ended August 31, 2011, and expect to realize a tax benefit of $60,000 related to these exercises during the first quarter 2012. There was no tax benefit related to stock options realized during the eight months ended August 31, 2010.

The table below provides additional information related to stock options outstanding at August 31, 2011:

Dollars and shares in thousands, except per share data


	Outstanding,
	Net of Expected		Options
August 31, 2011	Forfeitures		Exercisable
Number of options		14		14
Weighted-average exercise price		11.44		11.44
Aggregate intrinsic value		70		70
Weighted-average remaining contractual term, in years		1.11		1.11

At August 31, 2011, tax benefits expected to be recognized in equity upon exercise of vested options are approximately $26,000.

Directors’ Plan. We have a Directors’ Stock Compensation Plan (“Directors’ Plan”) which provides for an annual grant to each nonemployee director of $100,000 of restricted stock or deferred shares (which are similar to restricted stock units). These grants are made automatically on the date directors are elected or reelected at our annual shareholders’ meeting. These grants vest three years after the date of grant and are expensed over the requisite service period.

Additionally, the Directors’ Plan permits each nonemployee director to elect to be paid annual retainer fees, meeting fees and fees for service as chairman of a Board committee in the form of cash, deferred cash or deferred shares. If deferred cash is elected, interest is credited to such deferred cash at the prime interest rate in effect at the date of each annual meeting of stockholders. If deferred shares are elected, dividend equivalents equal to dividends declared and paid on our common stock are credited to a director’s account and reinvested as additional deferred shares. The cost related to this plan, included within Other expenses on the Consolidated Statement of Earnings, was $0.2 million and $0.3 million for the three months ended August 31, 2011 and 2010, respectively, and $1.5 million and $1.2 million for the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively.

Employee Stock Purchase Plan. We also have an Employee Stock Purchase Plan (“ESPP”) which we consider noncompensatory effective January 1, 2007. All regular full time employees and employees who work part time over 20 hours per week are eligible for the ESPP. Annual employee contributions are limited to $21,250, are voluntary, are made via payroll deduction and are used to purchase our common stock. The stock price used is 95% of the closing price of our common stock on the last day of the applicable session (monthly).

Deferred Compensation Plan. We also have a Deferred Compensation Plan, which was established in 2001. In 2011 and 2010, employees with annual compensation of $200,000 or more were eligible to defer compensation on a pre-tax basis by investing in our common stock at a discount (“DCP shares”) and/or stock options (prior to 2004) or by specifying the return in other alternative investments. We often invest directly, as a principal, in such investment alternatives related to our obligations to perform under the Deferred Compensation Plan. The compensation deferred by our employees is expensed in the period earned. The change in fair value of the specified other alternative investments are recognized in Principal transactions and changes in the corresponding deferral compensation liability are reflected as Compensation and benefits expense in our Consolidated Statements of Earnings.

Additionally, we recognize compensation cost related to the discount provided to employees in electing to defer compensation in DCP shares. This compensation cost was approximately $45,000 and $22,000 for the three months ended August 31, 2011 and 2010, respectively, and $244,000 and $88,000 for the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively. As of August 31, 2011, there were approximately 2,368,000 shares issuable under the DCP Plan.

Employee Stock Ownership Plan. We have an Employee Stock Ownership Plan (“ESOP”) which was established in 1988. We had no contributions and no compensation cost related to the ESOP during the three and nine months ended August 31, 2011 and three and eight months ended August 31, 2010.

Profit Sharing Plan. We have a profit sharing plan, covering substantially all employees, which includes a salary reduction feature designed to qualify under Section 401(k) of the Internal Revenue Code. The compensation cost related to this plan was $1.0 million and $0.9 million for the three months ended August 31, 2011 and 2010, respectively, and $5.4 million and $4.3 million for the nine months ended August 31, 2011 and eight months ended August 31, 2010, respectively,

Deferred Cash Awards. We provide compensation to new and existing employees in the form of loans and/or other cash awards which are subject to ratable vesting terms with service requirements ranging from one to ten years. We amortize these awards to compensation expense over the relevant service period. At August 31, 2011 and November 30, 2010, the remaining unamortized amount of these awards was $236.9 million and $104.1 million, respectively.

- Definition

The entire disclosure for compensation costs, including compensated absences accruals, compensated absences liability, deferred compensation arrangements and income statement compensation items. Deferred compensation arrangements may include a description of an arrangement with an individual employee, which is generally an employment contract between the entity and a selected officer or key employee containing a promise by the employer to pay certain amounts at designated future dates, usually including a period after retirement, upon compliance with stipulated requirements. This type of arrangement is distinguished from broader based employee benefit plans as it is usually tailored to the employee. Disclosure also typically includes the amount of related compensation expense recognized during the reporting period, the number of shares (units) issued during the period under such arrangements, and the carrying amount as of the balance sheet date of the related liability.

+ References+ Details