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Deferred compensation plans

12 Months Ended

Mar. 31, 2013

Deferred compensation plans

16. Deferred compensation plans:

Nomura issues compensation awards to senior management and other employees, certain of which are linked to the Company’s share price, in order to retain and motivate key staff.

These stock-based compensation awards comprise Plan A and Plan B Stock Acquisition Rights (“SARs”), Notional Stock Units (“NSUs”), Collared Notional Stock Units (“CSUs”) and Multi-Year Performance Deferral Awards (“MYPD awards”). SAR Plan A awards are effectively awards of stock options while SAR Plan B awards, NSUs and CSUs are analogous to awards of restricted stock. MYPD awards are performance-based incentive awards for senior management linked to the profitability of Nomura. The Company also issues other deferred compensation awards, namely Notional Index Units (“NIUs”) which are linked to world stock index quoted by Morgan Stanley Capital International.

SAR Plan A awards

The Company issues SAR Plan A awards over the Company’s common stock pursuant to several stock option plans which vest and become exercisable two years after the grant date, and expire approximately seven years after the grant date, subject to forfeiture on termination of employment. The exercise price generally is not less than the fair value of the Company’s common stock on grant date.

The fair value of these stock options as of grant date is estimated using a Black-Scholes option-pricing model and using the following assumptions:

•

Expected volatilities based on historical volatility of the Company’s common stock;

•

Expected dividend yield based on the current dividend rate at the time of grant;

•

Expected lives of the awards determined based on historical experience; and

•

The risk-free interest rate-estimate based on yen swap rate with a maturity equal to the expected lives of options.

The weighted-average grant date fair values of options granted during the years ended March 31, 2011, 2012 and 2013 were ¥127, ¥48 and ¥78 per share, respectively. The weighted-average assumptions used in each of the years were as follows:


		Year ended March 31
		2011				2012				2013
Expected volatility			40.51	%			41.78	%			43.11	%
Expected dividends yield			1.73	%			3.31	%			2.12	%
Expected lives (in years)			6				6				7
Risk-free interest rate			0.76	%			0.63	%			0.45	%

The following table presents activity relating to SAR Plan A awards for the year ended March 31, 2013:


		Outstanding (number of shares)				Weighted-average exercise price				Weighted-average remaining life until expiry (years)
Outstanding as of March 31, 2012			15,354,300			¥	988				3.9
Granted			2,857,000				298
Exercised			(18,000	)			478
Forfeited			(171,000	)			896
Expired			(1,476,800	)			1,120

Outstanding as of March 31, 2013			16,545,500			¥	848				3.8

Exercisable as of March 31, 2013			10,880,700			¥	1,134				2.7

No SAR Plan A awards were exercised during the years ended March 31, 2011 and 2012. The total intrinsic value of SAR Plan A awards exercised during the year ended March 31, 2013 was ¥2 million.

The aggregate intrinsic values of SAR Plan A awards outstanding and exercisable as of March 31, 2013 were ¥1,854 million and ¥277 million, respectively.

As of March 31, 2013, there was ¥215 million of total unrecognized compensation cost related to SAR Plan A awards. This cost is expected to be recognized over a weighted average period of 1.5 years.

SAR Plan B awards

The Company issues SAR Plan B awards over the Company’s common stock pursuant to several stock unit plans which vest and become exercisable approximately from one to five years after the grant date, and expire approximately from six to ten years after the grant date. The exercise price is a nominal ¥1 per share.

The following table presents activity relating to SAR Plan B awards for the year ended March 31, 2013:


		Outstanding (number of shares)				Weighted-Average grant date fair value per share				Weighted-average remaining life until expiry (years)
Outstanding as of March 31, 2012			114,375,600			¥	544				5.6
Granted			55,589,300				298
Exercised			(47,317,900	)			584
Forfeited			(5,103,600	)			378

Outstanding as of March 31, 2013			117,543,400			¥	419				5.7

Exercisable as of March 31, 2013			15,856,000			¥	714				4.1

The weighted-average grant date fair value per share for the years ended March 31, 2011 and 2012 were ¥638 and ¥397, respectively.

The total intrinsic values of SAR Plan B awards exercised during the years ended March 31, 2011, 2012 and 2013 were ¥3,934 million, ¥3,284 million and ¥15,299 million, respectively.

The aggregate intrinsic values of SAR Plan B awards outstanding and exercisable as of March 31, 2013 were ¥67,705 million and ¥9,133 million, respectively.

As of March 31, 2013, total unrecognized compensation cost relating to SAR Plan B awards was ¥10,365 million. This cost is expected to be recognized over a weighted average period of 2.6 years. The total fair values of awards vested during the years ended March 31, 2011, 2012 and 2013 were ¥4,909 million, ¥3,868 million and ¥3,624 million, respectively.

Total compensation expense recognized within Non-interest expenses—Compensation and benefits in the consolidated statements of income relating to SAR Plan A and SAR Plan B awards for the years ended March 31, 2011, 2012 and 2013 was ¥18,638 million, ¥26,869 million and ¥19,091 million, respectively. Total related tax benefits recognized in the consolidated statements of income for compensation expense for the years ended March 31, 2011, 2012 and 2013 was ¥546 million, ¥1,092 million and ¥1,081 million, respectively. The dilutive effect of outstanding compensation plans is included in the weighted average number of shares outstanding used in diluted EPS computations.

Cash received from the exercise of SAR Plan A and SAR Plan B awards during the year ended March 31, 2013 was ¥56 million and the tax benefit realized from exercise of these awards was ¥1,181 million.

NSU and CSU awards

NSUs and CSUs are cash-settled awards linked to the price of the Company’s common stock which have graded vesting over three to five years from grant date. NSUs replicate the key features of SAR Plan B awards described above but are settled in cash rather than the Company’s common stock. CSUs are similar to NSUs but exposure of the employee to movements in the price of the Company’s common stock is subject to a cap and floor.

The fair value of NSUs and CSUs are determined using the price of the Company’s common stock.

The following table presents activity related to NSUs and CSUs for the year ended March 31, 2013:


		NSUs								CSUs
		Outstanding (number of units)				Stock price				Outstanding (number of units)				Stock price
Outstanding as of March 31, 2012			68,410,978			¥	373				33,096,488			¥	373
Granted			38,795,388				308	⁽¹⁾			75,425,312				260	⁽¹⁾
Vested			(39,569,233	)			355	⁽²⁾			(32,433,846	)			338	⁽²⁾
Forfeited			(5,105,557	)							(5,351,130	)

Outstanding as of March 31, 2013			62,531,576			¥	583	⁽³⁾			70,736,824			¥	316	⁽³⁾

(1)	Weighted-average price of the Company’s common stock used to determine number of awards granted

(2)	Weighted-average price of the Company’s common stock used to determine the final cash settlement amount of the awards

(3)	The price of the Company’s common stock used to remeasure the fair value of the remaining outstanding unvested awards as of March 31, 2013

Total compensation expense recognized within Non-interest expenses—Compensation and benefits in the consolidated statements of income relating to NSUs and CSUs for the years ended March 31, 2011, 2012 and 2013 was ¥13,708 million, ¥27,257 million and ¥33,286 million, respectively. Total unrecognized compensation cost relating to NSU, based on the fair value of these awards as of March 31, 2013 was ¥5,171 million which will be recognized through the consolidated statements of income over a remaining weighted-average period of 2.4 years. Total unrecognized compensation cost relating to CSU, based on the fair value of these awards as of March 31, 2013 was ¥5,662 million which will be recognized through the consolidated statements of income over a remaining weighted-average period of 2.6 years.

MYPD awards

During the year ended March 2013, Nomura issued MYPD awards, which are new performance-based incentive awards for senior management and other senior employees. Under the terms of the award, employees are granted notional performance units which are linked to the profitability of Nomura and specific business segments over a cumulative two year performance period. At the end of the performance period, depending on the extent to which profitability targets are met, the notional performance units are converted into a pre-determined amount of SAR Plan B awards or NSUs.

The MYPD awards are classified as equity awards because these are expected to result in the issuance of SARs. Since these awards contain both performances and service conditions, total compensation cost is recognized over the requisite service period of the employee who receives the award, to the extent it is deemed probable that the performance condition will be met.

The following table presents activity relating to MYPD awards for the year ended March 31, 2013:


		Outstanding (number of shares)⁽²⁾				Stock price
Granted			28,697,850			¥	298	⁽¹⁾
Forfeited			(1,542,900	)			298

Outstanding as of March 31, 2013			27,154,950			¥	298

(1)	Weighted-average price of the Company’s common stock used to determine number of awards granted during the year.

(2)	Based on the probable number of SARs which will be issued on conversion of notional performance units at the end of the performance period.

Total compensation expense recognized within Non-interest expenses—Compensation and benefits in the consolidated statements of income relating to MYPD awards, based on the current estimate of the extent to which it is probable that the performance conditions within the awards will be met for the year ended March 31, 2013 was ¥2,864 million. As of March 31, 2013, total unrecognized compensation cost relating to MYPD awards was ¥5,233 million. This cost is expected to be recognized over a weighted average period of 3.5 years.

NIU awards

In addition to the stock-based compensation awards described above, Nomura also grants NIUs to certain senior management and employees. NIUs are cash-settled awards linked to a world stock index quoted by Morgan Stanley Capital International which have graded vesting over three to five years from the grant date.

The fair value of NIUs is determined using the price of the index.

The following table presents activity relating to NIUs for the year ended March 31, 2013:


		Outstanding (number of units)				Index price⁽¹⁾
Outstanding as of March 31, 2012			36,871,138				$3,320
Granted			46,783,794				2,982	⁽²⁾
Vested			(29,201,184	)			3,398	⁽³⁾
Forfeited			(4,692,807	)

Outstanding as of March 31, 2013			49,760,941				$3,674	⁽⁴⁾

(1)	The price of each unit is determined using 1/1000th of the index price.

(2)	Weighted-average index price used to determine number of awards granted.

(3)	Weighted-average index price used to determine the final cash settlement amount of the awards.

(4)	Index price used to remeasure the total fair value of the remaining outstanding unvested awards as of March 31, 2013.

Total compensation expense recognized within Non-interest expenses—Compensation and benefits in the consolidated statements of income relating to NIUs for the year ended March 31, 2012 and March 31, 2013 were ¥8,819 and ¥8,266 million respectively. Total unrecognized compensation cost, based on the fair value of these awards as of March 31, 2013 was ¥3,602 million which will be recognized through the consolidated statements of income over a remaining weighted-average period of 2.6 years.

Subsequent events

On May 15, 2013, the Company adopted a resolution to issue SARs No. 52, No. 53 and No. 54 of common stock pursuant to the SAR Plan B awards for directors and certain employees of the Company and subsidiaries and has issued SARs on June 5, 2013. The total number of SARs issued is 212,587 for the acquisition of 21,258,700 shares. The exercise price is a nominal ¥1 per share. The SARs vest and are exercisable approximately one to three years after the grant date and expire approximately six to eight years after the grant date.

In May 2013, Nomura also granted the issuance of NSUs, CSUs and NIUs to certain senior management and employees. These awards have a total grant date fair value of ¥45 billion and a vesting period of up to three years.

All new deferred awards granted in May 2013 include “Full Career Retirement” provisions which permit the recipients of the awards to continue to vest in the awards upon voluntary termination if certain criteria based on corporate title and length of service within Nomura are met.

Tabular disclosure of an equity-based arrangement (such as stock or unit options and stock or unit awards) 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 equity-based awards at future dates, sometimes 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 or units issued during the period under such arrangements, and the carrying amount as of the balance sheet date of the related liability.

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