At December 31, 2017, the Company had several stock-based compensation plans, including a stock option plan, various cash settled liability plans and an employee share purchase plan. These plans resulted in an expense in 2017 of $35 million (2016 – $51 million; 2015 – $66 million).

Effective January 31, 2017, Mr. E. Hunter Harrison resigned from all positions held by him at the Company, including as the Company’s Chief Executive Officer and as a member of the Board of Directors of the Company. In connection with Mr. Harrison’s resignation, the Company entered into a separation agreement with Mr. Harrison. Under the terms of the separation agreement, the Company agreed to a limited waiver of Mr. Harrison’s non-competition and non-solicitation obligations.

Effective January 31, 2017, pursuant to the separation agreement, Mr. Harrison forfeited certain pension and post-retirement benefits and agreed to the surrender for cancellation of 22,514 performance share units ("PSU"), 68,612 deferred share units ("DSU"), and 752,145 stock options.

As a result of this agreement, the Company recognized a recovery of $51 million in "Compensation and benefits" in the first quarter of 2017. Of this amount, $27 million related to a recovery from cancellation of certain pension benefits.



	Options outstanding				Nonvested options
	Number of options		Weighted average exercise price		Number of options		Weighted average grant date fair value
Outstanding, January 1, 2017	2,450,082		$	121.95	850,167		$	44.49
Granted	369,980		$	193.13	369,980		$	45.78
Exercised	(536,291	)	$	84.93	N/A		N/A
Vested	N/A		N/A		(328,265	)	$	42.97
Forfeited	(803,796	)	$	120.97	(208,955	)	$	47.21
Expired	(700	)	$	62.56	N/A		N/A
Outstanding, December 31, 2017	1,479,275		$	150.64	682,927		$	45.46
Vested or expected to vest at December 31, 2017⁽¹⁾	1,419,564		$	149.05	N/A		N/A
Exercisable, December 31, 2017	796,348		$	119.32	N/A		N/A

⁽¹⁾As at December 31, 2017, the weighted average remaining term of vested or expected to vest options was 7.0 years with an aggregate intrinsic value of $114 million.

The following table provides the number of stock options outstanding and exercisable as at December 31, 2017 by range of exercise price and their related intrinsic aggregate value, and for options outstanding, the weighted-average years to expiration. The table also provides the aggregate intrinsic value for in-the-money stock options, which represents the amount that would have been received by option holders had they exercised their options on December 31, 2017 at the Company’s closing stock price of $229.66.



	Options outstanding						Options exercisable
Range of exercise prices	Number of options	Weighted average years to expiration	Weighted average exercise price		Aggregate intrinsic value (millions)		Number of options	Weighted average exercise price		Aggregate intrinsic value (millions)
$36.29 – $117.48	416,270	3.7	$	84.50	$	60	416,270	$	84.50	$	60
$117.49 – $165.95	359,997	6.8	$	141.38	$	32	200,362	$	128.43	$	20
$165.96 – $190.42	415,914	6.1	$	182.48	$	20	106,458	$	169.28	$	6
$190.43 – $222.88	287,094	6.7	$	212.05	$	5	73,258	$	219.60	$	1
Total⁽¹⁾	1,479,275	5.7	$	150.64	$	117	796,348	$	119.32	$	87

⁽¹⁾ As at December 31, 2017, the total number of in-the-money stock options outstanding was 1,479,275 with a weighted-average exercise price of $150.64. The weighted-average years to expiration of exercisable stock options is 4.9 years.

Pursuant to the employee plan, options may be exercised upon vesting, which is between 12 months and 60 months after the grant date, and will expire after seven years. Certain stock options granted in 2017 vest upon the achievement of specific performance criteria.

Under the fair value method, the fair value of options at the grant date was approximately $17 million for options issued in 2017 (2016 – $16 million; 2015 – $18 million). The weighted average fair value assumptions were approximately:



	2017			2016			2015
Expected option life (years)⁽¹⁾	5.48			5.25			5.25
Risk-free interest rate⁽²⁾	1.85		%	1.21		%	1.10		%
Expected stock price volatility⁽³⁾	27		%	27		%	26		%
Expected annual dividends per share⁽⁴⁾	$	2.0010		$	1.4000		$	1.4000
Estimated forfeiture rate⁽⁵⁾	2.8		%	2.0		%	1.2		%
Weighted average grant date fair value of options granted during the year	$	45.78		$	39.01		$	55.28

⁽¹⁾ Represents the period of time that awards are expected to be outstanding. Historical data on exercise behaviour or, when available, specific expectations regarding future exercise behaviour were used to estimate the expected life of the option.

⁽²⁾ Based on the implied yield available on zero-coupon government issues with an equivalent remaining term at the time of the grant.

⁽³⁾ Based on the historical stock price volatility of the Company’s stock over a period commensurate with the expected term of the option.

⁽⁴⁾ Determined by the current annual dividend at the time of grant. The Company does not employ different dividend yields throughout the contractual term of the option. On May 10, 2017, the Company announced an increase in its quarterly dividend to $0.5625 per share, representing $2.2500 on an annual basis.

In 2017, the expense for stock options (regular and performance) was $3 million (2016 – $14 million; 2015 – $15 million). At December 31, 2017, there was $9 million of total unrecognized compensation related to stock options which is expected to be recognized over a weighted-average period of approximately 1.3 years.

The total fair value of shares vested for the stock option plan during 2017 was $14 million (2016 – $15 million; 2015 – $17 million).

The following table provides information related to all options exercised in the stock option plan during the years ended December 31:



(in millions of Canadian dollars)	2017		2016		2015
Total intrinsic value	$	36	$	30	$	72
Cash received by the Company upon exercise of options	$	45	$	21	$	43

During 2017, the Company issued 134,991 PSUs with a grant date fair value of approximately $27 million. These units attract dividend equivalents in the form of additional units based on the dividends paid on the Company’s Common Shares. PSUs vest and are settled in cash or in CP Common Shares, approximately 3 years after the grant date, contingent upon CP’s performance (performance factor). Grant recipients who are eligible to retire and have provided six months of service during the performance period are entitled to the full award. The fair value of PSUs is measured periodically until settlement, using a lattice-based valuation model.

The performance period for PSUs issued in 2017 is January 1, 2017 to December 31, 2019, and the performance factors for these PSUs are Return on Invested Capital ("ROIC"), Total Shareholder Return ("TSR") compared to the S&P/TSX Capped Industrial index, and TSR compared to S&P 1500 Road and Rail index.

The performance period for PSUs issued in 2016 is January 1, 2016 to December 31, 2018, and the performance factors for these PSUs are Operating Ratio, ROIC, TSR compared to the S&P/TSX60 index, and TSR compared to Class I railways.

The performance period for the PSUs issued in 2015 was January 1, 2015 to December 31, 2017. The performance factors for these PSUs were Operating Ratio, ROIC, TSR compared to the S&P/TSX60 index, and TSR compared to Class I railways. The resulting estimated payout was 160% on 82,673 total outstanding awards representing a total fair value of $30 million at December 31, 2017, calculated using the Company's average share price using the last 30 trading days preceding December 31, 2017.

The performance period for the PSUs issued in 2014 was January 1, 2014 to December 31, 2016. The performance factors for these PSUs were Operating Ratio, Free cash flow, TSR compared to the S&P/TSX60 index, and TSR compared to Class I railways. The resulting payout was 118% of the Company's average share price that was calculated using the last 30 trading days preceding December 31, 2016. In the first quarter of 2017, payouts occurred on the total outstanding awards, including dividends reinvested, totalling $31 million on 133,728 outstanding awards.



	2017		2016
Outstanding, January 1	373,593		348,276
Granted	134,991		147,157
Units, in lieu of dividends	3,571		4,010
Settled	(133,728	)	(83,466	)
Forfeited	(44,399	)	(42,384	)
Outstanding, December 31	334,028		373,593

In 2017, the expense for PSUs was $30 million (2016 – $29 million; 2015 – $55 million). At December 31, 2017, there was $20 million of total unrecognized compensation related to PSUs which is expected to be recognized over a weighted-average period of approximately 1.5 years.

The Company established the DSU plan as a means to compensate and assist in attaining share ownership targets set for certain key employees and Directors. A DSU entitles the holder to receive, upon redemption, a cash payment equivalent to the Company's average share price using the 10 trading days prior to redemption. DSUs vest over various periods of up to 48 months and are only redeemable for a specified period after employment is terminated.

Senior managers may elect to receive DSUs in lieu of annual bonus cash payments in the bonus deferral program. In addition, senior managers will be granted a 25% company match of DSUs when deferring cash to DSUs to meet ownership targets. The election to receive eligible payments in DSUs is no longer available to a participant when the value of the participant’s DSUs is sufficient to meet the Company’s stock ownership guidelines. Senior managers have 5 years to meet their ownership targets.

An expense for DSUs is recognized over the vesting period for both the initial subscription price and the change in value between reporting periods.



	2017		2016
Outstanding, January 1	234,036		318,176
Granted	23,932		31,069
Units, in lieu of dividends	1,969		2,798
Settled	(33,682	)	(87,996	)
Forfeited	(69,708	)	(30,011	)
Outstanding, December 31	156,547		234,036

During 2017, the Company granted 23,932 DSUs with a grant date fair value of approximately $5 million. In 2017, the recovery for DSUs was $3 million (2016 – $2 million expense; 2015 – $10 million recovery). At December 31, 2017, there was $1 million of total unrecognized compensation related to DSUs which is expected to be recognized over a weighted-average period of approximately 1.4 years.



(in millions of Canadian dollars)	2017		2016		2015
Plan
DSUs	$	6	$	17	$	3
PSUs	31		31		79
Other	2		—		8
Total	$	39	$	48	$	90

The Company has an employee share purchase plan whereby both employee and the Company contributions are used to purchase shares on the open market for employees. The Company’s contributions are expensed over the one year vesting period. Under the plan, the Company matches $1 for every $3 contributed by employees up to a maximum employee contribution of 6% of annual salary.