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Stock-based compensation
 12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
Stock-based compensation Stock-based compensation.At December 31, 2022, the Company had several stock-based compensation plans including stock option plans, various cash-settled liability plans, and an employee share purchase plan. These plans resulted in an expense of $113 million in 2022 (2021 – $131 million; 2020 – $170 million) and the total tax benefit related to these plans was $26 million in 2022 (2021 – $29 million; 2020 – $42 million).
A. Stock option plan
The following table summarizes information related to the stock option plan as at December 31, 2022:

Options outstandingNon-vested options
Number of
options		Weighted-average
exercise price		Number of
options		Weighted-average
grant date
fair value
Outstanding, January 1, 20227,392,188 $53.36 3,748,983 $14.25 
Granted839,108 $94.18 839,108 $21.33 
Exercised(840,795)$38.46 N/AN/A
VestedN/AN/A(1,953,715)$12.10 
Forfeited(37,368)$84.78 (37,368)$17.94 
Outstanding, December 31, 20227,353,133 $61.69 2,597,008 $18.09 
Vested or expected to vest at December 31, 2022(1)
7,304,289 $61.51 N/AN/A
Exercisable, December 31, 20224,756,125 $49.02 N/AN/A
(1) As at December 31, 2022, the weighted-average remaining term of vested or expected to vest options was 3.3 years with an aggregate intrinsic value of $288 million.

The following table provides the number of stock options outstanding and exercisable as at December 31, 2022 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, 2022 at the Company’s closing stock price of $100.95.

Options outstandingOptions exercisable
Range of exercise pricesNumber 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)
$23.84 - $41.51
2,105,506 1.6$36.62 $135 2,105,506 $36.62 $135 
$41.52 - $55.48
1,655,284 2.3$49.09 $86 1,526,734 $48.64 $80 
$55.49 - $90.81
1,795,994 4.0$70.03 $56 883,395 $66.85 $30 
$90.82 - $111.52
1,796,349 5.6$94.35 $12 240,490 $94.49 $2 
Total(1)
7,353,133 3.3$61.69 $289 4,756,125 $49.02 $247 
(1) As at December 31, 2022, the total number of in-the-money stock options outstanding was 7,339,374 with a weighted-average exercise price of $61.60. The weighted-average years to expiration of exercisable stock options is 2.4 years.

Pursuant to the employee plan, options may be exercised upon vesting, which is between 12 months and 48 months after the grant date, and will expire after seven years. Under the fair value method, the fair value of the stock options at grant date was approximately $16 million for options issued in 2022 (2021 – $26 million; 2020 – $15 million). The weighted-average fair value assumptions were approximately:

202220212020
Expected option life (years)(1)
4.754.754.75
Risk-free interest rate(2)
1.62 %0.53 %1.28 %
Expected stock price volatility(3)
26.85 %27.14 %23.14 %
Expected annual dividends per share(4)
$0.760 $0.760 $0.664 
Expected forfeiture rate(5)
3.01 %2.62 %4.41 %
Weighted-average grant date fair value of options granted during the year$21.33 $19.06 $13.80 
(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 term commensurate with the expected term of the option.
(3) Based on the historical volatility of the Company’s stock price 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.
(5) The Company estimates forfeitures based on past experience. The rate is monitored on a periodic basis.

In 2022, the expense for stock options (regular and performance) was $23 million (2021 – $23 million; 2020 – $16 million). At December 31, 2022, there was $17 million of total unrecognized compensation related to stock options, which is expected to be recognized over a weighted-average period of approximately 0.9 years.

The total fair value of shares vested for the stock option plan during 2022 was $24 million (2021 – $18 million; 2020 – $10 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)202220212020
Total intrinsic value$53 $43 $52 
Cash received by the Company upon exercise of options32 25 52 

B. Other share-based plans
Performance share unit plans
During 2022, the Company issued 415,660 PSUs with a grant date fair value of approximately $38 million and 13,506 PDSUs with a grant date fair value, including value of expected future matching units, of approximately $1 million. PSUs and PDSUs attract dividend equivalents in the form of additional units based on dividends paid on the Company's Common Shares, and vest approximately three years after the grant date, contingent upon CP’s performance ("performance factor"). The fair value of these PSUs and PDSUs is measured periodically until settlement using closing share price on the date of measurement. The fair value of units that are probable of vesting based on forecasted performance factors over the three-year performance period is recognized as expense in the Consolidated Statements of Income. Vested PSUs are settled in cash. Vested PDSUs are settled in cash pursuant to the DSU plan and are eligible for a 25% match if the holder has not exceeded their share ownership requirements, and are paid out only when the holder ceases their employment with CP.

The performance period for PSUs and PDSUs issued in 2022 is January 1, 2022 to December 31, 2024, and the performance factors are Free Cash Flow ("FCF"), Adjusted net debt to Adjusted earnings before interest, tax, depreciation, and amortization ("EBITDA") Modifier, Total Shareholder Return ("TSR") compared to the S&P/TSX 60 Index, and TSR compared to the S&P 500 Industrials Index.

The performance period for 431,430 PSUs and 12,694 PDSUs issued in 2021 is January 1, 2021 to December 31, 2023, and the performance factors for these PSUs are Return on Invested Capital ("ROIC"), TSR compared to the S&P/TSX 60 Index, and TSR compared to Class I railways.

The performance period for 489,990 PSUs and 50,145 PDSUs issued in 2020 was January 1, 2020 to December 31, 2022, and the performance factors for these PSUs were ROIC, TSR compared to the S&P/TSX 60 Index, and TSR compared to Class I Railways. The estimated payout on these awards is 180% on 459,358 PSUs and 45,058 PDSUs outstanding (including expected future matching units) representing fair values of $87 million and $11 million respectively as at December 31, 2022, calculated using the Company's average share price of the last 30 trading days preceding December 31, 2022.

The performance period for 668,405 PSUs issued in 2019 was January 1, 2019 to December 31, 2021, and the performance factors were ROIC, TSR compared to the S&P/TSX 60 Index, and TSR compared to Class I Railways. The resulting payout was 200% of the outstanding units multiplied by the Company's average share price calculated using the last 30 trading days preceding December 31, 2021. In the first quarter of 2022, payouts occurred on 631,457 total outstanding awards, including dividends reinvested, totalling $116 million.

The following table summarizes information related to PSUs and PDSUs as at December 31:

20222021
Outstanding, January 11,577,781 1,909,345 
Granted429,166 444,124 
Units in lieu of dividends11,207 14,668 
Settled(637,073)(743,512)
Forfeited(44,723)(46,844)
Outstanding, December 311,336,358 1,577,781 
In 2022, the expense for PSUs and PDSUs was $69 million (2021 – $91 million; 2020 – $121 million). At December 31, 2022, there was $32 million of total unrecognized compensation related to these awards which, is expected to be recognized over a weighted-average period of approximately 1.6 years.

Deferred share unit plan
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 36 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 five years to meet their ownership targets.

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

The following table summarizes information related to DSUs as at December 31:

20222021
Outstanding, January 1841,333 774,053 
Granted60,262 70,112 
Units in lieu of dividends6,510 6,753 
Settled(162,319)(6,677)
Forfeited(1,256)(2,908)
Outstanding, December 31744,530 841,333 

During 2022, the Company granted 60,262 DSUs with a grant date fair value of approximately $6 million. In 2022, the expense for DSUs was $10 million (2021 – $6 million; 2020 – $21 million). At December 31, 2022, there was $1 million of total unrecognized compensation related to DSUs, which is expected to be recognized over a weighted-average period of approximately 1.7 years.

Summary of share-based liabilities paid
The following table summarizes the total share-based liabilities paid for each of the years ended December 31:

(in millions of Canadian dollars)202220212020
Plan
PSUs$116 $119 $76 
DSUs16 1 9 
Other5 6 1 
Total$137 $126 $86 

C. Employee share purchase plan
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.
The total number of shares purchased in 2022 on behalf of participants, including the Company's contributions, was 566,902 (2021 – 538,022; 2020 – 576,720). In 2022, the Company’s contributions totalled $11 million (2021 – $11 million; 2020 – $9 million) and the related expense was $9 million (2021 – $8 million; 2020 – $7 million)