Stock Based Compensation Plans

12 Months Ended

Dec. 31, 2015

Stock Based Compensation Plans [Text Block]

Note 13 Stock Based Compensation Plans

We have long-term incentive award plans (Incentive Plans) that provide for the granting of incentive stock options, nonqualified stock options, stock appreciation rights, incentive shares/performance units, restricted shares, restricted share units, other share-based awards and dollar-denominated awards to executives and, other than incentive stock options, to non-employee directors. Certain Incentive Plan awards may be paid in stock, cash or a combination of stock and cash. We typically grant a substantial portion of our stock-based compensation awards during the first quarter of the year. As of December 31, 2015, no stock appreciation rights were outstanding.

Total compensation expense recognized related to all share-based payment arrangements during 2015, 2014 and 2013 was approximately $173 million, $181 million and $154 million, respectively. The total tax benefit recognized related to compensation expense on all share-based payment arrangements during 2015, 2014 and 2013 was approximately $63 million, $66 million and $56 million, respectively. At December 31, 2015, there was $191 million of unamortized share-based compensation expense related to nonvested equity compensation arrangements granted under the Incentive Plans. This unamortized cost is expected to be recognized as expense over a period of no longer than five years.

Nonqualified Stock Options

Beginning in 2014, PNC discontinued the use of stock options as a standard element of our long-term equity incentive compensation programs under our Incentive Plans and did not grant any options in 2015 and 2014. Prior to 2014, options were granted at exercise prices not less than the market value of a share of common stock on the grant date. Generally, options become exercisable in installments after the grant date. No option can be exercised after 10 years from its grant date. Payment of the option exercise price may be in cash or by surrendering shares of common stock at market value on the exercise date. The exercise price may also be paid by using previously owned shares.

Option Pricing Assumptions

For purposes of computing stock option expense for grants made in 2013, we estimated the fair value of stock options at the grant date by using the Black-Scholes option pricing model. Option pricing models require the use of numerous assumptions, many of which are subjective.

We used the following assumptions in the Black-Scholes option pricing model to determine 2013 grant date fair value:

The risk-free interest rate is based on the U.S. Treasury yield curve,
The dividend yield is indicative of our current dividend rate,
Volatility is measured using the fluctuation in month-end closing stock prices over a period which corresponds with the average expected option life, but in no case less than a five-year period, and
The expected life represents the period of time that options granted are expected to be outstanding and is based on a weighted-average of historical option activity.

Table 106: Option Pricing Assumptions (a)

Weighted-average for the
year ended December 31		2013
Risk-free interest rate		.9	%
Dividend yield		2.5
Volatility		34.0
Expected life		6.5	yrs.
Grant date fair value	$	16.35
(a) PNC did not grant any stock options in 2015 and 2014.

There were no options granted in 2013 where the grant date fair value exceeded the market value. The following table represents the stock option activity for 2015.

Table 107: Stock Option Rollforward

Year ended December 31, 2015		PNC			PNC Options Converted From National City			Total
In thousands, except weighted-average data		Shares	Weighted-Average Exercise Price		Shares	Weighted-Average Exercise Price		Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value
Outstanding, January 1		6,701	$	56.41	343	$	585.23	7,044	$	82.17
	Granted (a)
	Exercised	(1,741)		59.18				(1,741)		59.18
	Cancelled	(29)		44.61	(100)		738.18	(129)		580.37
Outstanding, December 31		4,931	$	55.50	243	$	522.54	5,174	$	77.47	3.2 years	$	196,292
Vested and expected to vest, December 31 (b)		4,931	$	55.50	243	$	522.54	5,174	$	77.47	3.2 years	$	196,286
Exercisable, December 31		4,883	$	55.42	243	$	522.54	5,126	$	77.60	3.2 years	$	194,782
(a)	PNC did not grant any stock options in 2015 and 2014.
(b)	Adjusted for estimated forfeitures on unvested options.

To determine stock-based compensation expense, the grant date fair value is applied to the options granted with a reduction for estimated forfeitures. We recognize compensation expense for stock options on a straight-line basis over the specified vesting period.

At December 31, 2014 and 2013, options for 6,810,000 and 10,204,000 shares of common stock were exercisable at a weighted-average price of $82.86 and $89.46, respectively. The total intrinsic value of options exercised during 2015, 2014 and 2013 was $62 million, $90 million and $86 million, respectively.

Cash received from option exercises under all Incentive Plans for 2015, 2014 and 2013 was approximately $103 million, $215 million and $208 million, respectively. The tax benefit realized from option exercises under all Incentive Plans for 2015, 2014 and 2013 was approximately $23 million, $33 million and $31 million, respectively.

Shares of common stock available during the next year for the granting of options and other awards under the Incentive Plans were approximately 14 million at December 31, 2015. Total shares of PNC common stock authorized for future issuance under equity compensation plans totaled approximately 15 million shares at December 31, 2015, which includes shares available for issuance under the Incentive Plans and the Employee Stock Purchase Plan (ESPP) as described below.

During 2015, we issued approximately 1.2 million common shares from treasury stock in connection with stock option exercise activity. As with past exercise activity, we currently intend to utilize primarily treasury stock for any future stock option exercises.

Awards granted to non-employee directors in 2015, 2014 and 2013 include 18,048, 21,490 and 27,076 deferred stock units, respectively, awarded under the Outside Directors Deferred Stock Unit Plan. A deferred stock unit is a phantom share of our common stock, which is accounted for as a liability until such awards are paid to the participants in cash. As there are no vesting or service requirements on these awards, total compensation expense is recognized in full for these awards on the date of grant.

Incentive/Performance Unit Awards and Restricted Share/Restricted Share Unit Awards

The fair value of nonvested incentive/performance unit awards and restricted share/restricted share unit awards is initially determined based on prices not less than the market value of our common stock on the date of grant. The value of certain incentive/performance unit awards is subsequently remeasured based on the achievement of one or more financial and other performance goals. The Personnel and Compensation Committee (“P&CC”) of the Board of Directors approves the final award payout with respect to certain incentive/performance unit awards. These awards primarily have either a three-year or a four-year performance period and are payable in either stock or a combination of stock and cash. Restricted share/restricted share unit awards have various vesting periods generally ranging from 3 years to 5 years.

Beginning in 2013, we incorporated several enhanced risk-related performance changes to certain long-term incentive compensation programs. In addition to achieving certain financial performance metrics on both an absolute basis and relative to our peers, final payout amounts will be subject to reduction if PNC fails to meet certain risk-related performance metrics as specified in the award agreements. However, the P&CC has the discretion to waive any or all of this reduction under certain circumstances.

The weighted-average grant date fair value of incentive/performance unit awards and restricted share/restricted share unit awards granted in 2015, 2014 and 2013 was $91.57, $80.79 and $64.77 per share, respectively. The total intrinsic value of incentive/performance unit and restricted share/restricted share unit awards vested during 2015, 2014 and 2013 was approximately $175 million, $119 million and $63 million, respectively. We recognize compensation expense for such awards ratably over the corresponding vesting and/or performance periods for each type of program.

Table 108: Nonvested Incentive/Performance Unit Awards and Restricted Share/Restricted Share Unit Awards - Rollforward

					Nonvested
		Nonvested	Weighted-		Restricted	Weighted-
		Incentive/	Average		Share/	Average
		Performance	Grant Date		Restricted Share	Grant Date
Shares in thousands		Units	Fair Value		Units	Fair Value
December 31, 2014		1,837	$	69.84	3,652	$	69.03
	Granted (a)	711		90.77	1,112		92.08
	Vested/Released (a)	(682)		66.17	(1,259)		61.15
	Forfeited	(36)		73.56	(172)		79.25
December 31, 2015		1,830	$	79.27	3,333	$	79.26
(a)	Includes adjustments for achieving specific performance goals for Incentive/Performance Unit Awards granted in prior periods.

In the preceding table, the units and related weighted-average grant date fair value of the incentive/performance unit awards exclude the effect of dividends on the underlying shares, as those dividends will be paid in cash if and when the underlying shares are issued to the participants.

Liability Awards

A summary of all nonvested, cash-payable incentive/performance units and restricted share unit activity follows:

Table 109: Nonvested Cash-Payable Incentive/Performance Units and Restricted Share Units – Rollforward

		Cash-Payable
		Incentive/	Cash-Payable
		Performance	Restricted
In thousands		Units	Share Units	Total
Outstanding at December 31, 2014		177	658	835
	Granted (a)	81	364	445
	Vested and Released (a)	(98)	(350)	(448)
	Forfeited	(43)	(8)	(51)
Outstanding at December 31, 2015		117	664	781
(a)	Includes adjustments for achieving specific performance goals for Cash-Payable Incentive/Performance Units granted in prior periods.

Included in the preceding table are cash-payable restricted share units granted to certain executives. These grants were made primarily as part of an annual bonus incentive deferral plan. While there are time-based and other vesting criteria, there are generally no market or performance criteria associated with these awards. Prior to the 2015 grant, compensation expense recognized related to these awards was recorded in prior periods as part of the annual cash bonus process. Due to certain requisite service period changes in the award agreements starting with the 2015 grant (for the 2014 performance year), compensation expense is recognized ratably over a four year period commensurate with the performance year plus the three years of service-based vesting requirements. As of December 31, 2015, the aggregate intrinsic value of all outstanding nonvested cash-payable incentive/performance units and restricted share units was $74 million.

The total of all share-based liability awards paid out during 2015, 2014 and 2013 was approximately $41 million, $38 million and $29 million, respectively.

Employee Stock Purchase Plan

As of December 31, 2015, our ESPP had approximately 1 million shares available for issuance. Full-time employees with six months and part-time employees with 12 months of continuous employment with a participating PNC entity are eligible to participate in the ESPP at the commencement of the next six-month offering period. Eligible participants may purchase our common stock at 95% of the fair market value on the last day of each six-month offering period. No charge to earnings is recorded with respect to the ESPP.

Table 110: Employee Stock Purchase Plan - Summary

Year ended December 31	Shares Issued	Purchase Price Per Share
2015	168,962	$90.87 and $90.55
2014	157,856	$84.60 and $86.67
2013	167,260	$69.27 and $73.70

BlackRock LTIP and Exchange Agreements

BlackRock adopted the 2002 LTIP program to help attract and retain qualified professionals. At that time, PNC agreed to transfer up to 4 million shares of BlackRock common stock to fund a portion of the 2002 LTIP program and future LTIP programs approved by BlackRock’s Board of Directors, subject to certain conditions and limitations. Approximately 1.1 million shares of BlackRock common stock were transferred by PNC and distributed to LTIP participants in connection with the 2002 LTIP program.

In 2009, PNC’s obligation to deliver its BlackRock common shares to BlackRock under LTIP programs was replaced with an obligation to deliver shares of BlackRock’s Series C Preferred Stock. This change was part of an Exchange Agreement with BlackRock whereby PNC acquired 2.9 million shares of Series C Preferred Stock from BlackRock in exchange for common shares.

In 2011, we transferred approximately 1.3 million shares of BlackRock Series C Preferred Stock to BlackRock in connection with our obligation. In 2013, we transferred an additional .2 million shares to BlackRock. At December 31, 2015, we held approximately 1.3 million shares of BlackRock Series C Preferred Stock which were available to fund our obligation in connection with the BlackRock LTIP programs. See Note 24 Subsequent Events for information on our February 1, 2016 transfer of 0.5 million shares of the Series C Preferred Stock to BlackRock to satisfy a portion of our LTIP obligation.

PNC accounts for its BlackRock Series C Preferred Stock at fair value, which offsets the impact of marking-to-market the obligation to deliver these shares to BlackRock. The fair value of the BlackRock Series C Preferred Stock is included on our Consolidated Balance Sheet in the caption Other assets. Additional information regarding the valuation of the BlackRock Series C Preferred Stock is included in Note 7 Fair Value.