Employee Incentive, Deferred Compensation, and Retirement Plans

6 Months Ended

Jun. 30, 2011

Employee Incentive, Deferred Compensation, and Retirement Plans

Employee Incentive, Deferred Compensation, and Retirement Plans

NOTE 17 - Employee Incentive, Deferred Compensation, and Retirement Plans

We maintain several incentive stock award plans that provide for the granting of stock options, stock appreciation rights, restricted stock, performance awards, and stock units to our employees. Awards under our company's incentive stock award plans are granted at market value at the date of grant. Options expire ten years from the date of grant. The awards generally vest ratably over a three- to eight-year vesting period.

All stock-based compensation plans are administered by the Compensation Committee of the Board of Directors ("Compensation Committee"), which has the authority to interpret the plans, determine to whom awards may be granted under the plans, and determine the terms of each award. According to these plans, we are authorized to grant an additional 10.3 million shares at June 30, 2011.

Stock-based compensation expense included in compensation and benefits expense in the consolidated statements of operations for our company's incentive stock award plans was $6.9 million and $16.2 million for the three months ended June 30, 2011 and 2010, respectively. The tax benefit related to stock-based compensation recognized in shareholders' equity was $1.1 million and $0.4 million for the three months ended June 30, 2011 and 2010, respectively.

Stock-based compensation expense included in compensation and benefits expense in the consolidated statements of operations for our company's incentive stock award plans was $16.0 million and $31.8 million for the six months ended June 30, 2011 and 2010, respectively. The tax benefit related to stock-based compensation recognized in shareholders' equity was $23.6 million and $13.1 million for the six months ended June 30, 2011 and 2010, respectively.

Stock Options

We have substantially eliminated the use of stock options as a form of compensation. During the three and six months ended June 30, 2011, no options were granted.

At June 30, 2011, there was $0.1 million of unrecognized compensation expense related to non-vested options. The expense is expected to be recognized over a weighted-average period of 0.5 years. Cash proceeds from the exercise of stock options were $0.1 million and $0.6 million for the three and six months ended June 30, 2011, respectively. Tax benefits realized from the exercise of stock options for the three and six months ended June 30, 2011 were $0.1 million and $0.9 million, respectively.

Stock Units

A stock unit represents the right to receive a share of common stock from our company at a designated time in the future without cash payment by the employee and is issued in lieu of cash incentive, principally for deferred compensation and employee retention plans. At June 30, 2011, the total number of stock units outstanding was 14.2 million, of which 2.9 million were unvested.

At June 30, 2011, there was unrecognized compensation cost for stock units of $103.0 million, which is expected to be recognized over a weighted-average period of 3.7 years.

Deferred Compensation Plans

The Stifel Nicolaus Wealth Accumulation Plan (the "SWAP Plan") is provided to certain revenue producers, officers, and key administrative employees, whereby a certain percentage of their incentive compensation is deferred as defined by the Plan into company stock units with a 25% matching contribution by our company. Participants may elect to defer up to an additional 15% of their incentive compensation with a 25% matching contribution. Units generally vest over a three- to five-year period and are distributable upon vesting or at future specified dates. Deferred compensation costs are amortized on a straight-line basis over the vesting period. Elective deferrals are 100% vested. As of June 30, 2011, there were 7.6 million units outstanding under the Plan.

Additionally, the SWAP Plan allows Stifel Nicolaus' financial advisors who achieve certain levels of production, the option to defer a certain percentage of their earnings. As stipulated by the SWAP Plan, 50% of the amount is deferred into company stock units with a 25% matching contribution and 50% is deferred in mutual funds, which earn a return based on the performance of index mutual funds as designated by our company or a fixed income option. Financial advisors may elect to defer an additional 1% of earnings into company stock units with a 25% matching contribution. Financial advisors have no ownership in the mutual funds. Included in the investments in the consolidated statements of financial condition are investments in mutual funds of $35.2 million and $32.2 million at June 30, 2011 and December 31, 2010, respectively, that were purchased by our company to economically hedge, on an after-tax basis, its liability to the financial advisors who choose to base the performance of their return on the index mutual fund option. At June 30, 2011 and December 31, 2010, the deferred compensation liability related to the mutual fund option of $27.8 million and $23.9 million, respectively, is included in accrued compensation in the consolidated statements of financial condition.

In addition, certain financial advisors, upon joining our company, may receive company stock units in lieu of transition cash payments. Deferred compensation related to these awards generally vests over a five- to eight-year period. Deferred compensation costs are amortized on a straight-line basis over the deferral period. As of June 30, 2011, there were 6.4 million units outstanding under the two plans.