Annual report pursuant to Section 13 and 15(d)

Employee Incentive Plans

v2.4.0.6
Employee Incentive Plans
 12 Months Ended
Dec. 31, 2012
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Employee Incentive Plans
Note 16.
Employee Incentive Plans
Prior to its acquisition by Bank of America, Merrill Lynch sponsored several employee compensation plans that provided eligible employees with stock-based compensation or options to purchase stock. In connection with the acquisition, all stock-based compensation plans of Merrill Lynch were assumed by Bank of America and awards under those plans became payable in Bank of America common stock. Other than the Merrill Lynch & Co., Inc. Employee Stock Compensation Plan (“ESCP”) and the Merrill Lynch & Co., Inc. Employee Stock Purchase Plan (“ESPP”), existing Merrill Lynch plans were frozen as to new grants, although all previously granted awards outstanding under such plans continue to be governed by the applicable terms of the plan under which the awards were granted. Following the acquisition, grants with respect to Bank of America common stock may be made to eligible legacy Merrill Lynch employees under the ESCP as well as the Bank of America Corporation 2003 Key Associate Stock Plan (“KASP”). As discussed further below, the ESPP was discontinued effective March 31, 2012.
The total pre-tax compensation cost recognized in earnings for share-based compensation plans for the years ended December 31, 2012, 2011 and 2010 was $1.5 billion, $1.9 billion and $1.5 billion, respectively. Total related tax benefits recognized in earnings for share-based payment compensation plans for the years ended December 31, 2012, 2011 and 2010 were $0.6 billion, $0.6 billion and $0.5 billion, respectively.
Below is a description of Merrill Lynch's share-based payment compensation plans.
Equity Compensation Plans
Prior to 2009, the Long-Term Incentive Compensation Plans (“LTIC Plans”) and the Equity Capital Accumulation Plan (“ECAP”) provided for grants of equity and equity-related instruments to certain employees. LTIC Plans consist of the Long-Term Incentive Compensation Plan, used for grants to executive officers, and the Long-Term Incentive Compensation Plan for Managers and Producers, a broad-based plan. LTIC Plans provided for the issuance of restricted shares, restricted units, and non-qualified stock options, as well as incentive stock options, performance shares, performance units, performance options, stock appreciation rights, and other securities of Merrill Lynch. The ECAP provided for the issuance of restricted shares, as well as performance shares. The ECAP was terminated in 2008 and its shares were rolled into the ESCP. Upon Bank of America's acquisition of Merrill Lynch on January 1, 2009, the LTIC Plans were frozen.
The ESCP was amended at the time of the Bank of America acquisition to provide for the issuance of Bank of America common stock. The ESCP covers employees who were salaried key employees of Merrill Lynch immediately prior to the effective date of the Bank of America acquisition, other than executive officers. Under the ESCP, Bank of America may award restricted shares, restricted units, non-qualified stock options and stock appreciation rights. Awards of restricted shares and restricted units are subject to a vesting schedule specified in the grant documentation. There were no shares granted under this plan during 2012 and 2010. Bank of America granted approximately 8 million restricted stock unit awards to certain Merrill Lynch employees in 2011 under the ESCP, which generally vest in three equal annual installments beginning one year from the grant date. Awards granted in 2009 generally vest in three annual installments beginning one year from the grant date, and awards granted prior to 2009 generally vest in four equal annual installments beginning one year from the grant date. As of December 31, 2012, there were approximately 115 million shares available under the ESCP for future awards. Shares that are canceled, forfeited, or settled in cash from the frozen Merrill Lynch Long-Term Incentive Compensation Plan for Managers and Producers will become available for grant under the ESCP. The ESCP expired on February 24, 2013.

Bank of America shareholders approved the KASP to be effective January 1, 2003. Awards to Merrill Lynch employees may also be made under the KASP effective as of January 1, 2009. In 2012, Bank of America issued approximately 141 million restricted stock and restricted stock unit awards to certain Merrill Lynch employees under the KASP. Restricted stock awards generally vest in three equal annual installments beginning one year from the grant date, with the exception of certain awards of restricted stock that were vested and released from restrictions on the grant date and certain awards which will vest subject to the attainment of specified performance goals. Shares that are canceled, forfeited, or settled in cash from the frozen Merrill Lynch Long Term Incentive Compensation Plan and Financial Advisor Capital Accumulation Award Plans (discussed below) will become available to grant under the KASP.

Restricted Shares and Units
Restricted shares are shares of Bank of America common stock carrying voting and dividend rights. A restricted unit is deemed equivalent in fair market value to one share of common stock. Awards of restricted units may be settled in shares of common stock or cash. Recipients of restricted unit awards may receive cash payments equivalent to dividends. The following table presents the activity of the restricted stock/unit awards that were granted as stock settled awards during 2012:
 
Restricted
Shares/Units
 
Weighted Average
Fair Value Per Share
Outstanding at January 1, 2012
177,485,106

 
$
13.29

Granted — 2012
141,409,035

 
7.78

Paid, forfeited, or released from contingencies
(223,087,090
)
 
10.00

Transfers in(1)
1,241,157

 
10.37

Transfers out(1)
(710,779
)
 
14.34

Outstanding at December 31, 2012
96,337,429

 
12.78

 
 
 
 
(1) Transfers in and transfers out resulted from employee transfers to and from Merrill Lynch and non-Merrill Lynch subsidiaries of Bank of America.
The total fair value of restricted shares and units granted to retirement-eligible employees, or for which service criteria were satisfied during 2012, was approximately $469 million. The total fair value of restricted shares and units delivered during 2012 was approximately $2.2 billion. The fair value of restricted shares and units was determined based on the price of Bank of America common stock at the date of grant.
As of December 31, 2012, there was $1.3 billion of total unrecognized compensation cost related to non-vested share-based payment compensation arrangements. This cost is expected to be recognized over a weighted average period of 0.7 years. In 2012, the amount of cash used to settle equity instruments was $612 million.
Stock compensation accounting requires the immediate expensing of share-based payment awards granted or modified to retirement-eligible employees, including awards that are subject to non-compete provisions. The above activity includes awards with or without a future service requirement, as follows:
 
No Future Service Required
 
Future Service Required
 
Shares/Units
 
Weighted Avg
Grant Price
 
Shares/Units
 
Weighted Avg
Grant Price
Outstanding at January 1, 2012
78,808,825

 
$
13.18

 
98,676,281

 
$
13.39

Granted — includes net transfers
138,920,149

 
7.75

 
3,019,264

 
8.62

Paid, forfeited, or released from contingencies
(178,309,788
)
 
9.04

 
(44,777,302
)
 
13.82

Service criteria satisfied(1)
8,271,783

 
13.80

 
(8,271,783
)
 
13.80

Outstanding at December 31, 2012
47,690,969

 
12.96

 
48,646,460

 
12.59

 
 
 
 
 
 
 
 

(1)
Represents awards granted prior to 2012 for which employees attained retirement-eligibility or for which service criteria were satisfied during 2012.
Stock Appreciation Rights and Non-Qualified Stock Options
The activity for non-qualified stock options and stock appreciation rights under LTIC Plans for the year ended December 31, 2012 is presented below:
 
Options Outstanding
 
Weighted-Average
Exercise Price
Outstanding, end of 2011
60,178,703

 
$
54.53

Granted — 2012
—

 
—

Exercised
—

 
—

Forfeited
(27,547,959
)
 
59.90

Transfers in(1)
1,200,194

 
45.57

Transfers out(1)
(443,953
)
 
48.42

Outstanding, end of 2012
33,386,985

 
49.86

Exercisable, end of 2012
33,385,945

 
49.86

 
 
 
 
(1) Transfers in and transfers out resulted from employee transfers to and from Merrill Lynch and non-Merrill Lynch subsidiaries of Bank of America.
All options and stock appreciation rights outstanding as of December 31, 2012 are fully vested or expected to vest.
At December 31, 2012, the weighted-average remaining contractual terms for options outstanding was 2.3 years and for options exercisable was 2.3 years.
There were no stock options granted in the years ended December 31, 2012, 2011 and 2010.
Proceeds from the exercise of stock options were not significant in the years ended December 31, 2012, 2011 and 2010.
As of December 31, 2012, 2011 and 2010, the total intrinsic value of options outstanding and exercisable was zero.

Employee Stock Purchase Plan (“ESPP”)

The ESPP was discontinued effective March 31, 2012. The ESPP allowed eligible associates to invest from one percent to 10 percent of eligible compensation to purchase Bank of America's common stock, subject to legal limits. Purchases were made at a discount of up to five percent of the average high and low market price on the relevant purchase date and the maximum annual contribution per employee was $23,750 in 2012.
The weighted-average fair value of the ESPP stock purchase rights (i.e., the discount on purchases of Bank of America common stock) exercised by employees in the year ended December 31, 2012 was $0.39 per stock purchase right.

Financial Advisor Capital Accumulation Award Plans (“FACAAP”)
The FACAAP is no longer an active plan and no awards were granted in the years ended December 31, 2012, 2011 and 2010. At December 31, 2012, there were 11 million shares awarded under FACAAP outstanding. Prior to 2009, the FACAAP provided for awards to eligible employees in Merrill Lynch's Global Wealth Management division. Payment for an award was contingent upon continued employment for a period of time and subject to forfeiture during that period. Awards granted in 2003 and thereafter are generally payable eight years from the date of grant in a fixed number of shares of Bank of America common stock. For outstanding awards granted prior to 2003 (the"pre-2003 awards"), payment is generally made ten years from the date of grant in a fixed number of shares of Bank of America common stock unless the fair market value of such shares is less than a specified minimum value, in which case the minimum value is paid in cash. In accordance with the terms of the pre-2003 awards, accruals of approximately $141 million and $246 million were made in the years ended December 31, 2011 and 2010, respectively, for cash payments made in lieu of shares. There were no accruals made in the year ended December 31, 2012, which was the last year of payment for the pre-2003 awards.
Other Compensation Arrangements
Merrill Lynch sponsors deferred compensation plans in which employees who meet certain minimum compensation thresholds may participate on either a voluntary or mandatory basis. Contributions to the plans are made on a tax-deferred basis by participants. Participants' returns on these contributions may be indexed to various mutual funds and other funds.
Merrill Lynch also sponsors several cash-based employee award programs, under which certain employees are eligible to receive future cash compensation, generally upon fulfillment of the service and vesting criteria for the particular program.
When appropriate, Merrill Lynch maintains various assets as an economic hedge of its liabilities to participants under the deferred compensation plans and award programs. These assets and the payables accrued by Merrill Lynch under the various plans and grants are included on the Consolidated Balance Sheets. Such assets totaled $2.7 billion and $2.3 billion at December 31, 2012 and 2011, respectively. Accrued liabilities at December 31, 2012 and 2011 were $2.2 billion and $2.1 billion, respectively. Changes to deferred compensation liabilities and corresponding returns on the assets that economically hedge these liabilities are recorded within compensation and benefits expense on the Consolidated Statements of Earnings (Loss).