NOTE 23 – 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. We are permitted to issue new shares under all stock award plans approved by shareholders or to reissue our treasury shares. Awards under our company’s incentive stock award plans are granted at market value at 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 5.1 million shares at December 31, 2013.

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 $131.8 million, $51.4 million, and $29.5 million for the years ended December 31, 2013, 2012, and 2011, respectively. The tax benefit related to stock-based compensation recognized in shareholders’ equity was $12.0 million, $16.7 million, and $24.9 million for the years ended December 31, 2013 and 2012, respectively.

On closing date of our acquisition of KBW, Inc., certain employees of KBW, Inc. and our company were granted restricted stock or restricted stock units of Stifel as retention. The fair value of the awards issued as retention was $30.6 million. There are no continuing service requirements associated with these restricted stock units, and accordingly were expensed at date of grant. This charge is included in compensation and benefits in the consolidated statement of operations for the year ended December 31, 2013.

On the closing date of the acquisition of the Knight Capital Fixed Income business, we granted restricted stock units to certain employees as retention. The fair value of the awards issued as retention was $18.7 million. There are no continuing service requirements associated with these restricted stock units, and accordingly were expensed at date of grant. This charge is included in compensation and benefits in the consolidated statement of operations for the year ended December 31, 2013.

Stock Options

We have substantially eliminated the use of stock options as a form of compensation. During the year ended December 31, 2013, no options were granted.

A summary of option activity under the plans as of December 31, 2013, and changes during the year then ended is presented below (in thousands, except exercise price and contractual terms):


	Options		Weighted-average exercise price		Weighted-average remaining contractual term		Aggregate intrinsic value
Outstanding, December 31, 2012		249	$	19.95
Granted		-		-
Exercised		89		7.30
Forfeited		-		-
Expired		-		-
Outstanding, December 31, 2013		338	$	26.99		2.65	$	4,200

At December 31, 2013, all outstanding options were exercisable. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012, and 2011 was $2.8 million, $19.2 million, and $3.7 million, respectively. The fair value of options vested during the year ended December 31, 2011 was $0.7 million. Cash proceeds from the exercise of stock options were $3.6 million, $4.2 million, and $1.4 million for the years ended December 31, 2013, 2012, and 2011, respectively. Tax benefits realized from the exercise of stock options for the years ended December 31, 2013, 2012, and 2011 were $1.1 million, $7.5 million, and $1.4 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. The restricted stock units vest on an annual basis over the next three to eight years and are distributable, if vested, at future specified dates. At December 31, 2013, the total number of stock units outstanding was 17.7 million, of which 8.8 million were unvested.

A summary of unvested stock unit activity under the plans as of December 31, 2013, and changes during the year then ended is presented below (in thousands, except weighted-average fair value):


	Stock units		Weighted-average grant date fair value
Unvested, December 31, 2012		6,551	$	36.62
Granted		6,303		36.71
Vested		(3,677)		37.00
Cancelled		(333)		33.96
Unvested, December 31, 2013		8,844	$	36.63

At December 31, 2013, there was unrecognized compensation cost for stock units of $253.4 million, which is expected to be recognized over a weighted-average period of 2.9 years.

Deferred Compensation Plans

The Stifel 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 seven-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 December 31, 2013, there were 16.7 million units outstanding under the SWAP Plan.

Additionally, the SWAP Plan allows Stifel’s financial advisors who achieve certain levels of production, the option to defer a certain percentage of their gross commissions. As stipulated by the SWAP Plan, the financial advisors have the option to: 1) defer 4% of their gross commissions into company stock units with a 25% matching contribution and may elect to defer an additional 1% of gross commissions into company stock units with a 25% matching contribution, or 2) defer up to 2% 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. The mutual fund deferral option does not include a company match. 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 $17.0 million and $18.0 million at December 31, 2013 and 2012, 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 December 31, 2013 and 2012, the deferred compensation liability related to the mutual fund option of $14.3 million and $16.6 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.

Profit Sharing and Employee Stock Ownership Plans

Eligible employees of our company who have met certain service requirements may participate in the Stifel Profit Sharing 401(k) Plan (the “Profit Sharing Plan”). We may match certain employee contributions or make additional contributions to the Profit Sharing Plan at our discretion. Our contributions to the Profit Sharing Plan were $6.4 million, $3.7 million, and $3.6 million for the years ended December 31, 2013, 2012, and 2011, respectively.

We had an internally leveraged employee stock ownership plan (“ESOP”) in which qualified employees of our company, as defined in the ESOP, participated. We made annual contributions to the ESOP in an amount determined by the Compensation Committee on behalf of all eligible employees based upon the relationship of individual compensation to total compensation. The Employee Stock Ownership Plan was terminated by our company during the year ended December 31, 2013. Compensation expense of $0.4 million, $1.7 million, and $1.7 million relating to the ESOP was recorded for the years ended December 31, 2013, 2012, and 2011, respectively.