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STOCK BASED COMPENSATION | 12 Months Ended
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Dec. 31, 2017
STOCK BASED COMPENSATION |
STOCK BASED COMPENSATION | 18. STOCK-BASED COMPENSATION (A) Employee Stock Option Plan The Company's ESOP provides for the grant of stock options to directors, officers, employees and service providers to purchase common shares. Under the ESOP, stock options are granted at the fair market value of the underlying shares on the day prior to the date of grant. The number of common shares that may be reserved for issuance to any one person pursuant to stock options (under the ESOP or otherwise), warrants, share purchase plans or other arrangements may not exceed 5.0% of the Company's common shares issued and outstanding at the date of grant. On April 24, 2001, the Compensation Committee of the Board adopted a policy pursuant to which stock options granted after that date have a maximum term of five years. In 2016, the shareholders approved a resolution to increase the number of common shares reserved for issuance under the ESOP to 31,300,000 common shares. Of the 2,018,140 stock options granted under the ESOP in 2017, 499,796 stock options vested within 30 days of the grant date. The remaining stock options, all of which expire in 2022, vest in equal installments on each anniversary date of the grant over a three-year period. Of the 2,160,075 stock options granted under the ESOP in 2016, 540,027 stock options vested within 30 days of the grant date. The remaining stock options, all of which expire in 2021, vest in equal installments on each anniversary date of the grant over a three-year period. Upon the exercise of stock options under the ESOP, the Company issues common shares from treasury to settle the obligation. The following table sets out activity with respect to Agnico Eagle's outstanding stock options:
|  | Year Ended December 31, 2017 |  | Year Ended December 31, 2016 |
|  | Number of Stock Options |  |  | Weighted Average Exercise Price |  | Number of Stock Options |  |  | Weighted Average Exercise Price |
Outstanding, beginning of year |  | 5,478,837 |  | C$ | 34.40 |  | 12,082,212 |  | C$ | 43.65 |
Granted |  | 2,018,140 |  |  | 56.57 |  | 2,160,075 |  |  | 36.65 |
Exercised |  | (1,538,729 | ) |  | 37.18 |  | (6,492,907 | ) |  | 38.48 |
Forfeited |  | (99,644 | ) |  | 42.09 |  | (141,038 | ) |  | 38.42 |
Expired |  | (1,100 | ) |  | 37.05 |  | (2,129,505 | ) |  | 76.46 |
Outstanding, end of year |  | 5,857,504 |  | C$ | 41.18 |  | 5,478,837 |  | C$ | 34.40 |
Options exercisable, end of year |  | 2,628,998 |  | C$ | 37.66 |  | 1,606,558 |  | C$ | 40.27 |
The average share price of Agnico Eagle's common shares during the year ended December 31, 2017 was C$59.47 (2016 – C$58.52). The weighted average grant date fair value of stock options granted in 2017 was C$14.51 (2016 – C$9.69). The following table sets out information about Agnico Eagle's stock options outstanding and exercisable as at December 31, 2017:
|  | Stock Options Outstanding |  | Stock Options Exercisable |
Range of Exercise Prices |  | Number Outstanding |  | Weighted Average Remaining Contractual Life |  |  | Weighted Average Exercise Price |  | Number Exercisable |  |  | Weighted Average Exercise Price |
C$28.03 – C$38.15 |  | 3,638,052 |  | 2.30 years |  | C$ | 32.10 |  | 1,903,646 |  | C$ | 31.05 |
C$40.66 – C$66.57 |  | 2,219,452 |  | 3.52 years |  |  | 56.05 |  | 725,352 |  |  | 55.01 |
C$28.03 – C$66.57 |  | 5,857,504 |  | 2.76 years |  | C$ | 41.18 |  | 2,628,998 |  | C$ | 37.66 |
The weighted average remaining contractual term of stock options exercisable as at December 31, 2017 was 2.17 years. The Company has reserved for issuance 5,857,504 common shares in the event that these stock options are exercised. The number of common shares available for the grant of stock options under the ESOP as at December 31, 2017 and December 31, 2016 was 4,371,663 and 6,289,059, respectively. Subsequent to the year ended December 31, 2017, 1,990,850 stock options were granted under the ESOP, of which 496,973 stock options vested within 30 days of the grant date. The remaining stock options, all of which expire in 2023, vest in equal installments on each anniversary date of the grant over a three-year period. Agnico Eagle estimated the fair value of stock options under the Black-Scholes option pricing model using the following weighted average assumptions:
|  | Year Ended December 31,
|  | 2017 |  | 2016 |
Risk-free interest rate |  | 1.15% |  | 0.89% |
Expected life of stock options (in years) |  | 2.3 |  | 2.5 |
Expected volatility of Agnico Eagle's share price |  | 45.0% |  | 45.0% |
Expected dividend yield |  | 1.09% |  | 1.33% |
The Company uses historical volatility to estimate the expected volatility of Agnico Eagle's share price. The expected term of stock options granted is derived from historical data on employee exercise and post-vesting employment termination experience. The total compensation expense for the ESOP recorded in the general and administrative line item of the consolidated statements of income and comprehensive income for 2017 was $19.5 million (2016 – $16.6 million). Of the total compensation cost for the ESOP, $0.3 million was capitalized as part of the property, plant and mine development line item of the consolidated balance sheets in 2017 (2016 – $0.3 million). (B) Incentive Share Purchase Plan On June 26, 1997, the Company's shareholders approved the ISPP to encourage Participants to purchase Agnico Eagle's common shares at market value. In 2009, the ISPP was amended to remove non-executive directors as eligible Participants. Under the ISPP, Participants may contribute up to 10.0% of their basic annual salaries and the Company contributes an amount equal to 50.0% of each Participant's contribution. All common shares subscribed for under the ISPP are issued by the Company. The total compensation cost recognized in 2017 related to the ISPP was $5.8 million (2016 – $5.1 million). In 2017, 382,663 common shares were subscribed for under the ISPP (2016 – 344,778) for a value of $17.4 million (2016 – $15.4 million). In May 2015, the Company's shareholders approved an increase in the maximum number of common shares reserved for issuance under the ISPP to 7,100,000 from 6,100,000. As at December 31, 2017, Agnico Eagle has reserved for issuance 1,172,307 common shares (2016 – 1,554,970) under the ISPP. (C) Restricted Share Unit Plan In 2009, the Company implemented the RSU plan for certain employees. Effective January 1, 2012, the RSU plan was amended to include directors and senior executives of the Company as eligible participants. A deferred compensation balance is recorded for the total grant date value on the date of each RSU plan grant. The deferred compensation balance is recorded as a reduction of equity and is amortized as compensation expense over the vesting period of up to three years. In 2017, 369,623 (2016 – 354,592) RSUs were granted with a grant date fair value of $44.42 (2016 – $28.62). In 2017, the Company funded the RSU plan by transferring $16.4 million (2016 – $10.1 million) to an employee benefit trust that then purchased common shares of the Company in the open market. The grant date fair value of the RSUs generally approximates the cost of purchasing the shares in the open market. Once vested, the common shares in the trust are distributed to settle the obligation along with a cash payment reflecting the accumulated amount that would have been paid as dividends had the common shares been outstanding. Compensation expense related to the RSU plan was $13.1 million in 2017 (2016 – $10.4 million). Compensation expense related to the RSU plan is included as part of the general and administrative line item of the consolidated statements of income and comprehensive income. Subsequent to the year ended December 31, 2017, 372,200 RSUs were granted under the RSU plan. (D) Performance Share Unit Plan Beginning in 2016, the Company adopted a PSU plan for senior executives of the Company. PSUs are subject to vesting requirements over a three year period based on specific performance measurements established by the Company. The fair value for the portion of the PSUs related to market conditions is based on the application of pricing models at the grant date and the fair value for the portion related to non-market conditions is based on the market value of the shares at the grant date. Compensation expense is based on the current best estimate of the outcome for the specific performance measurement established by the Company and is recognized over the vesting period based on the number of units estimated to vest. In 2017, 182,000 (2016 – 183,000) PSUs were granted with a grant date fair value of $49.38 (2016 – $32.20). The Company funded the PSU plan by transferring $8.1 million (2016 – $5.3 million) to an employee benefit trust that then purchased common shares of the Company in the open market. Once vested, the common shares in the trust are distributed to settle the obligation along with a cash payment reflecting the accumulated amount that would have been paid as dividends had the common shares been outstanding. Compensation expense related to the PSU plan was $6.0 million in 2017 (2016 – $2.2 million). Compensation expense related to the PSU plan is included as part of the general and administrative line item of the consolidated statements of income and comprehensive income. Subsequent to the year ended December 31, 2017, 180,000 PSUs were granted under the PSU plan.

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