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share-based compensation | 12 Months Ended
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Dec. 31, 2018
share-based compensation |
share-based compensation | 14 share-based compensation (a) Details of share-based compensation expense Reflected in the Consolidated statements of income and other comprehensive income as Employee benefits expense and in the Consolidated statements of cash flows are the following share-based compensation amounts:
|  |  |  | 2018 |  | 2017
|  |  |  |  |  |  | Associated |  | Statement |  |  |  |  | Associated |  | Statement
|  |  |  | Employee |  | operating |  | of cash |  | Employee |  | operating |  | of cash
|  |  |  | benefits |  | cash |  | flows |  | benefits |  | cash |  | flows
Years ended December 31 (millions) |  | Note |  | expense |  | outflows |  | adjustment |  | expense |  | outflows |  | adjustment
Restricted stock units |  | (b) |  | $ | 99 |  | $ | (98) |  | $ | 1 |  | $ | 83 |  | $ | (67) |  | $ | 16
Employee share purchase plan |  | (c) |  |  | 37 |  |  | (37) |  |  | — |  |  | 37 |  |  | (37) |  |  | —
Share option awards |  | (d) |  |  | 5 |  |  | — |  |  | 5 |  |  | 1 |  |  | — |  |  | 1
|  |  |  | $ | 141 |  | $ | (135) |  | $ | 6 |  | $ | 121 |  | $ | (104) |  | $ | 17
For the year ended December 31, 2018, the associated operating cash outflows in respect of restricted stock units were net of cash inflows arising from cash-settled equity forward agreements of $9 million (2017 – $14 million). For the year ended December 31, 2018, the income tax benefit arising from share-based compensation was $37 million (2017 – $32 million). (b) Restricted stock units General We use restricted stock units as a form of retention and incentive compensation. Each restricted stock unit is nominally equal in value to one equity share and is nominally entitled to the dividends that would arise thereon if it were an issued and outstanding equity share. The notional dividends are recorded as additional issuances of restricted stock units during the life of the restricted stock unit. Due to the notional dividend mechanism, the grant-date fair value of restricted stock units equals the fair market value of the corresponding equity shares at the grant date. The restricted stock units generally become payable when vesting is complete and typically vest over a period of 33 months (the requisite service period). The vesting method of restricted stock units, which is determined on or before the date of grant, may be either cliff or graded; the majority of restricted stock units outstanding are cliff-vesting. The associated liability is normally cash-settled. TELUS Corporation restricted stock units We also award restricted stock units that largely have the same features as our general restricted stock units, but have a variable payout (0% – 200%) that depends upon the achievement of our total customer connections performance condition (with a weighting of 25%) and the total shareholder return on our Common Shares relative to an international peer group of telecommunications companies (with a weighting of 75%). The grant-date fair value of the notional subset of our restricted stock units affected by the total customer connections performance condition equals the fair market value of the corresponding Common Shares at the grant date, and thus the notional subset has been included in the presentation of our restricted stock units with only service conditions. The recurring estimate, which reflects a variable payout, of the fair value of the notional subset of our restricted stock units affected by the relative total shareholder return performance condition is determined using a Monte Carlo simulation. The following table presents a summary of outstanding TELUS Corporation non-vested restricted stock units.
Number of non-vested restricted stock units as at December 31 |  | 2018 |  | 2017
Restricted stock units without market performance conditions |  |  |  |
Restricted stock units with only service conditions |  | 3,037,881 |  | 3,327,464
Notional subset affected by total customer connections performance condition |  | 155,639 |  | 154,452
|  | 3,193,520 |  | 3,481,916
Restricted stock units with market performance conditions |  |  |  |
Notional subset affected by relative total shareholder return performance condition |  | 466,917 |  | 463,357
|  | 3,660,437 |  | 3,945,273
The following table presents a summary of the activity related to TELUS Corporation restricted stock units without market performance conditions.
|  | 2018 |  | 2017
|  |  |  |  |  | Weighted |  |  |  |  |  | Weighted
|  | Number of restricted |  | average |  | Number of restricted |  | average
|  | stock units 1 |  | grant-date |  | stock units 1 |  | grant-date
Year ended December 31 |  | Non-vested |  | Vested |  | fair value |  | Non-vested |  | Vested |  | fair value
Outstanding, beginning of period |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-vested |  | 3,481,916 |  | — |  | $ | 41.87 |  | 3,390,979 |  | — |  | $ | 41.71
Vested |  | — |  | 32,848 |  | $ | 41.00 |  | — |  | 29,108 |  | $ | 38.09
Issued |  |  |  |  |  |  |  |  |  |  |  |  |  |
Initial award |  | 1,769,092 |  | — |  | $ | 45.72 |  | 1,825,688 |  | — |  | $ | 43.56
In lieu of dividends |  | 208,503 |  | 359 |  | $ | 46.32 |  | 206,715 |  | 455 |  | $ | 43.98
Vested |  | (1,963,722) |  | 1,963,722 |  | $ | 40.34 |  | (1,766,680) |  | 1,766,680 |  | $ | 43.73
Settled in cash |  | — |  | (1,933,546) |  | $ | 40.08 |  | — |  | (1,698,008) |  | $ | 43.63
Forfeited and cancelled |  | (302,269) |  | — |  | $ | 43.16 |  | (174,786) |  | (65,387) |  | $ | 42.88
Outstanding, end of period |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-vested |  | 3,193,520 |  | — |  | $ | 44.85 |  | 3,481,916 |  | — |  | $ | 41.87
Vested |  | — |  | 63,383 |  | $ | 44.89 |  | — |  | 32,848 |  | $ | 41.00
| 1 |  | Excluding the notional subset of restricted stock units affected by the relative total shareholder return performance condition.
With respect to certain issuances of TELUS Corporation restricted stock units, we have entered into cash-settled equity forward agreements that fix our cost; that information, as well as a schedule of non-vested TELUS Corporation restricted stock units outstanding as at December 31, 2018, is set out in the following table.
|  | Number of |  |  |  |  | Number of |  | Total number of
|  | fixed-cost |  | Our fixed cost |  | variable-cost |  | non-vested
|  | restricted |  | per restricted |  | restricted stock |  | restricted stock
Vesting in years ending December 31 |  | stock units |  | stock unit |  | units |  | units 1
2019 |  | 1,439,418 |  | $ | 45.53 |  | 219,443 |  | 1,658,861
2020 |  | 1,369,272 |  | $ | 48.71 |  | 369,734 |  | 1,739,006
|  | 2,808,690 |  |  |  |  | 589,177 |  | 3,397,867
| 1 |  | Excluding the notional subset of restricted stock units affected by the relative total shareholder return performance condition vesting in the years ending December 31, 2019.
TELUS International (Cda) Inc. restricted stock units We also award restricted stock units that largely have the same features as the TELUS Corporation restricted stock units, but have a variable payout (0% – 150%) that depends upon the achievement of TELUS International (Cda) Inc. financial performance and non-market quality-of-service performance conditions. The following table presents a summary of the activity related to TELUS International (Cda) Inc. restricted stock units.
|  | 2018 |  | 2017
|  | US$ denominated |  | Canadian $ denominated |  | US$ denominated |  | Canadian $ denominated
|  |  |  | Weighted |  |  |  | Weighted |  |  |  |  |  | Weighted |  | Number of |  | Weighted
|  | Number of |  | average |  | Number of |  | average |  | Number of restricted |  | average |  | restricted |  | average
|  | restricted |  | grant-date |  | restricted |  | grant-date |  | stock units |  | grant-date |  | stock units |  | grant-date
Year ended December 31 |  | stock units |  | fair value |  | stock units |  | fair value |  | Non-vested |  | Vested |  | fair value |  |  |  | fair value
Outstanding, beginning of period |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-vested |  | 374,786 |  | US$ | 24.45 |  | — |  | $ | — |  | 163,785 |  | — |  | US$ | 21.90 |  | — |  | $ | —
Vested |  | — |  | US$ | — |  | 32,299 |  | $ | 21.36 |  | — |  | — |  | US$ | — |  | 32,299 |  | $ | 21.36
Issued – initial award |  | 197,495 |  | US$ | 28.07 |  | — |  | $ | — |  | 213,768 |  | — |  | US$ | 26.40 |  | — |  | $ | —
Vested |  | — |  | US$ | — |  | — |  | $ | — |  | (208) |  | 208 |  | US$ | 24.10 |  | — |  | $ | —
Exercised |  | — |  | US$ | — |  | — |  | $ | — |  | — |  | (208) |  | US$ | 24.10 |  | — |  | $ | —
Forfeited and cancelled |  | (10,569) |  | US$ | 26.28 |  | — |  | $ | — |  | (2,559) |  | — |  | US$ | 24.10 |  | — |  | $ | —
Outstanding, end of period |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Non-vested |  | 561,712 |  | US$ | 25.68 |  | — |  | $ | — |  | 374,786 |  | — |  | US$ | 24.45 |  | — |  | $ | —
Vested |  | — |  | US$ | — |  | 32,299 |  | $ | 21.36 |  | — |  | — |  | US$ | — |  | 32,299 |  | $ | 21.36
(c) Employee share purchase plan We have an employee share purchase plan under which eligible employees up to a certain job classification can purchase our Common Shares through regular payroll deductions. In respect of Common Shares held within the employee share purchase plan, Common Share dividends declared during the year ended December 31, 2018, of $34 million (2017 – $31 million) were to be reinvested in Common Shares acquired by the trustee from Treasury, with no discount applicable. (d) Share option awards General We use share option awards as a form of retention and incentive compensation. We apply the fair value method of accounting for share-based compensation awards granted to officers and other employees. Share option awards typically have a three-year vesting period (the requisite service period). The vesting method of share option awards, which is determined on or before the date of grant, may be either cliff or graded; all share option awards granted subsequent to 2004 have been cliff-vesting. The weighted average fair value of share option awards granted is calculated by using the Black-Scholes model (a closed-form option pricing model). The risk-free interest rate used in determining the fair value of the share option awards is based on a Government of Canada yield curve that is current at the time of grant. The expected lives of the share option awards are based on our historical share option award exercise data. Similarly, expected volatility considers the historical volatility in the price of our Common Shares for TELUS Corporation share options and average historical volatility in the prices of a peer group’s shares in respect of TELUS International (Cda) Inc. share options. The dividend yield is the annualized dividend current at the time of grant divided by the share option award exercise price. Dividends are not paid on unexercised share option awards and are not subject to vesting. TELUS Corporation share options Employees may receive options to purchase Common Shares at an exercise price equal to the fair market value at the time of grant. Share option awards granted under the plan may be exercised over specific periods not to exceed seven years from the time of grant. No share option awards were granted in fiscal 2018 or 2017. These share option awards have a net-equity settlement feature. The optionee does not have the choice of exercising the net-equity settlement feature; it is at our option whether the exercise of a share option award is settled as a share option or settled using the net-equity settlement feature. The following table presents a summary of the activity related to the TELUS Corporation share option plan.
|  | 2018 |  | 2017
|  | Number of |  | Weighted |  | Number of |  | Weighted
|  | share |  | average share |  | share |  | average share
Years ended December 31 |  | options |  | option price |  | options |  | option price
Outstanding, beginning of period |  | 740,471 |  | $ | 26.99 |  | 1,417,693 |  | $ | 24.49
Exercised 1 |  | (402,528) |  | $ | 25.26 |  | (652,926) |  | $ | 21.90
Forfeited |  | (2,046) |  | $ | 29.19 |  | (3,908) |  | $ | 27.56
Expired |  | (9,733) |  | $ | 23.24 |  | (20,388) |  | $ | 16.31
Outstanding, end of period 2 |  | 326,164 |  | $ | 29.22 |  | 740,471 |  | $ | 26.99
| 1 |  | The total intrinsic value of share option awards exercised for the year ended December 31, 2018, was $8 million (2017 - $15 million), reflecting a weighted average price at the dates of exercise of $46.04 per share (2017 – $44.63 per share). The difference between the number of share options exercised and the number of Common Shares issued (as reflected in the Consolidated statements of changes in owners’ equity) is the effect of our choosing to settle share option award exercises using the net-equity settlement feature.
| 2 |  | All outstanding TELUS Corporation share options are vested, their range of prices is $28.56 – $31.69 per share and their weighted average remaining contractual life is 0.4 years.
TELUS International (Cda) Inc. share options Employees may receive equity share options (equity-settled) to purchase TELUS International (Cda) Inc. common shares at a price equal to, or a multiple of, the fair market value at the time of grant and/or phantom share options (cash-settled) that provide them with exposure to TELUS International (Cda) Inc. common share price appreciation. Share option awards granted under the plan may be exercised over specific periods not to exceed ten years from the time of grant. All equity share option awards and most phantom share option awards have a variable payout (0% – 100%) that depends upon the achievement of TELUS International (Cda) Inc. financial performance and non‑market quality-of-service performance conditions. The following table presents a summary of the activity related to the TELUS International (Cda) Inc. share option plan.
|  | 2018 |  | 2017
|  | US$ denominated |  | Canadian $ denominated |  | US$ denominated |  | Canadian $ denominated
|  | Number of |  | Weighted |  | Number of |  |  |  | Number of |  | Weighted |  | Number of |  |
|  | share |  | average share |  | share |  | Share |  | share |  | average share |  | share |  | Share
Year ended December 31 |  | options |  | option price 1 |  | options |  | option price 2 |  | options |  | option price 1 |  | options |  | option price 2
Outstanding, beginning of period |  | 748,626 |  | US$ | 30.12 |  | 53,832 |  | $ | 21.36 |  | 573,354 |  | US$ | 30.86 |  | 53,832 |  | $ | 21.36
Granted |  | 111,281 |  | US$ | 27.81 |  | — |  | $ | — |  | 175,272 |  | US$ | 27.70 |  | — |  | $ | —
Forfeited |  | (1,172) |  | US$ | 27.70 |  | — |  | $ | — |  | — |  | US$ | — |  | — |  | $ | —
Outstanding, end of period |  | 858,735 |  | US$ | 29.83 |  | 53,832 |  | $ | 21.36 |  | 748,626 |  | US$ | 30.12 |  | 53,832 |  | $ | 21.36
| 1 |  | The range of share option prices is US$21.90 – US$40.26 per TELUS International (Cda) Inc. equity share and the weighted average remaining contractual life is 8.4 years.
| 2 |  | The weighted average remaining contractual life is 7.5 years.

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