12. Employee Compensation Plans

Share-based Compensation

The Company has share-based compensation plans which are accounted for at fair value in accordance with the applicable accounting guidance. The Company estimates the fair value of share-based awards using the Black-Scholes option-pricing model and applies to it a forfeiture rate based on historical experience. The accuracy of this forfeiture rate is reviewed at least annually for reasonableness. Key input assumptions used to estimate the fair value of share-based awards include the expected term and the expected volatility of the Company’s Class A Stock over the term of the award, the risk-free interest rate over the expected term, and the Company’s expected annual dividend yield. The Company believes that the valuation technique and the approach utilized to develop the underlying assumptions are appropriate in calculating fair values of the Company’s outstanding unvested share-based awards. Estimates of fair value are not intended to predict actual future events or the value ultimately realized by persons who receive share-based awards.

The fair value of each award of stock options was estimated on the grant date using the Black-Scholes option- pricing model with the following assumptions:


	Grant date assumptions
	2012			2011			2010			2009			2008			2007
Expected term (1)		5 years			5 years			4.5 years			5 years			2.4 years			5 years
Expected volatility factor (2)		54.95	%		52.52	%		48.58	%		39.17	%		36.41	%		39.67	%
Risk-free interest rate (3)		0.70	%		2.00	%		2.62	%		3.32	%		2.13	%		4.54	%
Actual dividends (4)	$	0.44		$	0.44		$	0.44		$	0.44		$	0.44		$	0.40

(1)	The expected term was determined based on actual awards.

(2)	The volatility factor was measured using the weighted average of historical daily price changes of the Company’s Class A Stock over a historical period commensurate to the expected term of the awards.

(3)	The risk-free interest rate was based on periods equal to the expected term of the awards based on the U.S. Treasury yield curve in effect at the time of grant.

(4)	Actual dividends were used to compute the expected annual dividend yield.

Equity Incentive Plan

Under the Company’s 2006 Equity Incentive Plan, adopted December 11, 2006 and amended December 2011 and its 1996 Equity Incentive Plan, as amended March 10, 2005 (together “EIP”), the Compensation Committee of the Board of Directors of the Company may grant options to purchase Class A Stock, Class A Stock awards and restricted Class A Stock awards to officers and key employees of the Company and its subsidiaries. Grants of options were made to the Company’s non-employee directors on a formula basis through 2012. Except in 2008, options are generally granted for a five-year term and generally vest at the rate of 25% of the amount granted on the second anniversary of the grant, 25% on the third anniversary of the grant, 25% on the fourth anniversary of the grant and 25% six months before expiration. In 2008, options were generally granted for a three year term and generally vested at the rate of 33% of the amount granted on both the first and second anniversary of the grant and 33% three months before expiration.

Stock option activity under the EIP since January 1, 2011 is summarized as follows:


	Year ended December 31, 2012					Year ended December 31, 2011
	Number of shares			Weighted average exercise price		Number of shares			Weighted average exercise price
Options outstanding, beginning of year		164,193		$	29.04		284,976		$	34.39
Options granted		1,590		$	19.31		37,333		$	26.18
Options exercised		—			—		(13,532	)	$	24.88
Options forfeited or expired		(78,980	)	$	35.09		(144,584	)	$	39.24

Options outstanding, end of year		86,803		$	23.35		164,193		$	29.04

Options vested, end of year		36,023		$	22.59		87,279		$	32.86

Weighted average fair value of options granted during the year	$	7.67				$	10.89

The aggregate intrinsic value of options outstanding as of December 31, 2012 was $134,600. The aggregate intrinsic value of vested options as of December 31, 2012 was $78,300. The aggregate intrinsic value of options that are expected to vest is $131,900 as of December 31, 2012.

The following table summarizes stock options outstanding and exercisable as at December 31, 2012:


Range of exercise prices	Number outstanding		Weighted average remaining contractual life		Weighted average exercise price of outstanding options		Number exercisable (vested)		Weighted average exercise price of vested options
$9.60 - $25.00		31,454		1.44 years	$	13.76		16,757	$	12.91
$25.01 - $39.45		55,349		2.57 years	$	28.81		19,266	$	31.01

$9.60 - $39.45		86,803		2.16 years	$	23.35		36,023	$	22.59

The following table summarizes the status of the Company’s non-vested options for the year ended December 31, 2012:


	Year ended December 31, 2012
	Number of Options			Weighted average fair value
Non-vested beginning of year		76,914		$	8.88
Granted		1,590		$	7.67
Vested		(27,724	)	$	9.03
Forfeited or expired		—		$	—

Non-vested end of year		50,780		$	9.49

In the year ended December 31, 2012, the Company has included approximately $164,200 ($322,500 in 2011 and $554,000 in 2010) of compensation expense in its consolidated statement of operations relating to the expensing of stock options.

As of December 31, 2012, there was approximately $319,400 of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under the EIP. The cost is expected to be recognized over a weighted average period of 2.16 years.

Employee Share Plan

On March 10, 2005, the Company approved the Oppenheimer & Co. Inc. Employee Share Plan (“ESP”) for employees of the Company and its subsidiaries resident in the U.S. to attract, retain and provide incentives to key management employees. The Compensation Committee of the Board of Directors of the Company may grant stock awards and restricted stock awards pursuant to the ESP. ESP awards are being accounted for as equity awards and valued at grant date fair value. ESP awards are generally awarded for a three or five year term and 100% vest at the end of the term.

The Company has awarded restricted Class A Stock to certain employees as part of their compensation package pursuant to the ESP. These awards are granted from time to time throughout the year based upon the recommendation of the Compensation Committee of the Board of Directors of the Company. These ESP awards are priced at fair value on the date of grant and typically require the completion of a service period (determined by the Compensation Committee). Dividends may or may not accrue during the service period, depending on the terms of individual ESP awards.

The following table summarizes the status of the Company’s non-vested ESP awards for the year ended December 31, 2012:


	Number of shares of Class A Stock subject to ESP awards			Weighted average fair value		Remaining contractual life
Non-vested beginning of year		760,902		$	20.94		2.8 years
Granted		174,818		$	15.64		3.7 years
Vested		(57,652	)	$	21.60		—
Forfeited or expired		(28,000	)	$	24.08		—

Non-vested end of year		850,068		$	19.38		2.3 years

At December 31, 2012, all outstanding ESP awards were non-vested. The aggregate intrinsic value of ESP awards outstanding as of December 31, 2012 was approximately $14.7 million. The aggregate intrinsic value of ESP awards that are expected to vest is $14.0 million as of December 31, 2012. In the year ended December 31, 2012, the Company included approximately $3.4 million (3.7 million in 2011 and $7.1 million in 2010) of compensation expense in its consolidated statements of operations relating to ESP awards.

As of December 31, 2012, there was approximately $7.8 million of total unrecognized compensation cost related to unvested ESP awards. The cost is expected to be recognized over a weighted average period of 2.3 years.

At December 31, 2012, the number of shares of Class A Stock available under the EIP and the ESP, but not yet awarded, was 319,587.

On January 2, 2013, the Company awarded 13,250 restricted shares of Class A Stock to its independent directors under the ESP. These shares of Class A Stock will vest as follows: 25% on July 1, 2013 , 2014, 2015 and 2016.

On January 23, 2013, the Company awarded 105,470 restricted shares of Class A Stock to an executive officer of the Company pursuant to the ESP. This award cliff vests on January 22, 2016 and will be expensed over 3 years.

On February 25, 2013, the Company awarded a total of 387,750 restricted shares of Class A Stock to current employees pursuant to the ESP. Of these restricted shares, 201,500 shares will cliff vest in three years and 186,250 shares will cliff vest in five years. These awards will be expensed over the applicable three or five year vesting period.

On January 24, 2013, the Company awarded a total of 951 options to purchase Class A Stock to current employees pursuant to the EIP. These options will be expensed over 4.5 years (the vesting period).

Stock Appreciation Rights

The Company has awarded Oppenheimer stock appreciation rights (“OARs”) to certain employees as part of their compensation package based on a formula reflecting gross production and length of service. These awards are granted once per year in January with respect to the prior year’s production. The OARs vest five years from grant date and will be settled in cash at vesting. The OARs are being accounted for as liability awards and are revalued on a monthly basis. The adjusted liability is being amortized on a straight-line basis over the vesting period.

The fair value of each OARs award was estimated as at December 31, 2012 using the Black-Scholes option-pricing model.


Grant date	Number of OARs outstanding		Strike price		Remaining contractual life			Fair value as at December 31, 2012
January 10, 2008		383,645	$	37.78		9 days		$	—
January 12, 2009		358,930	$	12.74		1 year		$	5.83
January 19. 2010		292,560	$	30.68		2 years		$	1.65
January 13, 2011		392,630	$	26.35		3 years		$	2.12
January 19, 2012		428,230	$	18.94		4 years		$	5.74

		1,855,995

Total weighted average values			$	25.05		2.1 year	s	$	3.16

At December 31, 2012, all outstanding OARs were unvested. At December 31, 2012, the aggregate intrinsic value of OARs outstanding and expected to vest was $1.6 million. In the year ended December 31, 2012, the Company included approximately $590,000 (net credit of $2.9 million in 2011 and $3.4 million in 2010) in compensation expense in its consolidated statement of operations relating to OARs awards. The liability related to the OARs was approximately $2.6 million as of December 31, 2012.

As of December 31, 2012, there was approximately $2.7 million of total unrecognized compensation cost related to unvested OARs. The cost is expected to be recognized over a weighted average period of 2.1 years.

On January 14, 2013, 474,130 OARs were awarded to Oppenheimer employees related to fiscal 2012 performance. These OARs will be expensed over 5 years (the vesting period).

Defined Contribution Plan

The Company, through its subsidiaries, maintains a defined contribution plan covering substantially all full-time U.S. employees. The Oppenheimer & Co. Inc. 401(k) Plan provides that Oppenheimer may make discretionary contributions. Eligible Oppenheimer employees may make voluntary contributions which may not exceed $17,000, $16,500 and $16,500 per annum in 2012, 2011 and 2010, respectively. The Company made contributions to the 401(k) Plan of $1.1 million, $1.9 million, and $3.5 million in 2012, 2011 and 2010, respectively.

Deferred Compensation Plans

The Company maintains an Executive Deferred Compensation Plan (“EDCP”) and a Deferred Incentive Plan (“DIP”) in order to offer certain qualified high-performing financial advisers a bonus based upon a formula reflecting years of service, production, net commissions and a valuation of their clients’ assets. The bonus amounts resulted in deferrals in fiscal 2012 of approximately $8.1 million ($6.8 million in 2011 and $7.0 million in 2010). These deferrals normally vest after five years. The liability is being recognized on a straight-line basis over the vesting period. The EDCP also includes voluntary deferrals by senior executives that are not subject to vesting. The Company maintains a Company-owned life insurance policy, which is designed to offset approximately 60% of the EDCP liability. The EDCP liability is being tracked against the value of a phantom investment portfolio held for this purpose. At December 31, 2012, the Company’s liability with respect to the EDCP and DIP totaled $41.6 million and is included in accrued compensation on the consolidated balance sheet at December 31, 2012.

In addition, the Company is maintaining a deferred compensation plan on behalf of certain employees who were formerly employed by CIBC World Markets. The liability is being tracked against the value of an investment portfolio held by the Company for this purpose and, therefore, the liability fluctuates with the fair value of the underlying portfolio. At December 31, 2012, the Company’s liability with respect to this plan totaled $14.0 million.

The total amount expensed in 2012 for the Company’s deferred compensation plans was $12.1 million ($5.5 million in 2011 and $11.0 million in 2010).