This excerpt taken from the BMY 10-K filed Feb 22, 2008.
Prior to the adoption of SFAS No. 123(R), compensation expense related to performance awards was determined based on the market price of the Companys stock at the time of the award applied to the expected number of shares contingently issuable (up to 100%) and was amortized over the three-year performance cycle.
Since the adoption of SFAS No. 123(R), the fair value of the 2006 through 2008 performance award was estimated on the date of grant using a Monte Carlo simulation model due to a market condition. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying each market condition stipulated in the award grant and calculates the fair market value for the long-term performance awards. For the 2007 through 2009 performance award, because the award does not contain a market condition, the fair value was based on the closing trading price of the Companys common stock on the grant date.
The valuation model for the 2006 through 2008 award used the following assumptions:
Weighted-average expected volatility is based on the three-year historical volatility levels on the Companys common stock. Expected dividend yield is based on historical dividend payments. Risk-free interest rate reflects the yield on five-year zero coupon U.S. Treasury bonds, based on the performance shares contractual term. The fair value of the performance awards is amortized over the performance period of the award.
Note 17 EMPLOYEE STOCK BENEFIT PLANS (Continued)
Information related to performance awards under both the 2007 Plan and the 2002 Plan is summarized as follows:
At December 31, 2007 and 2006, there was $11 million and $2 million, respectively, of total unrecognized compensation cost related to the performance share plan, which is expected to be recognized over a weighted-average period of 1.8 years and 2.0 years, respectively.