This excerpt taken from the HPQ 8-K filed Nov 12, 2008.
Executive Deferral Plan
The Executive Deferral Plan is a nonqualified deferred compensation plan established for a select group of management and highly compensated employees which allows participants to contribute a percentage of their cash compensation and restricted stock units into the plan and defer income taxes until the time of distribution. The plan is a nonqualified plan for U.S. federal income tax purposes and as such, its assets are part of the Companys general assets. The Company makes matching contributions on a portion of amounts deferred by plan participants that are invested in EDS stock units. Matching contributions vest upon contribution. The fair market price of common stock on the date of matching contributions is charged to operations in the period made. The Company also makes discretionary contributions that vest over periods up to five years as determined by the Board of Directors. The fair market price of common stock on the date of discretionary contributions is charged to operations over the vesting period. During the years ended December 31, 2007, 2006 and 2005, employer contributions to the plan were 7 thousand, 4 thousand and 31 thousand shares, respectively, with a weighted-average fair value of $27.50, $24.06 and $23.13, respectively.
During September 2006, the Company granted 150 thousand time-vesting deferred stock units and 150 thousand performance-based deferred stock units to an employee each with a grant date fair value of $22.97 per unit. The grant date fair value of deferred stock units is determined using the same method as restricted stock units. The time-vesting units and performance-based units are scheduled to vest in September 2009. The number of performance-based deferred stock units that will vest will be from 0-200% of the number of units granted, and is dependent upon the Companys achievement of certain financial performance metrics over a three-year performance period and the employees continued employment. The Company estimates the number of units that will vest based on the Companys financial performance since inception of the performance period and current expectations of the Companys future financial performance over the remainder of the performance period. Compensation expense for units is recorded on a straight-line basis over the vesting period. Cumulative compensation expense for each grant is adjusted in the period in which there is a change in the estimated number of units that will vest. As of December 31, 2007, there was approximately $4 million of total unrecognized compensation cost related to the 300 thousand nonvested deferred stock units. Such cost is expected to be recognized over a period of 1.7 years. Total compensation expense for deferred stock units was $2.3 million ($1.5 million net of tax) and $0.8 million ($0.5 million net of tax) for the years ended December 31, 2007 and 2006, respectively.
On February 13, 2008, the Company issued 3.9 million time-vesting restricted stock units, 3.8 million performance-based restricted stock units and 3.5 million stock options in the 2008 annual long-term incentive grant. Eligible employees, other than senior executives, received one-half of the annual award in time-vesting restricted stock units and one-half in performance-basedrestricted stock units. The time-vesting restricted stock units will vest over three years. The performance-based restricted stock units will vest after three years, and the number of awards will vary based on performance over the three-year period ended
December 31, 2010. Senior executives received stock options as well as time-vesting restricted stock units and performance-based restricted stock units, with the stock options intended to represent approximately one-half in value of their total long-term incentive awards and the time-vesting restricted stock units and performance-based restricted stock units each intended to represent approximately 25% of the total value of the awards. The options will vest after three years and have an exercise price of $18.295, and the restricted stock units have vesting terms similar to those described above.