Non-GAAP compensation expense for the fourth quarter of 2010 of $62.5 million included approximately $7.0 million related to the recognition of 100 percent of stock-based compensation expense associated with equity awards granted in connection with 2010 year-end bonuses. It was determined in the fourth quarter of 2010 that the vesting terms for those awards would exclude continued employment as a condition to vesting. Outstanding awards granted in connection with year-end bonuses for years prior to 2010 were modified to include the same vesting terms which resulted in the acceleration of expense associated with those awards (the results of which are reflected as an adjustment to GAAP compensation expense to arrive at non-GAAP compensation expense within the “Reconciliation of GAAP to Non-GAAP Income from Continuing Operations” tables below).
This compensation methodology was changed in the third quarter of 2011, at the recommendation of the Company’s recently hired Chief Executive Officer, with the expectation that the terms of equity awards to be granted in connection with future annual bonuses will generally provide for continued employment as a vesting condition, resulting in expensing awards over the future vesting period rather than immediately.
Years Ended 2011 vs. 2010
Non-GAAP compensation and benefits expense decreased by $40.7 million to $158.9 million for the year ended December 31, 2011, compared to non-GAAP compensation and benefits expense of $199.6 million in the prior year. This was primarily due to lower variable compensation expense as a result of lower net revenues in the MBS / ABS & Rates and Corporate Credit segments. Variable compensation expense also decreased in the Investment Banking segment, due to the impact of the previously mentioned realignment which occurred in the third quarter of 2011. In addition, annual compensation expense for members of senior management is lower when compared to the prior year and compensation for certain leaders of the Company’s business segments is weighted more heavily toward stock-based compensation, resulting in expensing awards over the future vesting period rather than immediately. Partially offsetting these decreases was compensation expense related to ClearPoint.