CANADIAN PACIFIC KANSAS CITY LTD/CNCP
CANADIAN PACIFIC KANSAS CITY LTD/CN Stock Compensation Disclosure
Stock-based compensation
At December 31, 2025, the Company had several stock-based compensation plans including a stock options plan, various cash-settled liability plans, and an employee share purchase plan. These plans resulted in an expense of $59 million in 2025 (2024 - $108 million; 2023 - $122 million) and the total tax benefit related to these plans was $14 million in 2025 (2024 - $26 million; 2023 - $27 million).
A. Stock options plan
The following table summarizes the activity related to the stock options during 2025:
| Options outstanding | Non-vested options | ||||||||||||||||
| Number of stock options | Weighted-average exercise price | Number of stock options | Weighted-average grant date fair value | ||||||||||||||
Outstanding, January 1, 2025 | 5,734,600 | $ | 86.59 | 2,043,630 | $ | 27.68 | |||||||||||
| Granted | 967,335 | $ | 107.65 | 967,335 | $ | 28.81 | |||||||||||
| Exercised | (1,395,289) | $ | 52.19 | N/A | N/A | ||||||||||||
| Vested | N/A | N/A | (879,620) | $ | 25.25 | ||||||||||||
| Forfeited | (33,387) | $ | 89.76 | (33,387) | $ | 23.86 | |||||||||||
Outstanding, December 31, 2025 | 5,273,259 | $ | 96.68 | 2,097,958 | $ | 29.32 | |||||||||||
Vested or expected to vest at December 31, 2025(1) | 5,228,360 | $ | 96.59 | N/A | N/A | ||||||||||||
Exercisable, December 31, 2025 | 3,175,301 | $ | 89.02 | N/A | N/A | ||||||||||||
(1) As at December 31, 2025, the weighted-average remaining term of vested or expected to vest options was 3.5 years with an aggregate intrinsic value of $44 million.
The following table provides the number of stock options outstanding and exercisable as at December 31, 2025 by range of exercise price and their related intrinsic aggregate value, and for stock options outstanding, the weighted-average years to expiration. The table also provides the aggregate intrinsic value for in-the-money stock options, which represents the amount that would have been received by option holders had they exercised their options on December 31, 2025 at the Company’s closing stock price of $101.05.
| Options outstanding | Options exercisable | |||||||||||||||||||||||||
| Range of exercise prices | Number of stock options | Weighted-average years to expiration | Weighted-average exercise price | Aggregate intrinsic value (millions) | Number of stock options | Weighted-average exercise price | Aggregate intrinsic value (millions) | |||||||||||||||||||
$32.00 - $91.53 | 1,458,911 | 1.5 | $ | 75.07 | $ | 38 | 1,371,745 | $ | 74.07 | $ | 37 | |||||||||||||||
$91.54 - $99.01 | 1,336,707 | 2.5 | $ | 96.20 | $ | 6 | 1,231,257 | $ | 96.07 | $ | 6 | |||||||||||||||
$99.02 - $109.46 | 1,306,376 | 4.9 | $ | 106.55 | $ | — | 379,836 | $ | 107.17 | $ | — | |||||||||||||||
$109.47 - $115.47 | 1,171,265 | 5.4 | $ | 113.14 | $ | — | 192,463 | $ | 114.67 | $ | — | |||||||||||||||
Total(1) | 5,273,259 | 3.5 | $ | 96.68 | $ | 44 | 3,175,301 | $ | 89.02 | $ | 43 | |||||||||||||||
(1) As at December 31, 2025, the total number of in-the-money stock options outstanding was 2,800,002 with a weighted-average exercise price of $85.20. The weighted-average years to expiration of exercisable stock options is 2.0 years.
Pursuant to the plan, stock options may be exercised upon vesting, which is between 12 and 48 months after the grant date, and expire seven years from the grant date. The grant date fair value of the stock options granted in 2025 was $28 million (2024 - $27 million; 2023 - $26 million). The following table provides assumptions used to determine the fair values of stock option awards, and the weighted-average grant date fair values for units granted in 2025, 2024, and 2023:
| 2025 | 2024 | 2023 | |||||||||
Expected option life (years)(1) | 4.75 | 4.75 | 4.75 | ||||||||
Risk-free interest rate(2) | 3.62 | % | 3.88 | % | 3.35 | % | |||||
Expected stock price volatility(3) | 25.43 | % | 28.38 | % | 28.44 | % | |||||
Expected annual dividend yield(4) | 0.79 | % | 0.67 | % | 0.72 | % | |||||
Expected forfeiture rate(5) | 3.08 | % | 3.12 | % | 3.18 | % | |||||
| Weighted-average grant date fair value of options granted during the year | $ | 28.81 | $ | 33.27 | $ | 29.79 | |||||
(1) Represents the period of time that awards are expected to be outstanding. Historical data on exercise behaviour or, when available, specific expectations regarding future exercise behaviour were used to estimate the expected life of the option.
(2) Based on the implied yield available on zero-coupon government issues with an equivalent term commensurate with the expected term of the option.
(3) Based on the historical volatility of the Company’s stock price over a period commensurate with the expected term of the option.
(4) Determined by the calculated projected annual dividend yield based on the current annual dividend yield at the time of grant. The Company does not employ different dividend yields throughout the contractual term of the option.
(5) The Company estimates forfeitures based on past experience. The rate is monitored on a periodic basis.
In 2025, the expense for stock options was $28 million (2024 - $24 million; 2023 - $25 million). At December 31, 2025, there was $9 million of total unrecognized compensation related to stock options, which is expected to be recognized over a weighted-average period of approximately 1.1 years.
The total fair value of shares vested for the stock option plan during 2025 was $22 million (2024 - $20 million; 2023 - $18 million).
The following table provides information related to all stock options exercised in the plan during the years ended December 31:
| (in millions of Canadian dollars) | 2025 | 2024 | 2023 | ||||||||
| Total intrinsic value | $ | 78 | $ | 92 | $ | 101 | |||||
| Cash received by the Company upon exercise of options | 73 | 69 | 69 | ||||||||
B. Share unit plans
Performance share unit plan
During 2025, the Company issued 611,516 PSUs with a grant date fair value of $68 million and 24,149 PDSUs with a grant date fair value, including the fair value of expected future matching units, of $3 million. PSUs and PDSUs attract dividend equivalents in the form of additional units based on dividends paid on the Company's Common Shares, and vest to four years after the grant date, contingent on the Company’s performance ("performance factor"). Vested PSUs are settled in cash. Vested PDSUs are converted into DSUs pursuant to the DSU plan, are eligible for a 25% Company match if the employee has not exceeded their Common Share ownership requirements, and are settled in cash only when the holder ceases their employment with the Company.
The performance period for all PSUs and PDSUs granted in 2025 is January 1, 2025 to December 31, 2027 and the performance factors are Free Cash Flow ("FCF"), and Total Shareholder Return ("TSR") compared to the Standard and Poor's ("S&P")/TSX 60 Index, TSR compared to the S&P 500 Industrials Index, and TSR compared to Class I railways.
The performance period for 568,159 PSUs and 25,589 PDSUs granted in 2024 is January 1, 2024 to December 31, 2026 and the performance factors are FCF, annualized Earnings Before Interest, Taxes, Depreciation, Amortization ("EBITDA"), TSR compared to the S&P/TSX 60 Index, TSR compared to the S&P 500 Industrials Index, and TSR compared to Class I railways.
The performance period for all of the 544,175 PSUs and all 26,333 PDSUs granted in 2023 is January 1, 2023 to December 31, 2025, and the performance factors are FCF, EBITDA, TSR compared to the S&P/TSX 60 Index, TSR compared to the S&P 500 Industrials Index, and TSR compared to Class I railways. The payout on these awards is 91% on 461,766 PSUs (including dividends reinvested) and 26,555 PDSUs (including dividends reinvested and matching units) outstanding, representing fair values of $43 million and $3 million, respectively, as at December 31, 2025, calculated based on the Company's average Common Share price of the last 30 trading days preceding December 31, 2025.
The performance period for the other 347,236 PSUs granted in 2023 is April 28, 2023 to December 1, 2026 and the performance factors are EBITDA and TSR compared to Class I railways.
The performance period for all of the 415,660 PSUs and 13,506 PDSUs granted in 2022 was January 1, 2022 to December 31, 2024, and the performance factors were FCF, Adjusted net debt to Adjusted EBITDA Modifier, TSR compared to the S&P/TSX 60 Index, and TSR compared to the S&P 500 Industrials Index. The resulting payout was 120% of the outstanding units multiplied by the Company's average Common Share price calculated based on the last 30 trading days preceding December 31, 2024. In the first quarter of 2025, payouts were $48 million on 381,759 PSUs, including dividends reinvested. The 9,774 PDSUs that vested on December 31, 2024, with a fair value of $2 million, including dividends reinvested and matching units, will be paid out in future reporting periods pursuant to the DSU plan (as described above).
The following table summarizes the activity related to PSUs and PDSUs for each of the years ended December 31:
| 2025 | 2024 | |||||||
| Outstanding, January 1 | 1,743,733 | 1,678,553 | ||||||
| Granted | 635,665 | 593,748 | ||||||
| Issued in lieu of dividends | 15,950 | 12,843 | ||||||
| Settled | (384,486) | (401,182) | ||||||
| PDSUs converted into DSUs | (8,426) | (11,461) | ||||||
| Forfeited | (60,702) | (128,768) | ||||||
| Outstanding, December 31 | 1,941,734 | 1,743,733 | ||||||
In 2025, the expense for PSUs and PDSUs was $8 million (2024 - $72 million; 2023 - $78 million). At December 31, 2025, there was $16 million of total unrecognized compensation related to these awards, which is expected to be recognized over a weighted-average period of approximately 1.3 years.
Deferred share unit plan
The Company established the DSU plan as a means to compensate and assist in attaining Common Share ownership targets set for certain key employees and Directors. A DSU entitles the holder to receive, upon redemption, a cash payment equivalent to the Company's average Common Share price based on the 10 trading days prior to redemption. DSUs vest over various periods of up to 36 months and are only redeemable for a specified period after employment is terminated.
Senior managers may elect to receive DSUs in lieu of annual cash bonuses under the bonus deferral program. In addition, senior managers will be granted a 25% Company match of DSUs when deferring cash to DSUs to meet ownership targets. The election to receive eligible payments in DSUs is no longer available to a participant when the value of the participant’s DSUs is sufficient to meet the Company’s Common Share ownership guidelines. Senior managers have five years to meet their ownership targets.
The expense for DSUs is recognized over the vesting period for both the initial subscription price and the change in value between reporting periods.
The following table summarizes the activity related to DSUs for each of the years ended December 31:
| 2025 | 2024 | |||||||
| Outstanding, January 1 | 903,054 | 899,818 | ||||||
| Granted | 91,071 | 71,082 | ||||||
| PDSUs converted into DSUs | 12,572 | 14,079 | ||||||
| Issued in lieu of dividends | 7,758 | 6,253 | ||||||
| Settled | (41,005) | (82,624) | ||||||
| Forfeited | (3,095) | (5,554) | ||||||
| Outstanding, December 31 | 970,355 | 903,054 | ||||||
During 2025, the Company granted 91,071 DSUs with a grant date fair value of approximately $10 million. In 2025, the expense for DSUs was $7 million (2024 - $1 million of recovery; 2023 - $10 million of expense). At December 31, 2025, there was $1 million of total unrecognized compensation related to DSUs, which is expected to be recognized over a weighted-average period of approximately 1.8 years.
Summary of share unit liabilities settled
The following table summarizes the total share unit liabilities settled for each of the years ended December 31:
| (in millions of Canadian dollars) | 2025 | 2024 | 2023 | ||||||||
| Plan | |||||||||||
| PSUs | $ | 48 | $ | 54 | $ | 86 | |||||
| DSUs | 4 | 9 | 2 | ||||||||
| Other | 12 | 1 | 1 | ||||||||
| Total | $ | 64 | $ | 64 | $ | 89 | |||||
C. Employee share purchase plan
The Company has an employee share purchase plan whereby both employee and the Company contributions are used to purchase Common Shares on the open market for employees. The Company’s contributions are expensed over the one year vesting period. Under the plan, the Company matches $1 for every $3 contributed by employees up to a maximum employee contribution of 6% of annual salary.
The total number of Common Shares purchased in 2025 on behalf of participants, including the Company's contributions, was 737,804 (2024 - 746,544; 2023 - 600,730). In 2025, the Company’s contributions were $17 million (2024 - $17 million; 2023 - $15 million) and the related compensation and benefits expense was $13 million (2024 - $12 million; 2023 - $11 million)Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 26, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.