Aetna 2012 Annual Report Download - page 121

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Annual Report- Page 115
12. Stock-based Employee Incentive Plans
Our stock-based employee compensation plans (collectively, the “Plans”) provide for awards of stock options,
SARs, restricted stock units (“RSUs”), market stock units (“MSUs”), performance stock units (“PSUs”), deferred
contingent common stock and the ability for employees to purchase common stock at a discount. At
December 31, 2012, approximately 39 million common shares were available for issuance under the Plans.
Executive, middle management and non-management employees may be granted RSUs, MSUs, PSUs, stock
options and SARs, each of which are described below:
RSUs - For each RSU granted, employees receive one share of common stock, net of taxes, at the end of
the vesting period. For RSUs granted prior to 2010, the RSUs will generally become 100% vested three
years after the grant is made, with one-third vesting each year. Beginning in 2010, the RSUs generally will
become 100% vested approximately three years from the grant date, with one-third vesting each December.
MSUs - The number of vested MSUs (which could range from zero to 150% of the original number of units
granted) is dependent on the weighted average closing price of our common stock for the thirty trading days
prior to the vesting date, including the vesting date. The MSUs granted prior to 2012 have an
approximately two-year vesting period. MSUs representing 50% of the grant date fair value of the MSUs
granted in 2012 are subject to a two-year vesting period while the remaining MSUs granted in 2012 are
subject to a three-year vesting period.
PSUs - The number of vested PSUs (which could range from zero to 200% of the original number of units
granted) is dependent upon the degree to which we achieve performance goals as determined by our
Board's Committee on Compensation and Organization (the “Compensation Committee”). The value of
each vested PSU is equal to one share of common stock, net of taxes. Half of the PSUs granted in 2012
were subject to a one-year performance period that ended on December 31, 2012, and the remaining half
are subject to a one-year performance period ending December 31, 2013. PSUs have an approximately
two-year vesting period. The performance period for the 2011 and 2010 PSU grants ended on December
31, 2011 and 2010, respectively. The PSUs granted in 2012 that are subject to the performance period
ended December 31, 2012, will vest at 81.67% of the original number of units granted as the Compensation
Committee determined that the underlying performance goals were met at the below target level. The PSUs
granted in each of 2011 and 2010 vested at 200% of the original number of units granted as the
Compensation Committee determined that the underlying performance goals were met at the maximum
level.
Stock Options and SARs - We have not granted stock options since 2005, but some remain outstanding.
Stock options were granted to purchase our common stock at or above the market price on the date of grant.
SARs granted will be settled in stock, net of taxes, based on the appreciation of our stock price on the
exercise date over the market price on the date of grant. SARs and stock options generally become 100%
vested three years after the grant is made, with one-third vesting each year. Vested SARs and stock options
may be exercised at any time during the ten years after grant, except in certain circumstances, generally
related to employment termination or retirement. At the end of the ten-year period, any unexercised SARs
and stock options expire.
We estimate the fair value of SARs using a modified Black-Scholes option pricing model. We did not grant a
material amount of SARs in 2012, 2011 or 2010.
We use historical data to estimate the period of time that stock options or SARs are expected to be outstanding.
Expected volatilities are based on a weighted average of the historical volatility of our stock price and implied
volatility from traded options on our stock. The risk-free interest rate for periods within the expected life of the
stock option or SAR is based on the benchmark five-year U.S. Treasury rate in effect on the date of grant. The
dividend yield assumption is based on our historical dividends declared.