Aetna 2015 Annual Report Download - page 133
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Annual Report- Page 127
Stock Options and SARs - We have not granted stock options since 2005, and no stock options were
outstanding as of December 31, 2015. 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.
The SARs granted to certain employees during 2015 and 2014 and described above had an estimated grant
date fair value per SAR of $32.13 and $22.68, respectively. We did not grant a material number of SARs in
2013. The grant date fair value was calculated using a modified Black-Scholes option pricing model using
the following assumptions:
2015 2014
Expected term (in years) 6.48 5.72
Volatility 33.4% 35.8%
Risk-free interest rate 1.81% 1.74%
Dividend yield 1.13% 1.36%
Initial price $ 100.50 $ 72.26
The expected term is based on historical equity award activity. Volatility is 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 is based on a U.S. Treasury rate with a life equal to the expected life of the SARs grant.
This rate was calculated by interpolating between the 5-year and 10-year U.S. Treasury rates. The dividend
yield is based on our historical dividends declared in the 12 months prior to the grant date.
PSARs - PSARs represent the opportunity to vest in SARs. For the PSARs granted in 2013 (“2013
PSARs”), the number of vested PSARs (which may range in specified increments from zero to 700,000
SARs) is dependent on Aetna’s total shareholder return over a three year performance period relative to a
defined peer group of companies. The 2013 PSARs are subject to a three-year vesting period.
We estimated the grant date fair value of the 2013 PSARs using a Monte Carlo simulation. The 2013
PSARs had a grant date per PSAR fair value of $18.64. That grant date fair value was calculated using
the following assumptions:
Expected settlement period (in years) 6.12
Volatility 40.4%
Risk-free interest rate .6%
Dividend yield 1.25%
Initial price $ 64.25