Alcoa 2010 Annual Report Download - page 131
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Stock-based Compensation
Stock options under Alcoa’s stock-based compensation plans are granted in January each year at not less than market
prices on the dates of grant. Performance stock options are also granted to certain individuals. For performance stock
options granted in 2010, the final number of options granted was based on Alcoa’s adjusted free cash flow and
profitability against pre-established targets. For performance stock options granted in 2009, the final number of options
granted was based on Alcoa’s adjusted free cash flow against a pre-established target. For performance stock options
granted in 2008, the final number of options granted was based on the outcome of Alcoa’s annual return on capital
results against the results of a comparator group of companies. Stock option features based on date of original grant
were as follows:
Date of
original grant Vesting Term Reload feature
2002 and prior One year 10 years One reload
over option term
2003 3 years
(1/3 each year)
10 years One reload in 2004 for 1/3
vesting in
2004
2004 - 2009 3 years
(1/3 each year)
6 years None
2010 3 years
(1/3 each year)
10 years None
In addition to the stock options described above, Alcoa granted stock awards that vest in three years from the date of
grant. Certain of these stock awards were granted with the same performance conditions described above for
performance stock options.
Plan participants can choose whether to receive their award in the form of stock options, stock awards, or a
combination of both. This choice is made before the grant is issued and is irrevocable.
The following table summarizes the total compensation expense recognized for all stock options and stock awards
(there was no stock-based compensation expense capitalized in 2010, 2009, or 2008):
2010 2009 2008
Compensation expense recognized:
Stock option grants $44 $53 $15
Stock award grants 40 34 79
Total compensation expense before income taxes 84 87 94
Benefit for income taxes 27 29 31
Total compensation expense, net of income taxes $57 $58 $63
As part of Alcoa’s stock-based compensation plan design, individuals who are retirement-eligible have a six-month
requisite service period in the year of grant. As a result, a larger portion of expense will be recognized in the first half
of each year for these retirement-eligible employees. Of the total compensation expense before income taxes included
in the table above, $19, $21, and $19 in 2010, 2009, and 2008, respectively, pertains to the acceleration of expense
related to retirement-eligible employees.
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