Allstate 2013 Annual Report Download - page 282

awards is based on the probable number of awards expected to vest using the performance level most likely to be
achieved at the end of the performance period. As of December 31, 2012, total unrecognized compensation cost related
to all nonvested awards was $100 million, of which $43 million related to nonqualified stock options which are expected
to be recognized over the weighted average vesting period of 2.15 years, $46 million related to restricted stock units
which are expected to be recognized over the weighted average vesting period of 2.22 years and $11 million related to
performance stock awards which are expected to be recognized over the weighted average vesting period of 1.91 years.
Options are granted to employees with exercise prices equal to the closing share price of the Company’s common
stock on the applicable grant date. Options granted to employees generally vest 50% on the second anniversary of the
grant date and 25% on each of the third and fourth anniversaries of the grant date. Options granted prior to 2010 vest
ratably over a four year period. Options may be exercised once vested and will expire ten years after the date of grant.
Upon normal retirement, which is defined as either age 60 with five years of service or age 55 with ten years of service,
all options granted more than 12 months before retirement, and a pro-rata portion of options granted within 12 months
of retirement, continue to vest as scheduled. When the options become vested, they may be exercised on or before the
earlier of the option expiration date or the fifth anniversary of the employee’s retirement. If termination of employment
is a result of death or disability, then all options vest immediately and may be exercised on or before the earlier of the
option expiration date or the second anniversary of the date of termination of employment. Vested options may be
exercised within three months and unvested options are forfeited following any other type of termination of
employment except termination after a change in control.
Restricted stock units generally vest and unrestrict 50% on the second anniversary of the grant date and 25% on
each of the third and fourth anniversaries of the grant date, except for directors whose awards vest immediately and
unrestrict after leaving the board. Restricted stock units granted to employees prior to 2010 vest and unrestrict in full on
the fourth anniversary of the grant date. Upon normal retirement, all restricted stock units granted more than 12 months
before retirement, and a pro-rata portion of restricted stock units granted within 12 months of retirement, continue to
unrestrict as provided for in the original grant. Upon termination of employment as a result of death or disability, all
restricted stock units vest. Unvested restricted stock units are forfeited following any other type of termination of
employment except termination after a change in control.
Performance stock awards vest and are converted into shares of stock on the third anniversary of the grant date.
Upon normal retirement occurring 12 months or more from the grant date, the number of performance stock awards
earned based on the attainment of performance goals for each of the performance periods continue to vest as
scheduled. Upon normal retirement occurring within 12 months of the grant date, a pro-rata portion of the performance
stock awards earned based on the attainment of the performance goals for each of the performance periods continue to
vest as scheduled. Upon termination of employment as a result of death or disability, the number of performance stock
awards that have been earned based on attainment of the performance goals for completed performance periods plus
the target number of performance stock awards granted for any incomplete performance periods vest immediately.
Unvested performance stock awards are forfeited following any other type of termination of employment except
termination after a change in control.
A total of 77.8 million shares of common stock were authorized to be used for awards under the plans, subject to
adjustment in accordance with the plans’ terms. As of December 31, 2012, 16.2 million shares were reserved and
remained available for future issuance under these plans. The Company uses its treasury shares for these issuances.
The fair value of each option grant is estimated on the date of grant using a binomial lattice model. The Company
uses historical data to estimate option exercise and employee termination within the valuation model. In addition,
separate groups of employees that have similar historical exercise behavior are considered separately for valuation
purposes. The expected term of options granted is derived from the output of the binominal lattice model and
represents the period of time that options granted are expected to be outstanding. The expected volatility of the price of
the underlying shares is implied based on traded options and historical volatility of the Company’s common stock. The
expected dividends were based on the current dividend yield of the Company’s stock as of the date of the grant. The
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