Allstate 2014 Annual Report Download - page 270

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, 2014, total unrecognized compensation cost related
to all nonvested awards was $74 million, of which $29 million related to nonqualified stock options which are expected
to be recognized over the weighted average vesting period of 1.78 years, $34 million related to restricted stock units
which are expected to be recognized over the weighted average vesting period of 1.81 years and $11 million related to
performance stock awards which are expected to be recognized over the weighted average vesting period of 1.38 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 on or after February 18, 2014 vest ratably over a
three-year period. Options granted from February 22, 2010 through February 17, 2014 vest 50% on the second
anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date. Vesting is subject
to continued service, except for employees who are retirement eligible and in certain other limited circumstances.
Options may be exercised once vested and will expire no later than ten years after the date of grant.
Restricted stock units granted on or after February 18, 2014 vest and unrestrict in full on the third anniversary of the
grant date, except for directors whose awards vest immediately and unrestrict after leaving the board. Restricted stock
units granted to employees from February 22, 2010 through February 17, 2014 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. Vesting is subject
to continued service, except for employees who are retirement eligible and in certain other limited circumstances.
Performance stock awards vest and are converted into shares of stock on the third anniversary of the grant date.
Vesting of the number of performance stock awards earned based on the attainment of performance goals for each of
the performance periods is subject to continued service, except for employees who are retirement eligible and in certain
other limited circumstances, and achievement of performance goals.
A total of 97.6 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, 2014, 29.7 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
risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the
time of grant. The assumptions used are shown in the following table.
2014 2013 2012
Weighted average expected term 6.5 years 8.2 years 9.0 years
Expected volatility 16.8 - 42.2% 19.1 - 48.1% 20.2 - 53.9%
Weighted average volatility 28.3% 31.0% 34.6%
Expected dividends 1.7 - 2.2% 1.9 - 2.2% 2.2 - 3.0%
Weighted average expected dividends 2.1% 2.2% 2.8%
Risk-free rate 0.0 - 3.0% 0.0 - 2.9% 0.0 - 2.2%
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