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Newell Rubbermaid Inc. 2008 Annual Report
63
FOOTNOTE 14
STOCK-BASED COMPENSATION
The Company offers stock-based compensation to its employees that includes stock options, restricted stock units, performance share units and an employee
stock purchase plan, as follows:
Stock Options
The Company’s stock plans include plans adopted in 1993 and 2003. The Company has issued both non-qualified and incentive stock options at exercise
prices equal to the Company’s common stock price on the date of grant with contractual terms of ten years. Historically, stock options issued by the Company
generally vested and were expensed ratably over five years, except that in the case of termination due to death, disability or retirement at age 65 or older,
options became fully vested and were exercisable for one year following termination. In 2008, the Company modified the retirement provisions applicable to
future option grants so that in the case of retirement (as defined in the stock option agreement), options fully vest and are exercisable for a period of time
depending on the employee’s age and years of service. Stock option grants are generally subject to forfeiture if employment terminates prior to vesting.
Restricted Stock
Awards of restricted stock and restricted stock units are independent of stock option grants and are generally subject to forfeiture if employment
terminates prior to vesting. The awards generally cliff-vest three years from the date of grant. In 2008, the Company modified the retirement provisions
applicable to future restricted stock awards so that in the case of retirement at age 65 or older the awards fully vest. With respect to future awards of
restricted stock units, in the case of retirement (as defined in the award agreement), awards vest depending on the employee’s age and years of service.
Prior to vesting, ownership of restricted shares cannot be transferred. The restricted stock has the same dividend and voting rights as the common stock,
and the restricted stock units have rights to dividend equivalents payable in cash. The Company expenses the cost of these restricted stock awards and
restricted stock units ratably over the vesting period.
Performance Shares
Performance share awards issued under the 2003 Stock Plan represent the right to receive unrestricted shares of stock based on the achievement of Company
performance objectives and/or individual performance goals established by the Organizational Development & Compensation Committee and the Board of
Directors. The Company awarded performance shares in February 2007 based on 2006 performance and awarded performance shares in 2006 related to a
transition grant as the Company moved to a new cash bonus structure.
Employee Stock Purchase Plan
The Company established an Employee Stock Purchase Plan (“ESPP”) effective August 1, 2006. The ESPP allows all employees the ability to purchase shares
of the Company’s $1.00 par value per share common stock at a 5% discount at the end of each quarter. Pursuant to the ESPP, $0.9 million of shares were
purchased during each of 2008 and 2007.
The Company accounts for stock-based compensation pursuant to SFAS 123(R), which requires measurement of compensation cost for all stock awards
at fair value on the date of grant and recognition of compensation, net of estimated forfeitures, over the requisite service period for awards expected to vest.
The table below highlights the expense related to share-based payments for the years ended December 31, (in millions):
2008 2007 2006
Stock options $16.9 $17.2 $17.8
Restricted stock 18.7 19.2 14.3
Performance shares — — 11.9
Stock-based compensation $35.6 $36.4 $44.0
Stock-based compensation, net of income tax benefit of $11.6 million,
$13.8 million and $16.7 million in 2008, 2007 and 2006, respectively $24.0 $22.6 $27.3
The fair value of stock option awards granted during the years ended December 31, was estimated using the Black-Scholes option pricing model with
the following weighted average assumptions:
2008 2007 2006
Risk-free interest rate 2.8% 4.7% 4.6%
Dividend yield 3.8% 2.8% 3.0%
Expected volatility 25% 25% 33%
Expected life (in years) 5.5 5.5 6.5
The Company utilized its historical experience to estimate the expected life of the options and volatility.