MasterCard 2013 Annual Report Download - page 90

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
86
Note 15. Share-Based Payment and Other Benefits
In May 2006, the Company implemented the MasterCard Incorporated 2006 Long-Term Incentive Plan, which was
amended and restated as of October 13, 2008 (the “LTIP”). The LTIP is a shareholder-approved omnibus plan that
permits the grant of various types of equity awards to employees.
The Company has granted non-qualified stock options (“Options”), restricted stock units (“RSUs”) and performance
stock units (“PSUs”) under the LTIP. The options, which expire ten years from the date of grant, generally vest ratably
over four years from the date of grant. The RSUs and PSUs vest after three to four years. The Company uses the
straight-line method of attribution for expensing equity awards. Compensation expense is recorded net of estimated
forfeitures. Estimates are adjusted as appropriate.
Upon termination of employment, a participant's unvested awards are forfeited. However, when a participant terminates
employment due to disability or retirement more than six months after receiving the award, the participant retains all
of their awards without providing additional service to the Company. Retirement eligibility is dependent upon age and
years of service. Compensation expense is recognized over the shorter of the vesting periods stated in the LTIP or the
date the individual becomes eligible to retire but not less than six months.
There are approximately 116 million shares of Class A common stock authorized for equity awards under the LTIP.
Although the LTIP permits the issuance of shares of Class B common stock, no such shares have been authorized for
issuance. Shares issued as a result of option exercises and the conversions of RSUs and PSUs were funded primarily
with the issuance of new shares of Class A common stock.
Stock Options
The fair value of each option is estimated on the date of grant using a Black-Scholes option pricing model. The following
table presents the weighted-average assumptions used in the valuation and the resulting weighted-average fair value
per option granted for the years ended December 31:
2013 2012 2011
Risk-free rate of return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.8% 1.2% 2.6%
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.00 6.25 6.25
Expected volatility. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.1% 35.2% 33.7%
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5% 0.3% 0.2%
Weighted-average fair value per option granted . . . . . . . . . . . . . . . . . . . . $ 12.33 $ 14.85 $ 8.91
The risk-free rate of return was based on the U.S. Treasury yield curve in effect on the date of grant. In 2013, the
expected term and the expected volatility were based on historical MasterCard information. In 2012 and 2011, the
Company utilized the simplified method for calculating the expected term of the option based on the vesting terms and
the contractual life of the option. The expected volatility in 2012 and 2011 was based on the average of the implied
volatility of MasterCard and a blend of the historical volatility of MasterCard and the historical volatility of a group
of comparable companies. The expected dividend yields were based on the Company's expected annual dividend rate
on the date of grant.