MasterCard 2015 Annual Report Download - page 78

MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
72
Note 15. Share-Based Payments
In May 2006, the Company implemented the MasterCard Incorporated 2006 Long-Term Incentive Plan, which was amended and
restated as of June 5, 2012 (the “LTIP”). The LTIP is a shareholder-approved plan that permits the grant of various types of equity
awards to employees.
The Company has granted Options, RSUs and 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 generally vest after three 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:
2015 2014 2013
Risk-free rate of return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5% 1.5% 0.8%
Expected term (in years) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.00 5.00 5.00
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.6% 19.1% 27.1%
Expected dividend yield. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.7% 0.6% 0.5%
Weighted-average fair value per Option granted . . . . . . . . . . . . . . . . . . $ 17.29 $ 14.29 $ 12.33
The risk-free rate of return was based on the U.S. Treasury yield curve in effect on the date of grant. The expected term and the
expected volatility were based on historical MasterCard information. The expected dividend yields were based on the Company’s
expected annual dividend rate on the date of grant.
The following table summarizes the Company’s option activity for the year ended December 31, 2015:
Options
Weighted-Average
Exercise Price
Weighted-Average
Remaining
Contractual Term
Aggregate Intrinsic
Value
(in millions) (in years) (in millions)
Outstanding at January 1, 2015 . . . . . . . . . . . . . . . . 7.5 $ 44
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.6 $ 90
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.9) $ 30
Forfeited/expired . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.1) $ 70
Outstanding at December 31, 2015. . . . . . . . . . . . . 8.1 $ 54 6.7 $ 348
Exercisable at December 31, 2015. . . . . . . . . . . . . . 4.1 $ 35 5.3 $ 256
Options vested and expected to vest at
December 31, 2015. . . . . . . . . . . . . . . . . . . . . . . . . . 7.9 $ 54 6.7 $ 346