MetLife 2008 Annual Report Download - page 209

for issuance under that plan by one, and each share issued under the 2005 Stock Plan in connection with awards other than Stock Options
or Stock Appreciation Rights reduces the number of shares remaining for issuance under that plan by 1.179 shares. The number of shares
reserved for issuance under the 2005 Directors Stock Plan are 2,000,000. At December 31, 2008, the aggregate number of shares
remaining available for issuance pursuant to the 2005 Stock Plan and the 2005 Directors Stock Plan were 55,654,550 and 1,894,876,
respectively.
Stock Option exercises and other stock-based awards to employees settled in shares are satisfied through the issuance of shares held
in treasury by the Company. Under the current authorized share repurchase program, as described previously, sufficient treasury shares
exist to satisfy foreseeable obligations under the Incentive Plans.
Compensation expense related to awards under the Incentive Plans is recognized based on the number of awards expected to vest,
which represents the awards granted less expected forfeitures over the life of the award, as estimated at the date of grant. Unless a
material deviation from the assumed rate is observed during the term in which the awards are expensed, any adjustment necessary to
reflect differences in actual experience is recognized in the period the award becomes payable or exercisable. Compensation expense of
$121 million, $145 million and $144 million, and income tax benefits of $42 million, $51 million and $50 million, related to the Incentive
Plans was recognized for the years ended December 31, 2008, 2007 and 2006, respectively. Compensation expense is principally related
to the issuance of Stock Options, Performance Shares and LTPCP arrangements.
As described in Note 1, the Company changed its policy prospectively for recognizing expense for stock-based awards to retirement
eligible employees. Had the Company continued to recognize expense over the stated requisite service period, compensation expense
related to the Incentive Plans would have been $100 million, $118 million and $116 million, rather than $121 million, $145 million and
$144 million, for the years ended December 31, 2008, 2007 and 2006, respectively. Had the Company applied the policy of recognizing
expense related to stock-based compensation over the shorter of the requisite service period or the period to attainment of retirement
eligibility for awards granted prior to January 1, 2006, pro forma compensation expense would have been $100 million, $118 million and
$120 million for the years ended December 31, 2008, 2007 and 2006, respectively.
Stock Options
All Stock Options granted had an exercise price equal to the closing price of the Company’s common stock as reported on the New York
Stock Exchange on the date of grant, and have a maximum term of ten years. Certain Stock Options granted under the Stock Incentive Plan
and the 2005 Stock Plan have or will become exercisable over a three year period commencing with the date of grant, while other Stock
Options have or will become exercisable three years after the date of grant. Stock Options issued under the Directors Stock Plan were
exercisable immediately. The date at which any Stock Option issued under the 2005 Directors Stock Plan becomes exercisable would be
determinedatthetimesuchStockOptionisgranted.
A summary of the activity related to Stock Options for the year ended December 31, 2008 is presented below. The aggregate intrinsic
value was computed using the closing share price on December 31, 2008 of $34.86 and December 31, 2007 of $61.62, as applicable.
Shares Under
Option Weighted Average Exercise Price
Weighted
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
(Years) (In millions)
Outstanding at January 1, 2008 . . . . . . . . . . . . . . . . . . . . . . . . 24,430,547 $38.83 6.17 $557
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,464,075 $59.48
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,374,872) $32.76
Cancelled/Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (142,145) $44.62
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (219,330) $51.44
Outstanding at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . 26,158,275 $41.73 5.73 $ —
Aggregate number of stock options expected to vest at
December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,568,808 $41.35 5.66 $ —
Exercisable at December 31, 2008 . . . . . . . . . . . . . . . . . . . . . . 19,471,449 $35.83 4.79 $ —
The fair value of Stock Options is estimated on the date of grant using a binomial lattice model. Significant assumptions used in the
Company’s binomial lattice model, which are further described below, include: expected volatility of the price of the Holding Company’s
common stock; risk-free rate of return; expected dividend yield on the Holding Company’s common stock; exercise multiple; and the post-
vesting termination rate.
Expected volatility is based upon an analysis of historical prices of the Holding Company’s common stock and call options on that
common stock traded on the open market. The Company uses a weighted-average of the implied volatility for publicly-traded call options
with the longest remaining maturity nearest to the money as of each valuation date and the historical volatility, calculated using monthly
closing prices of the Holding Company’s common stock. The Company chose a monthly measurement interval for historical volatility as it
believes this better depicts the nature of employee option exercise decisions being based on longer-term trends in the price of the
underlying shares rather than on daily price movements.
The binomial lattice model used by the Company incorporates different risk-free rates based on the imputed forward rates for
U.S. Treasury Strips for each year over the contractual term of the option. The table below presents the full range of rates that were used for
options granted during the respective periods.
Dividend yield is determined based on historical dividend distributions compared to the price of the underlying common stock as of the
valuation date and held constant over the life of the Stock Option.
F-86 MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)