Prudential 2015 Annual Report Download - page 167

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
The fair value of each stock option award is estimated using a binomial option pricing model on the date of grant for stock options
issued to employees. The weighted average grant date assumptions used in the binomial option valuation model are as follows:
2015 2014 2013
Expected volatility .............................................................................. 34.67% 35.52% 36.44%
Expected dividend yield .......................................................................... 3.00% 2.70% 3.00%
Expected term .................................................................................. 5.57 years 5.63 years 5.52 years
Risk-free interest rate ............................................................................ 1.61% 1.74% 1.01%
Expected volatilities are based on historical volatility of the Company’s Common Stock and implied volatilities from traded options
on the Company’s Common Stock. The Company uses historical data and expectations of future exercise patterns to estimate option
exercises and employee terminations within the valuation model. The expected term of options granted represents the period of time that
options granted are expected to be outstanding. The risk-free rate for periods associated with the expected term of the option is based on the
U.S. Treasury yield curve in effect at the time of grant.
The following chart summarizes the compensation cost recognized and the related income tax benefit for stock options, restricted
stock units, performance shares and performance units for the years ended December 31:
2015 2014 2013
Total
Compensation Cost
Recognized
Income Tax
Benefit
Total
Compensation Cost
Recognized
Income Tax
Benefit
Total
Compensation Cost
Recognized
Income Tax
Benefit
(in millions)
Employee stock options ............. $ 21 $ 8 $ 25 $ 9 $ 43 $15
Employee restricted stock units ....... 111 42 95 34 88 32
Employee performance shares and
performance units ................ 32 12 46 17 86 31
Total ........................ $164 $62 $166 $60 $217 $78
Compensation costs related to stock-based compensation plans capitalized in deferred acquisition costs for the years ended
December 31, 2015, 2014 and 2013 were de minimis.
Stock Options
Each stock option granted has an exercise price no less than the fair market value of the Company’s Common Stock on the date of
grant and has a maximum term of 10 years. Generally, one third of the option grant vests in each of the first three years.
A summary of the status of the Company’s stock option grants is as follows:
Employee Stock Options
Shares
Weighted Average
Exercise Price
Outstanding at December 31, 2014 .................................................................... 12,231,497 $64.88
Granted ..................................................................................... 934,939 78.10
Exercised .................................................................................... (2,121,926) 62.95
Forfeited .................................................................................... (22,074) 68.94
Expired ..................................................................................... (96,290) 87.33
Outstanding at December 31, 2015 .................................................................... 10,926,146 $66.18
Vested and expected to vest at December 31, 2015 ....................................................... 10,880,347 $66.13
Exercisable at December 31, 2015 .................................................................... 8,547,934 $64.96
The weighted average grant date fair value of employee stock options granted during the years ended December 31, 2015, 2014 and
2013 was $18.45, $21.65 and $13.72, respectively.
The total intrinsic value (i.e., market price of the stock less the option exercise price) of employee stock options exercised during the
years ended December 31, 2015, 2014 and 2013 was $49 million, $97 million, and $146 million, respectively.
The weighted average remaining contractual term and the aggregate intrinsic value of stock options outstanding, vested and expected
to vest and exercisable as of December 31, 2015 is as follows:
December 31, 2015
Employee Stock Options
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
(in years) (in millions)
Outstanding .................................................................................. 4.72 $183
Vested and expected to vest ...................................................................... 4.70 $183
Exercisable ................................................................................... 3.91 $156
Prudential Financial, Inc. 2015 Annual Report 165