SunTrust 2006 Annual Report Download - page 119

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SUNTRUST BANKS, INC.
Notes to Consolidated Financial Statements (Continued)
(“Committee”) of the Company’s Board of Directors. Compensation expense related to the Management
Incentive Plan and PUP for the years ended December 31, 2006, 2005 and 2004 totaled $72.6 million,
$57.3 million and $55.0 million, respectively.
The Company provides stock-based awards through the SunTrust Banks, Inc. 2004 Stock Plan (“Stock
Plan”) under which the Committee has the authority to grant Stock Options, Restricted Stock, and
Performance-based Restricted Stock (“Performance Stock”) to key employees of the Company. Under
the 2004 Stock Plan, a total of 14 million shares of common stock is authorized and reserved for
issuance, of which no more than 2.8 million shares may be issued as Restricted Stock. Stock options are
granted at a price which is no less than the fair market value of a share of SunTrust common stock on
the grant date and may be either tax-qualified incentive stock options or non-qualified stock options.
Stock options typically vest over three years and generally have a maximum contractual life of ten
years. Upon option exercise, shares are issued to employees from treasury stock.
Shares of Restricted Stock may be granted to employees and directors and typically cliff vest after three
years. Restricted Stock grants may be subject to one or more objective employment, performance or
other forfeiture conditions as established by the Committee at the time of grant. Any shares of Restricted
Stock that are forfeited will again become available for issuance under the Plan. An employee or
director has the right to vote the shares of Restricted Stock after grant until they are forfeited or vested.
Compensation cost for Restricted Stock is equal to the fair market value of the shares at the date of the
award and is amortized to compensation expense over the vesting period. Dividends are paid on
awarded but unvested Restricted Stock.
With respect to currently outstanding Performance Stock, shares must be granted, awarded and vested
before participants take full title. After Performance Stock is granted by the Committee, specified
portions are awarded based on increases in the average price of SunTrust common stock above the
initial price specified by the Committee. Awards are distributed, subject to continued employment, on
the earliest of (i) fifteen years after the date shares are awarded to participants; (ii) the participant
attaining age 64; (iii) death or disability of a participant; or (iv) a change in control of the Company as
defined in the Stock Plan. Dividends are paid on awarded but unvested Performance Stock, and
participants may exercise voting privileges on such shares.
The compensation element for Performance Stock (which is deferred and shown as a reduction of
shareholders’ equity) is equal to the fair market value of the shares at the date of the award and is
amortized to compensation expense over the period from the award date to the participant attaining age
64 or the 15th anniversary of the award date, whichever comes first. Approximately 40% of
Performance Stock previously awarded became fully vested on February 10, 2000 and is no longer
subject to the forfeiture condition set forth in the original agreements. This early-vested Performance
Stock was converted into an equal number of “Phantom Stock Units” as of that date. Payment of
Phantom Stock Units will be made to participants in shares of SunTrust common stock upon the earlier
to occur of (1) the date on which the participant would have vested in his or her Performance Stock or
(2) the date of a change in control. Dividend equivalents will be paid at the same rate as the shares of
Performance Stock; however, these units will not carry voting privileges.
The fair value of each stock option award is estimated on the date of grant using a Black-Scholes
valuation model that uses assumptions noted in the following table. Expected volatility is based on the
historical volatility of the Company’s stock, using daily price observations over the expected term of the
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