The Hartford 2007 Annual Report Download - page 254

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-77
18. Stock Compensation Plans (continued)
Share Awards
Share awards are valued equal to the market price of the Company’ s common stock on the date of grant, less a discount for those
awards that do not provide for dividends during the vesting period. Share awards granted under the 2005 Stock Plan and outstanding
include restricted stock units, restricted stock and performance shares. Generally, restricted stock units vest after three years and
restricted stock vests in three to five years. Performance shares become payable within a range of 0% to 200% of the number of shares
initially granted based upon the attainment of specific performance goals achieved over a specified period, generally three years. The
maximum award of restricted stock units, restricted stock or performance shares for any individual employee in any year is 200,000
shares or units.
A summary of the status of the Company’s non-vested share awards as of December 31, 2006, and changes during the year ended
December 31, 2007, is presented below:
Non-vested Shares
Shares
(in thousands)
Weighted-Average
Grant-Date Fair Value
Non-vested at beginning of year 1,605 $ 75.23
Granted 641 93.10
Increase for change in estimated performance factors 89 71.27
Vested (256) 68.79
Forfeited (196) 81.88
Non-vested at end of year 1,883 $ 81.69
The total fair value of shares vested during the years ended December 31, 2007, 2006 and 2005 was $23, $29 and $45, respectively,
based on estimated performance factors. The Company, at its discretion, made cash payments in settlement of stock compensation of
$0 and $36 during the years ended December 31, 2007 and 2006, respectively. The Company did not make cash payments in
settlement of stock compensation in the year ended December 31, 2005.
Employee Stock Purchase Plan
In 1996, the Company established The Hartford Employee Stock Purchase Plan (“ESPP”). Under this plan, eligible employees of The
Hartford may purchase common stock of the Company at a 15% discount from the lower of the closing market price at the beginning or
end of the quarterly offering period. Employees purchase a variable number of shares of stock through payroll deductions elected as of
the beginning of the quarter. The Company may sell up to 5,400,000 shares of stock to eligible employees under the ESPP. As of
December 31, 2007, there were 1,629,003 shares available for future issuance. During the years ended December 31, 2007, 2006 and
2005, 372,993, 341,330 and 328,276 shares were sold, respectively. The weighted average per share fair value of the discount under
the ESPP was $18.98, $16.05 and $13.74 during the years ended December 31, 2007, 2006 and 2005, respectively. The fair value is
estimated based on the 15% discount off of the beginning stock price plus the value of three-month European call and put options on
shares of stock at the beginning stock price calculated using the Black-Scholes model and the following weighted average valuation
assumptions:
For the year ended December 31,
2007 2006 2005
Dividend yield 2.1% 2.0% 1.6%
Implied volatility 23.2% 19.0% 20.5%
Risk-free spot rate 4.7% 4.7% 2.9%
Expected term 3 months 3 months 3 months
Implied volatility was derived from exchange-traded options on the Company’ s stock. The risk-free rate is based on the U.S. Constant
Maturity Treasury yield curve in effect at the time of grant. The total intrinsic value of the discounts at purchase was $6 for the year
ended December 31, 2007 and $5 in each of the years ended December 31, 2006 and 2005, respectively. Additionally, The Hartford
has established employee stock purchase plans for certain employees of the Company’ s international subsidiaries. Under these plans,
participants may purchase common stock of The Hartford at a fixed price. The activity under these programs is not material.
19. Investment and Savings Plan
Substantially all U.S. employees are eligible to participate in The Hartford’s Investment and Savings Plan under which designated
contributions may be invested in common stock of The Hartford or certain other investments. These contributions are matched, up to
3% of base salary, by the Company. In 2007, employees who had earnings of less than $100,000 in the preceding year received a
contribution of 1.5% of base salary and employees who had earnings of $100,000 or more in the preceding year received a contribution
of 0.5% of base salary. The cost to The Hartford for this plan was approximately $62, $59 and $52 for 2007, 2006 and 2005,
respectively.