The Hartford 2013 Annual Report Download - page 233

F-97
19. Stock Compensation Plans
The Company has four stock-based compensation plans which are described below. Shares issued in satisfaction of stock-based
compensation may be made available from authorized but unissued shares, shares held by the Company in treasury or from shares
purchased in the open market. In 2013 and 2012, the Company issued shares from treasury in satisfaction of stock-based compensation.
For the year ended December 31,
2013 2012 2011
Stock-based compensation plans expense $ 69 $ 95 $ 53
Income tax benefit (24)(33) (19)
Total stock-based compensation plans expense, after-tax $ 45 $ 62 $ 34
The Company did not capitalize any cost of stock-based compensation. As of December 31, 2013, the total compensation cost related to
non-vested awards not yet recognized was $105, which is expected to be recognized over a weighted average period of 2.2 years.
Stock Plan
The Hartford 2010 Incentive Stock Plan (the "2010 Stock Plan") provides for awards to be granted in the form of non-qualified or
incentive stock options qualifying under Section 422 of the Internal Revenue Code, stock appreciation rights, performance shares,
restricted stock or restricted stock units, or any other form of stock-based award. The aggregate number of shares of stock which may be
awarded is subject to a maximum limit of 18,000,000 shares applicable to all awards for the ten-year duration of the 2010 Stock Plan. If
any award under the prior The Hartford Incentive Stock Plan (as approved by the Company’s shareholders in 2000) or under the prior
The Hartford 2005 Incentive Stock Plan (as approved by the Company’s shareholders in 2005) that was outstanding as of March 31,
2010, is forfeited, terminated, surrendered, exchanged, expires unexercised, or is settled in cash in lieu of stock (including to effect tax
withholding) or for the net issuance of a lesser number of shares than the number subject to the award, the shares of stock subject to such
award (or the relevant portion thereof) shall be available for awards under the 2010 Stock Plan and such shares shall be added to the
maximum limit. As of December 31, 2013, there were 8,143,264 shares available for future issuance.
The fair values of awards granted under the 2010 Stock Plan are measured as of the grant date and expensed ratably over the awards’
vesting periods, generally 3 years. For stock option awards granted or modified in 2006 and later, the Company began expensing awards
to retirement-eligible employees immediately or over a period shorter than the stated vesting period because the employees receive
accelerated vesting upon retirement and therefore the vesting period is considered non-substantive. Awards granted prior to October
2013 provide for accelerated vesting upon a change of control of the Company as defined in the 2010 Stock Plan; awards granted in
October 2013 or later do not provide for accelerated vesting upon a change of control so long as the awards are assumed or replaced with
substantially equivalent awards, in which case vesting is accelerated if an employee is terminated without cause, or terminates for good
reason, within two years of the change of control.
Stock Option Awards
Under the 2010 Stock Plan, all options granted have an exercise price at least equal to the market price of the Company’s common stock
on the date of grant, and an option’s maximum term is not to exceed 10 years. Under the 2010 Stock Plan, options will generally become
exercisable as determined at the time of grant. For any year, no individual employee may receive an award of options for more than
2,000,000 shares under the 2010 Stock Plan. Under the 2005 Stock Plan, certain options become exercisable over a three year period
commencing one year from the date of grant, while certain other options become exercisable at the later of three years from the date of
grant or upon specified market appreciation of the Company’s common shares.
The Company uses a hybrid lattice/Monte-Carlo based option valuation model (the “valuation model”) that incorporates the possibility
of early exercise of options into the valuation. The valuation model also incorporates the Company’s historical termination and exercise
experience to determine the option value.
The valuation model incorporates ranges of assumptions for inputs, and therefore, those ranges are disclosed below. The term structure
of volatility is generally constructed utilizing implied volatilities from exchange-traded options, CPP warrants related to the Company’s
stock, historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and
employee termination within the valuation model, and accommodates variations in employee preference and risk-tolerance by
segregating the grantee pool into a series of behavioral cohorts and conducting a fair valuation for each cohort individually. The
expected term of options granted is derived from the output of the option valuation model and represents, in a mathematical sense, the
period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based
on the U.S. Constant Maturity Treasury yield curve in effect at the time of grant.
Table of Contents THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)