Time Magazine 2010 Annual Report Download - page 102

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12. EQUITY-BASED COMPENSATION
Equity Plans
The Company has one active equity plan under which it is authorized to grant equity awards to employees and
non-employee directors, covering an aggregate of 70 million shares of common stock. Generally, options have been
granted to employees and non-employee directors of Time Warner with exercise prices equal to the fair market
value on the date of grant. Generally, the stock options vest ratably over a four-year vesting period and expire ten
years from the date of grant. Certain stock option awards provide for accelerated vesting upon an election to retire
after reaching a specified age and years of service, as well as certain additional circumstances for non-employee
directors. Holders of stock options do not receive dividends or dividend equivalents based on the regular quarterly
cash dividends paid by the Company.
Pursuant to the equity plan, Time Warner may also grant shares of common stock or restricted stock units
(“RSUs”), which generally vest between three to four years from the date of grant, to its employees and non-
employee directors. Certain RSU awards provide for accelerated vesting upon an election to retire after reaching a
specified age and years of service, as well as certain additional circumstances for non-employee directors. Holders
of RSU awards are generally entitled to receive cash dividend equivalents based on the regular quarterly cash
dividends declared and paid by the Company during the period that the RSU awards are outstanding.
Time Warner also has a performance stock unit program for senior level executives. Under this program,
recipients of performance stock units (“PSUs”) are awarded a target number of PSUs that represent the contingent
(unfunded and unsecured) right to receive shares of Company common stock at the end of a performance period
(generally three years) based on the actual performance level achieved by the Company. For PSUs granted in 2007
and 2008, the recipient of a PSU may receive, depending on the Company’s total shareholder return (“TSR”)
relative to the other companies in the S&P 500 Index, 0% to 200% of the target PSUs granted based on a sliding
scale where a relative ranking of less than the 25th percentile will pay 0% and a ranking at the 100th percentile will
pay 200% of the target number of shares. For PSUs granted in 2009 and 2010, the recipient of the PSU may receive a
percentage of target PSUs determined in the same manner as PSUs granted in 2007 and 2008, except that if the
Company’s TSR ranking is below the 50th percentile and its growth in adjusted earnings per share (“adjusted EPS”)
relative to the growth in adjusted EPS of the other companies in the S&P 500 Index is at or above the 50th percentile,
the percentage of a participant’s target PSUs that will vest will be the average of (i) the percentage of target PSUs
that would vest based on the Company’s TSR ranking during the performance period and (ii) 100%.
For accounting purposes, PSUs granted in 2007 and 2008 are considered to have a market condition and PSUs
granted in 2009 and 2010 are considered to have a market condition and a performance condition. The effect of a
market condition is reflected in the grant date fair value of the award, which is estimated using a Monte Carlo
analysis to estimate the total return ranking of Time Warner among the S&P 500 Index companies over the
performance period. In the case of PSUs granted in 2009 and 2010, the performance condition is assumed to have
been met. As a result, compensation expense is recognized on these awards provided that the requisite service is
rendered (regardless of the actual TSR ranking achieved). Participants who are terminated by the Company other
than for cause or who terminate their own employment for good reason or due to retirement or disability are
generally entitled to a pro rata portion of the PSUs that would otherwise vest following the performance period.
Holders of PSUs granted in 2010 are entitled to receive dividend equivalents based on the regular quarterly cash
dividends declared and paid by the Company during the period that the PSUs are outstanding. The dividend
equivalent payment will be made in cash following the vesting of the PSUs (generally following the end of the
respective performance period) and will be based on the number of shares paid out. Holders of PSUs granted in
2007, 2008 and 2009 do not receive payments or accruals of dividends or dividend equivalents for regular quarterly
cash dividends paid by the Company while the PSU is outstanding.
90
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)