Travelers 2006 Annual Report Download - page 221

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
209
11. SHARE-BASED INCENTIVE COMPENSATION (Continued)
Commencing with equity grants on or after January 1, 2007, the Company beganto generally grant
restricted stock units instead of restricted stock. A restricted stock unit represents the right to receive a
share of common stock. These restricted stock unit awards will be granted at market price, will generally
vest after three years from the date ofgrant and will be subject to the same conditions as the restricted
stock awards except that the restricted stock units will not have voting rights and the common stock will not
be issued until the vesting criteria are satisfied.
On October 25, 2005, the Company’s Board ofDirectors approved aPerformance Share Awards
Program pursuant to the 2004 Incentive Plan. Under the program, which became effective beginning in
2006, the Company may issue performance share awards to certain employees of the Company whohold
positions of Vice President (or its equivalent) or above. The performance awards represent target shares
that provide the recipient the right to earn shares of the Company’s common stock based upon the
Company’s attainment of certain performance goals. The performance goals for performance awards
granted in 2006 are based on the Company’s adjusted return on equity over a three-year performance
period. Vesting of any performance shares is contingent upon the Company attaining the relevant
performanceperiod minimum thresholdreturn on equity. If the performance period return on equity is
below the minimum threshold, none of the shares will vest; if performance meets or exceeds theminimum
performance threshold, between 50%-160% of the performance shares will vest, depending on the actual
return on equity attained.
The fair value of restricted stock, deferred stock and performance sharesis measured at the market
price of the Company stock at date of grant.
The total fair value of shares that vested during the year ended December 31, 2006 was $59 million.
A summary of restricted stock, deferred stockawards andperformance share activity under the
Company’s 2004 Incentive Plan and the legacy TPC and legacy SPC share-based incentive compensation
plans as of and for the yearended December 31, 2006 is as follows:
Restricted and Deferred Shares Performance Shares
Other Equity Instruments Number
Weighted
Average
Grant
Date Fair
Value Number
Weighted
Average
Grant
Date Fair
Value
Outstanding, beginning of year ................ 3,697,335 $35.53 —$—
Granted.................................. 2,165,499 43.40 379,484 44.80
Vested(1)................................. (1,294,249) 35.88 — —
Forfeited................................. (193,952) 39.23 (15,336 ) 44.80
Outstanding, end ofyear. ..................... 4,374,633 $39.16 364,148 $ 44.80
(1) Represents awards for which the requisite service has been rendered including those that are
retirement eligible. Excludes performance shares which remain subject to attainment of a
performance condition.