Travelers 2007 Annual Report Download - page 219

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. SHARE-BASED INCENTIVE COMPENSATION (Continued)
In connection with the adoption of the 2004 Incentive Plan, legacy share-based incentive
compensation plans were terminated. Outstanding grants were not affected by the termination of these
legacy plans, including the grant of reload options related to prior option grants under the legacy plans.
The 2004 Incentive Plan is the only plan pursuant to which future stock-based awards may be
granted. In addition to the 35 million shares initially authorized for issuance under the 2004 Incentive
Plan, the following will not be counted towards the 35 million shares available and will be available for
future grants under the 2004 Incentive Plan: (i) shares of common stock subject to an award that
expires unexercised, that is forfeited, terminated or canceled, that is settled in cash or other forms of
property, or otherwise does not result in the issuance of shares of common stock, in whole or in part;
(ii) shares that are used to pay the exercise price of stock options and shares used to pay withholding
taxes on awards generally; and (iii) shares purchased by the Company on the open market using cash
option exercise proceeds; provided, however, that the increase in the number of shares of common
stock available for grant pursuant to such market purchases shall not be greater than the number that
could be repurchased at fair market value on the date of exercise of the stock option giving rise to such
option proceeds. These provisions also apply to awards granted under the legacy share-based incentive
compensation plans that were outstanding on the effective date of the 2004 Incentive Plan.
The Company also has a compensation program for non-employee directors (the 2004 Director
Compensation Program). Under the 2004 Director Compensation Program, non-employee directors’
compensation consists of an annual retainer and a deferred stock award. Each non-employee director
may choose to receive all or a portion of his or her annual retainer in the form of cash or deferred
stock units which vest upon grant. The annual deferred stock awards vest in full as of the date of the
annual meeting of shareholders of the Company scheduled at least one year following the date of the
award, subject to continued service. Any of the deferred stock awards may accumulate, including
reinvestment dividends, until distribution at a future date or upon termination of a director’s service.
The shares of deferred stock units issued under the 2004 Director Compensation Program are awarded
under the 2004 Incentive Plan.
Stock Option Awards
Stock option awards granted to eligible officers and key employees have a ten-year term. Prior to
January 1, 2007, stock options were granted with an exercise price equal to the fair market value of the
Company’s common stock on the day preceding the date of grant. Beginning January 1, 2007, all stock
options are granted with an exercise price equal to the closing price of the Company’s common stock
on the date of grant. The stock options granted generally vest upon meeting certain years of service
criteria. Except as the Compensation Committee of the Board may allow in the future, stock options
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