Travelers 2007 Annual Report Download - page 223

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. SHARE-BASED INCENTIVE COMPENSATION (Continued)
Restricted Stock, Restricted Stock Units, Deferred Stock and Performance Share Award Programs
Awards of restricted stock units are made to eligible officers and key employees pursuant to the
2004 Incentive Plan. Such awards include restricted stock grants under the Equity Awards program
established pursuant to the 2004 Incentive Plan. Previously, awards also included restricted stock grants
under the Capital Accumulation Program (CAP), which was discontinued following the issuance of
CAP awards in February 2006. Awards issued under CAP were in the form of restricted stock and the
number of shares included in the restricted stock award was calculated at a 10% discount from the
market price on the date of the award and generally vest in full after a two-year period from the date
of grant. Other restricted stock unit awards issued under the Equity Awards program generally vest in
full after a three-year period from the date of grant. Except under limited circumstances, during this
period the stock cannot be sold or transferred by the participant, who is required to render service to
the Company during the restricted period.
Commencing with equity grants on or after January 1, 2007, the Company began to 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 of grant 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 of directors approved a Performance 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 who
hold positions of Vice President (or its equivalent) or above. The performance awards represent 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
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 performance period
minimum threshold return 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 the minimum 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 units, deferred stock and performance shares is 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, 2007 was
$99 million.
211