Travelers 2007 Annual Report Download - page 224

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. SHARE-BASED INCENTIVE COMPENSATION (Continued)
A summary of restricted stock units, deferred stock awards and performance share activity under
the Company’s 2004 Incentive Plan and legacy plans as of and for the year ended December 31, 2007 is
as follows:
Restricted and
Deferred Shares Performance Shares
Weighted Weighted
Average Average
Grant- Grant-
Date Fair Date Fair
Other Equity Instruments Number Value Number Value
Outstanding, beginning of year .................... 4,374,633 $39.16 364,148 $44.80
Granted ................................... 1,302,161 52.87 600,742 52.66
Vested(1) .................................. (1,905,589) 38.09 — —
Forfeited .................................. (181,041) 44.17 (26,157) 49.69
Performance-based adjustment(2) ................. — — 313,718 47.47
Outstanding, end of year ......................... 3,590,164 $44.45 1,252,451 $49.69
(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.
(2) Represents the change in estimated performance shares from the initial grant, for grant years 2007
and 2006, to reflect the attainment of certain performance levels during the performance
measurement period.
Share-Based Compensation Recognition
The compensation cost for awards subject to a service condition is based upon the number of
equity instruments for which the requisite service period is expected to be rendered. Awards granted to
retiree-eligible or to employees who become retiree-eligible before an award’s vesting date are
considered to have met the requisite service condition. The compensation cost for awards subject to a
performance condition is based upon the probable outcome of the performance condition. The
compensation cost reflects an estimated annual forfeiture rate of 5% over the requisite service period
of the awards. That estimate is revised if subsequent information indicates that the actual number of
instruments expected to vest is likely to differ from previous estimates. Compensation costs for awards
are recognized on a straight-line basis over the requisite service period. For awards that have a graded
vesting schedule, the compensation cost is recognized on a straight-line basis over the requisite service
period for each separate vesting portion of the award as if the award was, in substance, multiple
awards. The total compensation cost for all share-based incentive compensation awards recognized in
earnings for the years ended December 31, 2007 and 2006 was $125 million and $147 million,
respectively. Included in those amounts were approximately $6 million and $12 million, respectively, of
compensation costs related to awards granted, prior to the adoption of FAS 123R, to retiree-eligible
employees or to employees who became retiree-eligible before the awards vesting date. Also included
are compensation cost adjustments of $5 million and $2 million, for the years ended December 31,
2007 and 2006 respectively, that reflect the cost associated with the updated estimate of performance
shares due to attaining certain performance levels from the date of the initial grant of the performance
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