Travelers 2010 Annual Report Download - page 234

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. SHARE-BASED INCENTIVE COMPENSATION (Continued)
On February 1, 2011, the Company, under the 2004 Stock Incentive Plan, granted 1,662,334
common stock awards in the form of restricted stock units, deferred stock and performance share
awards to participating officers, non-employee directors and other key employees. The restricted stock
units and deferred stock awards totaled 929,157 shares while the performance share awards totaled
733,177 shares. The fair value per share attributable to the common stock awards on the date of grant
was $56.81.
Share-Based Compensation Cost Recognition
The amount of compensation cost for awards subject to a service condition is based on the number
of shares expected to be issued and is recognized over the time period for which service is to be
provided (requisite service period). Awards granted to retiree-eligible employees 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, which on the grant date reflects an estimate of
attaining 100% of the performance shares granted. The compensation cost reflects an estimated annual
forfeiture rate from 3.5% to 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, 2010, 2009 and 2008 was $128 million, $127 million and $123 million,
respectively. Included in these amounts are compensation cost adjustments of $10 million, $11 million
and $6 million, for the years ended December 31, 2010, 2009 and 2008, respectively, that reflected 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 awards. The related tax benefits recognized
in earnings were $44 million, $44 million and $42 million for the years ended December 31, 2010, 2009
and 2008, respectively.
At December 31, 2010, there was $112 million of total unrecognized compensation cost related to
all nonvested share-based incentive compensation awards. This includes stock options, restricted stock,
restricted stock units, deferred stock and performance shares granted under the Company’s 2004
Incentive Plan. The unrecognized compensation cost is expected to be recognized over a weighted-
average period of 1.7 years.
Cash received from the exercise of employee stock options under share-based compensation plans
totaled $408 million and $180 million in 2010 and 2009, respectively. The tax benefit realized for tax
deductions from employee stock options exercised during 2010 and 2009 totaled $28 million and
$17 million, respectively.
13. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS
The Company sponsors a qualified non-contributory defined benefit pension plan, which covers
substantially all employees and provides benefits under a cash balance formula, except that employees
satisfying certain age and service requirements remain covered by a prior final average pay formula. In
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