Travelers 2011 Annual Report Download - page 233

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. SHARE-BASED INCENTIVE COMPENSATION (Continued)
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 Director
Compensation Program). Under the Director Compensation Program, non-employee directors’
compensation consists of an annual retainer, a deferred stock award, committee chair fees and a lead
director fee. 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 one day prior to the date of the Company’s annual meeting of shareholders
occurring in the year following the year of the grant date, subject to continued service. Any of the
deferred stock awards may accumulate, including reinvestment dividends, until distribution either in a
lump sum six months after termination of service as a director or, if the director so elects, in annual
installments beginning at least six months following termination of service as a director. The shares of
deferred stock units issued under the 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
cannot be sold or transferred by the participant. The stock options granted under the 2004 Incentive
Plan vest three years after grant date (cliff vest).
In addition to the stock option awards described above, certain stock option awards that were
granted under legacy plans permit an employee exercising an option to be granted a new option (a
reload option) at an exercise price equal to the closing price of the Company’s common stock on the
date on which the original option is exercised. The reload option is permitted on certain stock option
awards granted prior to January 2003 at an amount equal to the number of shares of the common
stock used to satisfy both the exercise price and withholding taxes due upon exercise of an option and
vest either six months or one year after the grant date and are exercisable for the remaining term of
the related original option.
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