Travelers 2012 Annual Report Download - page 239

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. SHARE-BASED INCENTIVE COMPENSATION (Continued)
On February 5, 2013, the Company, under the 2004 Stock Incentive Plan, granted 1,268,572
common stock awards in the form of restricted stock units, deferred stock units and performance share
awards to participating officers, non-employee directors and other key employees. The restricted stock
units and deferred stock units totaled 713,198 shares while the performance share awards totaled
555,374 shares. The fair value per share attributable to the common stock awards on the date of grant
was $78.65.
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 4% 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, 2012, 2011 and 2010 was $120 million, $121 million and $128 million,
respectively. Included in these amounts are compensation cost adjustments of $4 million, $4 million and
$10 million, for the years ended December 31, 2012, 2011 and 2010, 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 $42 million, $42 million and $44 million for the years ended December 31, 2012, 2011
and 2010, respectively.
At December 31, 2012, there was $112 million of total unrecognized compensation cost related to
all nonvested share-based incentive compensation awards. This includes stock options, restricted and
deferred stock units and performance shares granted under the 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 $295 million and $314 million in 2012 and 2011, respectively. The tax benefit realized for tax
deductions from employee stock options exercised during 2012 and 2011 totaled $36 million and
$30 million, respectively.
14. PENSION PLANS, RETIREMENT BENEFITS AND SAVINGS PLANS
The Company sponsors a qualified non-contributory defined benefit pension plan, which covers
substantially all U.S. domestic 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 addition, the Company sponsors: a nonqualified defined benefit pension plan which
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