UPS 2013 Annual Report Download - page 110

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
98
NOTE 10. STOCK-BASED COMPENSATION
The UPS Incentive Compensation Plan permits the grant of nonqualified and incentive stock options, stock appreciation
rights, restricted stock and stock units, and restricted performance shares and units, to eligible employees. The number of shares
reserved for issuance under the Incentive Compensation Plan is 27 million. Each share issued pursuant to an option and each
share issued subject to the exercised portion of a stock appreciation right will reduce the share reserve by one share. Each share
issued pursuant to restricted stock and stock units, and restricted performance shares and units, will reduce the share reserve by
one share. As of December 31, 2013, stock options, restricted performance units and restricted stock units had been granted
under the Incentive Compensation Plan. We had 22 million shares available to be issued under the Incentive Compensation Plan
as of December 31, 2013.
There are three primary awards granted to eligible employees under the UPS Incentive Compensation program, including
the Management Incentive Award, Long-Term Incentive Performance Award and Non-Qualified Stock Option Award. These
awards are discussed in the following paragraphs. The total expense recognized in our income statement under all stock
compensation award programs was $513, $547 and $524 million during 2013, 2012 and 2011, respectively. The associated
income tax benefit recognized in our income statement was $190, $201 and $192 million during 2013, 2012 and 2011,
respectively. The cash income tax benefit received from the exercise of stock options and the lapsing of restricted units was
$286, $265 and $235 million during 2013, 2012 and 2011, respectively.
Management Incentive Award
Non-executive management earning the right to receive Management Incentive Awards are determined annually by the
Salary Committee, which is comprised of executive officers of the Company. Awards granted to executive officers are
determined annually by the Compensation Committee of the UPS Board of Directors. Our Management Incentive Awards
program provides, with certain exceptions, that one-half to two-thirds of the annual Management Incentive Award will be made
in Restricted Units (depending upon the level of management involved), which generally vest over a five-year period. The other
one-third to one-half of the award is in the form of cash or unrestricted shares of class A common stock, and is fully vested at
the time of grant.
Upon vesting, Restricted Units result in the issuance of the equivalent number of UPS class A common shares after
required tax withholdings. Except in the case of death, disability, or retirement, Restricted Units granted for our Management
Incentive Awards and previous Long-Term Incentive Program generally vest over a five year period with approximately 20% of
the award vesting at each anniversary date of the grant. The entire grant is expensed on a straight-line basis over the requisite
service period. All Restricted Units granted are subject to earlier cancellation or vesting under certain conditions. Dividends
earned on Restricted Units are reinvested in additional Restricted Units at each dividend payable date.
Long-Term Incentive Performance Award
We also award Restricted Units in conjunction with our Long-Term Incentive Performance Awards program to certain
eligible employees. The Restricted Units ultimately granted under the Long-Term Incentive Performance Awards program will
be based upon the achievement of certain performance measures, including growth in consolidated revenue and operating return
on invested capital, each year during the performance award cycle, and other measures, including growth in consolidated
earnings per share, over the entire three year performance award cycle. The Restricted Units granted under this program vest at
the end of the three year performance award cycle.
As of December 31, 2013, we had the following Restricted Units outstanding, including reinvested dividends, that were
granted under our Management Incentive Award and Long-Term Incentive Performance Award:
Shares
(in thousands)
Weighted
Average
Grant Date
Fair Value
Weighted Average Remaining
Contractual Term
(in years) Aggregate Intrinsic
Value (in millions)
Nonvested at January 1, 2013 14,644 $ 68.71
Vested (7,577) 64.73
Granted 5,461 80.18
Reinvested Dividends 437 N/A
Forfeited / Expired (217) 72.12
Nonvested at December 31, 2013 12,748 $ 74.60 1.47 $ 1,340
Restricted Units Expected to Vest 12,330 $ 74.57 1.45 $ 1,296