UPS 2014 Annual Report Download - page 112

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UNITED PARCEL SERVICE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
100
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 restricted stock units
and restricted performance units (collectively referred to as "Restricted Units"), stock options and other permitted awards will
reduce the share reserve by one share. We had 16 million shares available to be issued under the Incentive Compensation Plan
as of December 31, 2014.
There are currently three primary awards granted to eligible employees under the UPS Incentive Compensation Plan,
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 $536, $513 and $547 million during 2014, 2013 and 2012, respectively. The associated
income tax benefit recognized in our income statement was $199, $190 and $201 million during 2014, 2013 and 2012,
respectively. The cash income tax benefit received from the exercise of stock options and the lapsing of Restricted Units was
$261, $286 and $265 million during 2014, 2013 and 2012, respectively.
Management Incentive Award
Non-executive management earning the right to receive the Management Incentive Award 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 Award
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). 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 Award 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 granted prior to 2014
We awarded Restricted Units in conjunction with our Long-Term Incentive Performance Award program to certain
eligible employees. The Restricted Units ultimately granted under the Long-Term Incentive Performance Award program are
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 the achievement of an
adjusted earnings per share target, 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, except in the case of death disability, or retirement, in which
case immediate vesting occurs.
As of December 31, 2014, we had the following Restricted Units outstanding, including reinvested dividends, that were
granted under our Management Incentive Award program and Long-Term Incentive Performance Award program (granted prior
to 2014):
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, 2014 12,748 $ 74.60
Vested (6,455) 71.61
Granted 5,064 92.35
Reinvested Dividends 363 N/A
Forfeited / Expired (161) 81.73
Nonvested at December 31, 2014 11,559 $ 82.58 1.39 $ 1,285
Restricted Units Expected to Vest 11,292 $ 82.62 1.38 $ 1,255