AIG 2010 Annual Report Download - page 354

American International Group, Inc., and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Non-Employee Plans
AIG’s non-employee directors received share- based compensation in the form of deferred stock units (DSUs)
under the 2010 Plan and the 2007 Plan with delivery deferred until retirement from the Board. In 2010 and 2009,
AIG granted to directors 14,484 and 9,106 DSUs, respectively.
Stock Options
AIG Stock Option Plan
Options granted under the 2007 Plan and the 1999 Plan remain outstanding at December 31, 2010. These
awards generally vest over four years (25 percent vesting per year) and expire 10 years from the date of grant.
In 2010, AIG issued 600,994 shares in connection with previous exercises of options with delivery deferred.
Stock Option Valuation
AIG uses a binomial lattice model to calculate the fair value of stock option grants. A more detailed description
of the valuation methodology is provided below. There were no stock options granted in 2010 and 2009.
The following weighted-average assumptions were used for stock options granted:
2008
Expected annual dividend yield(a) 3.77%
Expected volatility(b) 53.27%
Risk-free interest rate(c) 4.43%
Expected term(d) 4 years
(a) The dividend yield is determined at the grant date.
(b) Expected volatility is the average of historical volatility (based on seven years of daily stock price changes) and the implied volatility of actively
traded options on AIG shares.
(c) The interest rate curves used in the valuation model were the U.S. Treasury STRIP rates with terms from 3 months to 10 years.
(d) The expected term is 4 years based on the average time to exercise derived from the output of the valuation model. In 2008, the contractual
term of the option was generally 10 years with an expected term of seven years calculated based on an analysis of historical employee and
executive exercise behavior and employee turnover (post-vesting terminations). The early exercise rate is a function of time elapsed since the
grant. Fifteen years of historical data were used to estimate the early exercise rate.
The following table provides a roll forward of stock option activity:
As of or for the Year Ended December 31, 2010 Weighted
Average
Weighted Remaining Aggregate
Average Contractual Intrinsic Values
Shares Exercise Price Life (in millions)
Options:
Outstanding at beginning of year 1,352,276 $1,264.30 $-
Forfeited or expired (329,869) $1,350.06 -
Outstanding at end of year*1,022,407 $1,236.64 3.20 $-
Options exercisable at end of year 979,453 $1,260.36 3.01 $-
* Includes vested and expected-to-vest options at December 31, 2010 of 1,020,338, with a weighted average exercise price of $1,237.85, a weighted
average contractual life of 3.14 years and a zero aggregate intrinsic value.
338 AIG 2010 Form 10-K