AIG 2014 Annual Report Download - page 321

ITEM 8 / NOTE 21. SHARE-BASED AND OTHER COMPENSATION PLANS
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recorded compensation expense for the deferred compensation amounts payable to our employees by SICO, with an offsetting
amount credited to Additional paid-in capital reflecting amounts deemed contributed by SICO.
Non-Employee Plans
Our non-employee directors, who serve on our Board of Directors, receive share-based compensation in the form of fully
vested deferred stock units (DSUs) with delivery deferred until retirement from the Board. In 2014 and 2013, we granted to
non-employee directors 28,477 and 25,735 DSUs, respectively, under the 2013 Plan and recognized expense of $1.5 million
and $1.2 million, respectively; in 2012, we granted 19,434 DSUs, under the 2010 Plan and recognized $0.6 million of expense.
Performance Share Unit Valuation
The performance goals for long-term incentive awards granted in 2014 are AIG’s total shareholder return (TSR) and change in
credit default swap (CDS) spread, weighted 75 percent and 25 percent, respectively, in each case relative to a specified peer
group. The goals for the 2013 awards are AIG’s growth in tangible book value per share (TBVPS) (excluding accumulated
other comprehensive income) and TSR, weighted 50 percent each, in each case relative to a specified peer group. The fair
value of PSUs to be earned based on AIG’s achieving growth in TBVPS and change in CDS spreads was based on the closing
price of AIG Common Stock on the grant date, discounted by the present value of estimated dividends to be paid during the
respective vesting periods. The fair value of PSUs to be earned based on AIG’s TSR relative to a specified peer group was
determined on the grant date using a Monte Carlo simulation.
The following table presents the assumptions used to estimate the fair value of PSUs based on AIG’s TSR:
2014 2013
Expected dividend yield(a) 1.13 % 0.38 %
Expected volatility(b) 23.66 % 30.79 %
Risk-free interest rate(c) 0.76 % 0.50 %
(a) The dividend yield is the projected annualized AIG dividend yield estimated by Bloomberg Professional service as of the valuation date.
(b) The expected volatility is based on the implied volatilities of actively traded stock options from the valuation date through the end of the PSU performance
period as estimated by Bloomberg Professional service.
(c) The risk-free interest rate is the continuously compounded interest rate for the term between the valuation date and the end of the performance period that is
assumed to be constant and equal to the interpolated value between the closest data points on the U.S. dollar LIBOR-swap curve as of the valuation date.
The following table summarizes outstanding share-settled awards(a):
Weighted Average
Number of PSUs(b)/Shares Grant-Date Fair Value
As of or for the Year AIG SICO AIG SICO
Ended December 31, 2014 Plans Plans Plans Plans
Unvested, beginning of year 5,195,408 85,949 $ 36.92 $ 1,195.05
Granted 6,882,136 - 48.50 -
Vested (3,566,014) (23,494) 45.21 85.60
Forfeited (408,821) (4,143) 41.59 1,181.04
Unvested, end of year 8,102,709 58,312 $ 42.89 $ 1,191.01
(a) Excludes DSUs and options, which are discussed under the Non-Employee Plans and Stock Options sections, respectively.
(b) Represents target number of PSUs granted, and does not reflect potential increases or decreases that could result from the final outcome of the
performance goals to be determined after the applicable performance period ends.
At December 31, 2014, the total unrecognized compensation cost (net of expected forfeitures) for the unvested PSUs and
unvested restricted stock was $185 million and $19 million, respectively, and the weighted-average and expected period of
years over which those costs are expected to be recognized are 1.28 years and 4 years for the PSUs, and 5.28 years and 25
years for the restricted stock, respectively.