KeyBank 2014 Annual Report Download - page 202

Our compensation plans allow us to grant stock options, stock appreciation rights, restricted stock, restricted
stock units, performance shares, performance units, other awards which may be denominated or payable in or
valued by reference to our common shares or other factors, discounted stock purchases, and deferred
compensation to eligible employees and directors. At December 31, 2014, we had 79,938,471 common shares
available for future grant under our compensation plans. In accordance with a resolution adopted by the
Compensation and Organization Committee of KeyCorp’s Board of Directors, we may not grant options to
purchase common shares, restricted stock or other shares under any long-term compensation plan in an aggregate
amount that exceeds 6% of our outstanding common shares in any rolling three-year period.
Stock Options
Stock options granted to employees generally become exercisable at the rate of 25% per year. No option granted
by KeyCorp will be exercisable less than one year after, or expire later than ten years from, the grant date. The
exercise price is the closing price of our common shares on the grant date.
We determine the fair value of options granted using the Black-Scholes option-pricing model. This model was
originally developed to determine the fair value of exchange-traded equity options, which (unlike employee stock
options) have no vesting period or transferability restrictions. Because of these differences, the Black-Scholes
model does not precisely value an employee stock option, but it is commonly used for this purpose. The model
assumes that the estimated fair value of an option is amortized as compensation expense over the option’s vesting
period.
The Black-Scholes model requires several assumptions, which we developed and update based on historical
trends and current market observations. Our determination of the fair value of options is only as accurate as the
underlying assumptions. The assumptions pertaining to options issued during 2014, 2013, and 2012 are shown in
the following table.
Year ended December 31, 2014 2013 2012
Average option life 6.2 years 6.3 years 6.3 years
Future dividend yield 1.70 % 2.14 % 1.50 %
Historical share price volatility .497 .495 .489
Weighted-average risk-free interest rate 1.9 % 1.1 % 1.2 %
Under KeyCorp’s 2013 Equity Compensation Plan, the Compensation and Organization Committee has authority
to approve all stock option grants but may delegate some of its authority to grant awards from time to time. The
committee has delegated to our Chief Executive Officer the authority to grant equity awards, including stock
options, to any employee who is not designated an “officer” for purposes of Section 16 of the Exchange Act. No
more than 3,000,000 common shares may be issued under this authority.
The following table summarizes activity, pricing and other information for our stock options for the year ended
December 31, 2014.
Number of
Options
Weighted-Average
Exercise Price Per
Option
Weighted-Average
Remaining Life
(Years)
Aggregate
Intrinsic
Value (a)
Outstanding at December 31, 2013 25,705,942 $ 19.83
Granted 730,611 12.92
Exercised (3,050,309) 8.72
Lapsed or canceled (3,470,688) 29.09
Outstanding at December 31, 2014 19,915,556 $ 19.67 3.8 $ 58
Expected to vest 3,045,216 $ 9.37 7.6 $ 14
Exercisable at December 31, 2014 16,635,502 $ 21.69 3.0 $ 44
(a) The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of the
option. At December 31, 2014, the fair value of the underlying stock was less than the weighted-average exercise price per option.
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