The Hartford 2008 Annual Report Download - page 467

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. Stock Compensation Plans (continued)
Share Awards
Share awards are valued equal to the market price of the Company’s common stock on the date of grant, less a discount for
those awards that do not provide for dividends during the vesting period. Share awards granted under the 2005 Stock Plan
and outstanding include restricted stock units, restricted stock and performance shares. Generally, restricted stock units vest
after three years and restricted stock vests in three to five years. Performance shares become payable within a range of 0% to
200% of the number of shares initially granted based upon the attainment of specific performance goals achieved over a
specified period, generally three years. The maximum award of restricted stock units, restricted stock or performance shares
for any individual employee in any year is 200,000 shares or units.
A summary of the status of the Company’s non-vested share awards as of December 31, 2007, and changes during the year
ended December 31, 2008, is presented below:
Shares Weighted-Average
Non-vested Shares (in thousands) Grant-Date Fair Value
Non-vested at beginning of year 1,883 $ 81.69
Granted 792 70.07
Decrease for change in estimated performance factors (67) —
Vested (498) 69.87
Forfeited (142) 83.51
Non-vested at end of year 1,968 $ 79.63
The total fair value of shares vested during the years ended December 31, 2008, 2007 and 2006 was $35, $23 and $29,
respectively, based on estimated performance factors. The Company did not make cash payments in settlement of stock
compensation during the years ended December 31, 2008 and 2007. The Company, at its discretion, made cash payments in
settlement of stock compensation of $36 during the year ended December 31, 2006.
Employee Stock Purchase Plan
In 1996, the Company established The Hartford Employee Stock Purchase Plan (“ESPP”). Under this plan, eligible
employees of The Hartford may purchase common stock of the Company at a 15% discount from the lower of the closing
market price at the beginning or end of each offering period. Employees purchase a variable number of shares of stock
through payroll deductions elected as of the beginning of the offering period. The Company may sell up to 5,400,000 shares
of stock to eligible employees under the ESPP. As of December 31, 2008, there were 538,125 shares available for future
issuance. During the years ended December 31, 2008, 2007 and 2006, 964,365, 372,993 and 341,330 shares were sold,
respectively. The weighted average per share fair value of the discount under the ESPP was $14.12, $18.98 and $16.05
during the years ended December 31, 2008, 2007 and 2006, respectively. The fair value is estimated based on the 15%
discount off of the beginning stock price plus the value of three-month European call and put options on shares of stock at
the beginning stock price calculated using the Black-Scholes model and the following weighted average valuation
assumptions:
For the year ended December 31,
2008 2007 2006
Dividend yield 3.5% 2.1% 2.0%
Implied volatility 45.5% 23.2% 19.0%
Risk-free spot rate 1.9% 4.7% 4.7%
Expected term 3 months 3 months 3 months
Implied volatility was derived from exchange-traded options on the Company’s stock. The risk-free rate is based on the U.S.
Constant Maturity Treasury yield curve in effect at the time of grant. The total intrinsic value of the discounts at purchase
was $5, $6 and $5 for the years ended December 31, 2008, 2007 and 2006, respectively. Additionally, The Hartford has
established employee stock purchase plans for certain employees of the Company’s international subsidiaries. Under these
plans, participants may purchase common stock of The Hartford at a fixed price. The activity under these programs is not
material.
F-90
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009