The Hartford 2010 Annual Report Download - page 217

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-89
18. Stock Compensation Plans
The Company has three primary stock-based compensation plans which are described below. Shares issued in satisfaction of stock-
based compensation may be made available from authorized but unissued shares, shares held by the Company in treasury or from shares
purchased in the open market. In 2010 and 2009, the Company issued shares from treasury in satisfaction of stock-based compensation.
For the year ended December 31,
2010 2009 2008
Stock-based compensation plans expense $ 94 $ 72 $ 62
Income tax benefit (33) (20) (19)
Total stock-based compensation plans expense, after-tax $ 61 $ 52 $ 43
The Company did not capitalize any cost of stock-based compensation. As of December 31, 2010, the total compensation cost related to
non-vested awards not yet recognized was $102, which is expected to be recognized over a weighted average period of 1.6 years.
Stock Plan
On May 19, 2010 at the Company’ s Annual Meeting of Shareholders, the shareholders of The Hartford approved The Hartford 2010
Incentive Stock Plan (the “2010 Stock Plan”), which supersedes and replaces The Hartford 2005 Incentive Stock Plan. The terms of the
2010 Stock Plan are substantially similar to the terms of the superseded plan. However, the 2010 Stock Plan provides for an increased
maximum number of shares that may be awarded to employees of the Company, to non-employee members of the Board of Directors of
the Company and also permits awards to be made to third party service providers, and permits additional forms of stock-based awards.
The 2010 Stock Plan provides for awards to be granted in the form of non-qualified or incentive stock options qualifying under Section
422 of the Internal Revenue Code, stock appreciation rights, performance shares, restricted stock or restricted stock units, or any other
form of stock-based award. The aggregate number of shares of stock, which may be awarded, is subject to a maximum limit of
18,000,000 shares applicable to all awards for the ten-year duration of the 2010 Stock Plan. If any award under the prior The Hartford
Incentive Stock Plan (as approved by the Company’ s shareholders in 2000) or under the prior The Hartford 2005 Incentive Stock Plan
(as approved by the Company’ s shareholders in 2005) that was outstanding as of March 31, 2010, is forfeited, terminated, surrendered,
exchanged, expires unexercised, or is settled in cash in lieu of stock (including to effect tax withholding) or for the net issuance of a
lesser number of shares than the number subject to the award, the shares of stock subject to such award (or the relevant portion thereof)
shall be available for awards under the 2010 Stock Plan and such shares shall be added to the maximum limit. As of December 31,
2010, there were 17,383,657 shares available for future issuance.
The fair values of awards granted under the 2010 Stock Plan are measured as of the grant date and expensed ratably over the awards’
vesting periods, generally three years. For stock option awards granted or modified in 2006 and later, the Company began expensing
awards to retirement-eligible employees hired before January 1, 2002 immediately or over a period shorter than the stated vesting period
because the employees receive accelerated vesting upon retirement and therefore the vesting period is considered non-substantive. All
awards provide for accelerated vesting upon a change in control of the Company as defined in the 2010 Stock Plan.
Stock Option Awards
Under the 2010 Stock Plan, all options granted have an exercise price at least equal to the market price of the Company’ s common stock
on the date of grant, and an option’ s maximum term is not to exceed ten years. Under the 2010 Stock Plan, options will generally
become exercisable as determined at the time of grant. For any year, no individual employee may receive an award of options for more
than 2,000,000 shares under the 2010 Stock Plan. Under the 2005 Stock Plan, certain options become exercisable over a three year
period commencing one year from the date of grant, while certain other options become exercisable at the later of three years from the
date of grant or upon specified market appreciation of the Company’ s common shares.
The Company uses a hybrid lattice/Monte-Carlo based option valuation model (the “valuation model”) that incorporates the possibility
of early exercise of options into the valuation. The valuation model also incorporates the Company’ s historical termination and exercise
experience to determine the option value.