Stock-Based Compensation Plans

At December 31, 2012, the Company had 38.0 common shares that were authorized for issuance under the Convergys Corporation 1998 Long-Term Incentive Plan (Convergys LTIP), as amended on January 28, 2011. The Company granted stock options in 2012 and 2011 with exercise prices that are no less than market value of the stock at the grant date and have a ten-year term and vesting terms of two to three years. Stock options granted in 2010 were fully vested at the time they were granted. The Company also grants certain employees and Directors restricted stock units. The restricted stock units do not possess dividend or voting rights and consist of both time-related and performance-related units. The restrictions for the time-related restricted stock units generally lapse two to three years after the grant date. The performance-related units vest upon the Company’s satisfaction of certain financial targets. Performance-related units that have not vested by the end of two years from the grant date (i.e., the performance conditions for vesting of those units have not been met within that period) are forfeited.

The following table shows certain information as of December 31, 2012, with respect to compensation plans under which common shares are authorized for issuance:



	Number of Common Shares to be Issued Upon Exercise	Weighted Average Exercise Price		Common Shares Available for Future Issuance
Equity compensation plans approved by shareholders
Stock options	1.2	$	12.91	—
Restricted stock units	2.5	—		—
	3.7	$	12.91	10.2

The Company’s operating results reflect long-term incentive plan expense of $21.0, $17.0 and $14.8 for the years ended December 31, 2012, 2011 and 2010, respectively. Long-term incentive plan expense related to discontinued operations for these periods was $1.4, $2.6, and $3.2, respectively. Long-term incentive plan expenses include: (a) incentive plan expense that is paid in cash based on relative shareholder return, and (b) stock compensation expense. Stock compensation expense for the years ended December 31, 2012, 2011 and 2010 was $21.6, $17.4 and $15.3, respectively.

Stock Options

Presented below is a summary of Company stock option activity:



Shares (in Millions)	Shares		Weighted Average Exercise Price
Options outstanding at January 1, 2010	7.8		$	32.21
Options exercisable at January 1, 2010	7.8		32.21
Granted	0.3		10.88
Exercised	—		11.74
Forfeited	(2.4	)	31.14
Options outstanding at December 31, 2010	5.7		$	31.66
Options exercisable at December 31, 2010	5.7		$	31.66
Granted	0.7		13.79
Exercised	(0.2	)	11.68
Forfeited	(2.3	)	41.50
Options outstanding at December 31, 2011	3.9		$	23.90
Options exercisable at December 31, 2011	3.2		$	25.97
Granted	0.7		12.79
Exercised	(1.0	)	11.62
Forfeited	(2.4	)	31.33
Options outstanding at December 31, 2012	1.2		$	12.91
Options exercisable at December 31, 2012	0.3		$	11.86

Approximately one-half of the stock options granted during 2012 and 2011 vest in two years and the remaining vest in three years. The Company uses the Black-Scholes option pricing model to calculate the fair value of stock options granted. For the 2012 grants, the weighted average fair value at grant date of $3.43 per option granted included assumptions of a strike price of $12.79, a 30.74% implied volatility, an expected term of 4.5 years, a risk-free rate of 0.76%, and a dividend yield of 0.00%. These 2012 option grants resulted in stock compensation expense of $0.7 in 2012. For the 2011 grants, the weighted average fair value at grant date of $4.06 per option granted included assumptions of a strike price of $13.79, a 31.11% implied volatility, an expected term of 4.5 years, a risk-free rate of 2.12%, and a dividend yield of 0.00%. These 2011 option grants resulted in stock compensation expense of $0.3 in 2012 and $1.0 in 2011. Stock options were granted during 2010 that were fully vested at the time they were granted, resulting in compensation cost of approximately $1.1. Expected volatility is based on the unbiased standard deviation of the Company's common stock over the option term. The expected life of the options represents the period of time that the Company expects the options granted to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option for the expected term of the instrument. The dividend yield reflects an estimate of dividend payouts over the term of the award.

The weighted average grant date fair value per share for the outstanding and exercisable options at December 31, 2012 was $4.73 and $3.99, respectively.

The following table summarizes the status of the Company stock options outstanding and exercisable at December 31, 2012:



Shares (in Millions)	Options Outstanding				Options Exercisable
Range of Exercise Prices	Shares	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Shares	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price
$0.0 to $11.55	0.2	1.2	$	11.20	0.2	1.2	$	11.20
$11.56 to $21.81	1.0	7.7	13.25		0.1	0.1	13.12
Total	1.2	6.6	$	12.91	0.3	0.8	$	11.86

The aggregate intrinsic value of stock options exercised was $3.3 in 2012, $0.7 in 2011 and $0.1 in 2010. The actual tax benefit realized from the exercised stock options was $0.7 in 2012, $0.1 in 2011 and less than $0.1 in 2010. The total grant date fair value of stock options that vested during 2010 was $1.1. No stock options vested during 2012 or 2011. As of December 31, 2012, the aggregate intrinsic value was $4.0 for both stock options outstanding and exercisable. Intrinsic value represents the Company's closing price on the last trading day of the year in excess of the weighted average exercise price for those tranches of options with a weighted average exercise price less than the closing price multiplied by the number of options outstanding or exercisable.

Restricted Stock Units

During 2012, 2011 and 2010, the Company granted 1.6, 1.5 and 2.3 shares, respectively, of restricted stock units. The weighted average fair values of these grants were $13.11, $13.67 and $11.45, respectively. Included in the total grants were 0.6, 0.5 and 1.0 of performance-related restricted stock units for 2012, 2011 and 2010, respectively.

The 2012 and 2011 performance-related grants provide for payout based upon the extent to which the Company achieves certain EBITDA targets, as determined by the Compensation and Benefits Committee of the Board of Directors for this award, over a two-year period. Payout levels range from 50% to 200% of award shares earned. No payout can be earned if performance is below the minimum threshold level. Compensation cost related to these 2012 and 2011 grants will be adjusted based upon expected performance as compared to defined targets.

The 2010 performance-related grants provide for payout depending on the Company's relative total shareholder return in each respective year as compared to companies in the S&P 500 Index. The Company used a Monte Carlo simulation model to determine the fair value for performance-based restricted stock units granted during 2010. The assumptions used in this model are set forth in the table below. Expected volatilities for the 2010 performance awards were based on historical volatility and daily returns for the three-year period ended January 1, 2010 of the Company’s stock and S&P 500 companies. For the 2010 performance awards, the total stock return for the Company over the performance period is based on comparing Convergys’ average closing price from the fourth quarter of 2009 with the average expected closing price for the fourth quarter of 2012. For these awards, the total stock return of the S&P 500 companies is computed by comparing the average closing price of the S&P 500 companies from the fourth quarter of 2009 with the average expected closing price for the fourth quarter of 2012. The risk-free interest rate for the expected term of the award granted is based on the U.S. Treasury yield curve in effect at the time of grant.



	2010
Expected volatility	56.0	%
Expected term (in years)	3.0
Risk-free interest rate	1.4	%

The total compensation cost related to non-vested restricted stock and restricted stock units not yet recognized as of December 31, 2012 was approximately $14.7 based on current estimates of the performance metrics, which is expected to be recognized over a weighted average of 0.8 years. Changes to non-vested restricted stock and restricted stock units for the years ended December 31, 2012 and 2011 were as follows:



Shares (in millions)	Number of Shares		Weighted Average Fair Value at Date of Grant
Non-vested at December 31, 2010	4.2		$	10.64
Granted	1.5		13.67
Vested	(0.6	)	11.70
Forfeited	(1.2	)	11.22
Non-vested at December 31, 2011	3.9		11.08
Granted	1.6		13.11
Vested	(2.2	)	10.17
Forfeited	(0.8	)	11.96
Non-vested at December 31, 2012	2.5		$	12.91

The aggregate intrinsic value of non-vested restricted stock units was $41.7 at December 31, 2012.