STOCK-BASED COMPENSATION PLANS

The Company’s operating results for the three and nine months ended September 30, 2011 included long-term incentive plan expense of $3.9 and $12.5, respectively, compared to $3.5 and $13.0, respectively for the same periods in 2010. Long-term incentive plan expense includes: (a) incentive plan expense that is paid in cash based on relative shareholder return and (b) stock compensation expense. Stock compensation expense for the three and nine months ended September 30, 2011 was $3.7 and $12.1, respectively, compared to $3.4 and $13.6, respectively, for the same periods in 2010.

Stock Options

A summary of stock option activity for the nine months ended September 30, 2011 is presented below:



Shares in Millions Except Per Share Amounts	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Weighted Average Fair Value at Date of Grant (per share)
Outstanding and exercisable at January 1, 2011	5.7		$	31.66	1.1	$	12.16
Exercised	(0.2	)	11.67
Forfeited/cancelled	(2.3	)	41.99
Exercisable at September 30, 2011	3.2		$	25.98	0.9	10.17
Unvested at January 1, 2011	—		—
Granted	0.7		13.79		9.3	4.06
Forfeited/cancelled	—		13.76
Outstanding unvested at September 30, 2011	0.7		$	13.79	9.3	4.06
Outstanding at September 30, 2011	3.9		$	23.91	2.4	$	9.15

Approximately one-half of the stock options granted during 2011 vest in two years and the remaining vest in three years. 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 and an expected term of 4.5 years. These option grants resulted in stock compensation expense of $0.7 in the first nine months of 2011.

Restricted Stock Awards

During the nine months ended September 30, 2011, the Company granted 1.5 million restricted stock units at a weighted-average fair value of $13.76 per share. Included in this amount were 0.5 million performance-based restricted stock units granted at the fair value of $13.77 per share, equal to the Company’s share price at grant date, that vest upon the Company’s satisfaction of certain financial performance conditions. The 2011 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 2011 grants will be adjusted based upon expected performance as compared to defined targets.

During the nine months ended September 30, 2010, the Company granted 2.1 million restricted stock units at a weighted average fair value of $11.49 per share. Included in this amount were 0.8 million market-based restricted stock units granted at the fair value of $11.37 per share that vest upon the Company’s satisfaction of certain market conditions (relative shareholder return versus the S&P 500 return) as of December 31, 2012. Compensation cost related to these 2010 grants is not adjusted based upon variance from initial assumptions made regarding expected performance. The Company used a Monte Carlo simulation model to estimate the fair value for market-based restricted stock units issued during 2010. The assumptions used in this model for the awards are noted in the table below. Expected volatilities for the 2010 performance awards are 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. 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 the 2010 performance 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 is based on the U.S. Treasury yield curve in effect at the time of grant.




	September 30, 2010
Expected volatility	56%
Expected term (in years)	3.0
Risk-free interest rate	1.4%

The total compensation cost related to non-vested time-based and performance-based restricted stock units not yet recognized as of September 30, 2011 was approximately $15.3 and $8.3, respectively, which is expected to be recognized over a weighted average of 1.3 years and 0.9 years, respectively. Changes to non-vested time-based and performance-based restricted stock and restricted stock units for the nine months ended September 30, 2011 were as follows:

Time-based Restricted Stock Units



Shares in Millions Except Per Share Amounts	Number of Shares		Weighted Average Fair Value at Date of Grant
Non-vested at December 31, 2010	1.9		$	10.76
Granted	1.0		13.76
Vested	(0.4	)	12.23
Forfeited	(0.3	)	11.10
Non-vested at September 30, 2011	2.2		$	11.74

Performance and Market-based Restricted Stock Units



Shares in Millions Except Per Share Amounts	Number of Shares		Weighted Average Fair Value at Date of Grant
Non-vested at December 31, 2010	2.2		$	9.79
Granted	0.5		13.77
Vested	(0.1	)	8.37
Forfeited	(0.8	)	11.26
Non-vested at September 30, 2011	1.8		$	10.31