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Share-Based Compensation
 3 Months Ended
Sep. 30, 2012
Share-Based Compensation  
Share-Based Compensation

3.       SHARE-BASED COMPENSATION

The Company has two active share-based compensation plans: the 2002 Stock Incentive Plan (“2002 Plan”) and the 1999 Employee Share Purchase Plan (“ESPP”). The 2002 Plan authorizes the Board of Directors to grant incentive or non-statutory stock options and stock awards to eligible employees and certain related parties. Of the 4.8 million shares of common stock authorized for the 2002 Plan, 0.8 million shares or options for shares remain available for grant at September 30, 2012. The Company's ESPP allows eligible employees to purchase StanCorp common stock at a discount. Of the 3.5 million shares authorized for the ESPP, 1.5 million shares remain available for issuance at September 30, 2012.

The following table sets forth the total compensation cost and related income tax benefit under the Company's share-based compensation plans:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2012 2011 2012 2011
            
 (In millions)
            
Compensation cost$1.4 $1.4 $5.3 $4.5
Related income tax benefit 0.5  0.5  1.8  1.6

The Company has provided three types of share-based compensation pursuant to the 2002 Plan: option grants, stock award grants and director stock grants.

 

Option Grants

Options are granted to officers and certain non-officer employees. Options are granted with an exercise price equal to the closing market price of StanCorp common stock on the grant date. Options generally vest in equal installments on the first four anniversaries of the vesting reference date.

The Company granted 268,033 and 236,785 options for the first nine months of 2012 and 2011, respectively, at a weighted-average exercise price of $38.09 and $45.46, respectively. The fair value of each option award granted was estimated using the Black-Scholes option pricing model as of the grant date. The weighted-average grant date fair value of options granted for the first nine months of 2012 and 2011 was $13.73 and $17.48, respectively.

The compensation cost of stock options is recognized over the vesting period, which is also the period over which the grantee must provide services to the Company. At September 30, 2012, the total compensation cost related to unvested option awards that had not yet been recognized in the financial statements was $6.5 million. This compensation cost will be recognized over a weighted-average period of 2.6 years.

Stock Award Grants

The Company grants performance-based stock awards (“Performance Shares”) to designated senior officers. The payout for these awards is based on the Company's financial performance over a three-year period. Performance Share grants represent the maximum number of shares of StanCorp common stock issuable to the designated senior officers. The actual number of shares issued at the end of the performance period is based on satisfaction of employment and Company financial performance conditions, with a portion of the shares withheld to cover required tax withholding. Under the 2002 Plan, the Company had 0.6 million shares available for issuance as stock award grants at September 30, 2012.

The Company granted 179,818 and 116,978 Performance Shares for the first nine months of 2012 and 2011, respectively.

The Company issued 9,899 and 4,906 shares of StanCorp common stock for the first nine months of 2012 and 2011, respectively, to redeem Performance Shares that vested following the 2011 and 2010 performance periods, net of Performance Shares withheld to cover the required taxes.

The fair value of the Performance Shares is determined based on the closing market price of StanCorp common stock on the grant date.

The compensation cost that the Company will ultimately recognize as a result of these stock awards is dependent on the Company's financial performance. Assuming that the maximum performance is achieved for each performance goal, $15.3 million in additional compensation cost would be recognized through 2014. Assuming that the target performance is achieved for each performance goal, $8.1 million in additional compensation cost would be recognized through 2014. Assuming that the maximum performance is achieved, this cost would be recognized over a weighted-average period of 1.6 years.

 

Director Stock Grants

Effective May 7, 2012, each director who is not an employee of the Company receives annual stock grants with a fair value equal to $100,000 based on the closing market price of StanCorp common stock on the day of the annual shareholders meeting. The stock grants generally vest after one year.

The Company issued 9,489 and 10,399 shares of StanCorp common stock for the first nine months of 2012 and 2011, respectively, related to the annual Director stock grant.

 

Employee Share Purchase Plan

The Company's ESPP allows eligible employees to purchase StanCorp common stock at a 15% discount of the lesser of the closing market price of StanCorp common stock on either the commencement date or the final date of each six-month offering period. Under the terms of the plan, each eligible employee may elect to have up to 10% of the employee's gross total cash compensation for the period withheld to purchase StanCorp common stock. No employee may purchase StanCorp common stock having a fair market value in excess of $25,000 in any calendar year.

The following table sets forth the compensation cost and related income tax benefit under the Company's ESPP:

 Three Months Ended Nine Months Ended
 September 30, September 30,
 2012 2011 2012 2011
            
 (In millions)
            
Compensation cost$0.3 $0.3 $1.2 $1.1
Related income tax benefit 0.1  0.1  0.4  0.4