Stock Option Plans and Stock Based Compensation

9 Months Ended

Sep. 30, 2011

Stock Option Plans and Stock Based Compensation [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Stock Option Plans and Stock-Based Compensation

On February 23, 2011, the Compensation Committee of the Board of Managers of Momentive Holdings approved the Momentive Performance Materials Holdings LLC 2011 Equity Incentive Plan (the “2011 Equity Plan”). Under the 2011 Equity Plan, Momentive Holdings can award unit options, unit awards, restricted units, restricted deferred units, and other unit-based awards. The restricted deferred units are non-voting units of measurement which are deemed to be equivalent to one common unit of Momentive Holdings. The unit options are options to purchase common units of Momentive Holdings. The awards contain restrictions on transferability and other typical terms and conditions.

The following is a summary of key terms of the stock-based awards granted to MSC employees under the 2011 Equity Plan on February 23, 2011:

Tranche	Units Granted	Vesting Terms	Option/Unit Term
Unit Options:			10 years
Tranche A Options	2,755,594	Time-vest ratably over 4 years; Accelerated vesting six months after a change of control event as defined by the 2011 Equity Plan
Tranche B Options	1,377,787	Performance-based: Vest upon the earlier of i) two years from the achievement of the targeted common unit value and a realization event or ii) six months from a change of control event and the achievement of the targeted common unit value as defined by the 2011 Equity Plan
Tranche C Options	1,377,787	Performance-based: Vest upon the earlier of i) one year from the achievement of the targeted common unit value and a realization event or ii) six months from a change in control event and the achievement of the targeted common unit value as defined by the 2011 Equity Plan
Restricted Deferred Units ("RDUs"):			N/A
Tranche A RDUs	918,535	Time-vest ratably over 4 years; Accelerated vesting six months from a change in control event as defined by the 2011 Equity Plan
Tranche B RDUs	459,258	Performance-based: Vest upon the earlier of i) two years from the achievement of the targeted common unit value and a realization event or ii) six months from a change of control event and the achievement of the targeted common unit value as defined by the 2011 Equity Plan
Tranche C RDUs	459,258	Performance-based: Vest upon the earlier of i) one year from the achievement of the targeted common unit value and a realization event or ii) six months from a change in control event and the achievement of the targeted common unit value as defined by the 2011 Equity Plan

Unit Options

The Tranche A Options were granted with an aggregate grant date fair value of approximately $6. The fair value of each option was estimated at the grant date using a Black-Scholes option pricing model. The assumptions used to estimate the fair value were a 2.21% risk-free interest rate, a 6.25 year expected life, a 37.4% expected volatility rate and a 0% dividend rate. Compensation cost of $1 and $2 related to these awards was recognized during the three and nine months ended September 30, 2011, respectively.

The Tranche B and Tranche C Options were granted with performance and market conditions each with an aggregate grant date fair value of approximately $3. The fair value was estimated at the grant date using a Monte Carlo valuation method, which is a commonly accepted valuation model for awards with market and performance conditions. The Monte Carlo valuation method requires the use of a range of assumptions. The range of risk-free interest rates were 0.16% to 3.49%, expected volatility rates ranged from 34.5% to 41.5% and a 0% dividend rate. The expected life assumption is not used in the Monte Carlo valuation method, but the output of the model indicated a weighted-average expected life of 9.2 years. Compensation cost has not been recognized for the Tranche B and Tranche C Options during the three and nine months ended September 30, 2011 because as of September 30, 2011, it is not probable the related options will vest. Compensation cost will be recognized over the service period once the satisfaction of the performance condition is probable.

Restricted Deferred Units

The Tranche A RDUs were granted with an aggregate grant date fair value of approximately $4. Compensation cost of less than $1 and $2 related to these awards was recognized during the three and nine months ended September 30, 2011, respectively.

The Tranche B RDUs and Tranche C RDUs were granted each with an aggregate grant date fair value of approximately $2. The fair value was estimated at the grant date using the same Monte Carlo valuation method and assumptions. The RDU's have an indefinite life, thus the term used in the valuation model was 30 years, which resulted in a weighted-average expected life of 21.4 years. Compensation cost has not been recognized for the Tranche B RDUs and Tranche C RDUs during the three and nine months ended September 30, 2011 because as of September 30, 2011, it is not probable the related restricted deferred units will vest. Compensation cost will be recognized over the service period once the satisfaction of the performance condition is probable.

Although the 2011 Equity Plan is issued by Momentive Holdings, the underlying compensation cost represents compensation costs paid for by Momentive Holdings on MSC's behalf, as a result of the employees' service to MSC. All compensation cost is recorded over the requisite service period on a graded-vesting basis and is included in Selling, general and administrative expense in the unaudited Condensed Consolidated Statements of Operations.