Stock-Based Compensation

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation [Abstract]

Stock-Based Compensation

12. Stock-based Compensation

In 2010, our shareholders approved the 2010 Long-Term Incentive Plan (the “Plan”). The Plan’s purpose is to promote the Company’s and the shareholders’ long-term financial interests and growth by attracting, retaining and motivating high-quality executives and directors and aligning their interests with those of our shareholders. The Plan reserved 5,000,000 shares of common stock to be issued for grants of several different types of long-term incentives including stock options, stock appreciation rights, deferred stock units, restricted shares, performance shares, other common stock-based awards, and dividend equivalent rights. Unissued authorized shares or treasury stock may be issued under the Plan. Generally, Ferro has issued treasury stock to satisfy the common stock requirements of its long-term incentive plans.

Previous plans authorized various types of long-term incentives. No further grants may be made under these previous plans. However, any outstanding awards or grants made under these plans will continue until the end of their specified terms.

Stock options, deferred stock units, and restricted share awards were the only grant types outstanding at December 31, 2011. Stock options are discussed below. Activities in other grant types were not significant.

Stock Options

General Information

The Compensation Committee of the Board of Directors awards stock options under the Plan and generally grants stock options during regularly scheduled meetings. Stock options outstanding at December 31, 2011, have a term of 10 years, vest evenly over three or four years on the anniversary of the grant date, and have an exercise price equal to the per share fair market value of our common stock on the grant date. Accelerated vesting is used for options held by employees who meet both the age and years of service requirements to retire prior to the end of the vesting period. In the case of death, retirement or change in control, the stock options become 100% vested and exercisable.

Stock Option Valuation Model and Method Information

We estimate the fair value of each stock option on the date of grant using the Black-Scholes option pricing model. We use judgment in selecting assumptions for the model, which may significantly impact the timing and amount of compensation expense, and we base our judgments primarily on historical data. When appropriate, we adjust the historical data for circumstances that are not likely to occur in the future. We adjust the assumptions each year based upon new information.

The following table details the determination of the assumptions used to estimate the fair value of stock options:

Assumption	Estimation Method
Expected life, in years	Historical stock option exercise experience
Risk-free interest rate	Yield of U.S. Treasury Bonds with remaining maturity equal to expected life of the stock option
Expected volatility	Historical daily price observations of the Company’s common stock over a period equal to the expected life of the stock option
Expected dividend yield	Historical dividend rate at the date of grant

The following table details the weighted-average grant-date fair values and the assumptions used for estimating the fair values:

	2011		2010		2009
Weighted-average grant-date fair value		$10.55		$5.64		$0.49
Expected life, in years		6.9		7.2		6.8
Risk-free interest rate		2.67% - 3.07%		1.94% -3.12%		2.07% -2.42%
Expected volatility		71.9% -73.3%		69.7% -71.6%		39.7% -45.0%
Expected dividend yield		0%		0%		2.92% -8.09%

Stock Option Activity Information

A summary of stock option activity follows:

	Number of Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
						(In years)		(Dollars in thousands)
Outstanding at December 31, 2010		4,326,712		$	17.61
Granted		711,800			15.17
Exercised		(208,817	)		5.05
Forfeited or expired		(406,589	)		22.15
Outstanding at December 31, 2011		4,423,106			17.40		5.0	$	1,171
Exercisable at December 31, 2011		2,857,916		$	26.93		3.2	$	261
Vested or expected to vest at December 31, 2011		4,353,581		$	17.45		5.0	$	1,161

We calculated the aggregate intrinsic value in the table above by taking the total pretax difference between our common stock’s closing market value per share on the last trading day of the year and the stock option exercise price for each grant and multiplying that result by the number of shares that would have been received by the option holders had they exercised all their in-the-money stock options.

Information related to stock options exercised follows:

	2011		2010		2009
	(Dollars in thousands)
Proceeds from the exercise of stock options	$	1,053	$	137	$	—
Intrinsic value of stock options exercised		2,060		1,169		—
Income tax benefit related to stock options exercised		721		409		—

Stock-Based Compensation Expense Information

A summary of amounts recorded and to be recorded for stock-based compensation related to stock options follows:

	2011		2010		2009
	(Dollars in thousands)
Compensation expense recorded in selling, general and administrative expenses	$	4,462	$	1,903	$	1,794
Deferred income tax benefits related to compensation expense		1,562		666		628
Total fair value of stock options vested		7,736		1,620		1,998
Unrecognized compensation cost		6,117		3,616		2,009
Expected weighted-average recognition period for unrecognized compensation, in years		1.2		2.8		1.9

Directors’ Deferred Compensation

Separate from the Plan, the Company has established the Ferro Corporation Deferred Compensation Plan for Non-employee Directors, permitting its non-employee directors to voluntarily defer all or a portion of their compensation. The voluntarily deferred amounts are placed in individual accounts in a benefit trust known as a “rabbi trust” and invested in the Company’s common stock with dividends reinvested in additional shares. All disbursements from the trust are made in the Company’s common stock. The stock held in the rabbi trust is classified as treasury stock in shareholders’ equity and the deferred compensation obligation that is required to be settled in shares of Company’s common stock is classified as paid-in capital. The rabbi trust held 0.3 million shares, valued at $3.8 million, at December 31, 2011, and 0.3 million shares, valued at $4.5 million, at December 31, 2010.