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SHARE-BASED AND OTHER COMPENSATION PLANS
 12 Months Ended
Dec. 31, 2015
SHARE-BASED AND OTHER COMPENSATION PLANS  
SHARE-BASED AND OTHER COMPENSATION PLANS

19. SHARE-BASED AND OTHER COMPENSATION PLANS

The following table presents our share-based compensation expense:

Years Ended December 31,
(in millions)201520142013
Share-based compensation expense - pre-tax*$365$349$457
Share-based compensation expense - after tax237227297

* For the years ended December 31, 2015, 2014 and 2013, $19 million, $86 million and $315 million, respectively, of pre-tax compensation expense was attributed to unsettled liability-classified awards, the values of which are based on our share price at the reporting date. Our share price was $61.97, $56.01 and $51.05 at December 31, 2015, 2014 and 2013, respectively. In addition, we recognized $147 million, $120 million and $101 million for immediately vested stock-settled awards issued to retirement eligible employees in 2015, 2014 and 2013, respectively.

Employee Plans

The Company grants annual Long Term Incentive (LTI) awards under the 2013 Long Term Incentive Plan (2013 LTIP), which is governed by the AIG 2013 Omnibus Incentive Plan (2013 Plan). The 2013 Plan replaced the AIG 2010 Stock Incentive Plan (2010 Plan) as of May 15, 2013 but does not affect the terms and conditions of any award issued under the 2010 Plan. The 2013 Plan is currently the only plan under which share-settled awards can be made.

As of December 31, 2015, the Starr International Company Inc. Deferred Compensation Profit Participation Plans (the SICO Plans) are the only legacy plans for which awards remain unvested.

Our share-settled awards are settled with previously acquired shares held in AIG’s treasury. Share awards made by SICO are settled by SICO.

AIG 2013 Omnibus Incentive Plan

The 2013 Plan was adopted at the 2013 Annual Meeting of Shareholders and provides for the grants of share-based awards to our employees and non-employee directors. The total number of shares that may be granted under the 2013 Plan (the reserve) is the sum of 1) 45 million shares of AIG Common Stock, plus 2) the number of authorized shares that remained available for issuance under the 2010 Plan when the 2013 Plan became effective, plus 3) the number of shares of AIG Common Stock relating to outstanding awards under the 2010 Plan at the time the 2013 Plan became effective that subsequently are forfeited, expired, terminated or otherwise lapse or are settled in cash. Each share-based unit granted under the 2013 Plan reduces the number of shares available for future grants by one share. However, shares with respect to awards that are forfeited, expired or settled for cash, and shares withheld for taxes on awards (other than options and stock appreciation rights (SARs) awards) are returned to the reserve.

During 2015, performance share units (PSUs) and deferred stock units (DSUs) were granted under the 2013 Plan and 45,670,678 shares are available for future grants as of December 31, 2015. PSUs were issued to employees as part of our long-term incentive program in March 2015 and are also issued for off-cycle grants, which are made from time to time during the year as sign-on awards to new hires or as a result of a change in employee status.

AIG 2010 Stock Incentive Plan

The 2010 Plan was adopted at the 2010 Annual Meeting of Shareholders. The total number of shares of AIG Common Stock that could be granted under the 2010 Plan was 60 million. During 2013, we granted PSUs, DSUs and restricted stock units (RSUs) under the 2010 Plan. Each PSU, DSU and RSU awarded reduced the number of shares available for future grants by one share. Subsequent to the adoption of the 2013 Plan in May 2013, no additional grants were made under the 2010 Plan.

Share-settled Awards

AIG 2013 Long Term Incentive Plan

The 2013 LTIP provides for the annual grant of PSUs to certain employees, including our senior executive officers and other highly compensated employees. Each recipient of an award is granted a number of PSUs (the target) that provides the opportunity to receive shares of AIG Common Stock based on AIG achieving specified performance goals at the end of a three-year performance period. These performance goals are pre-established by AIG’s Compensation and Management Resources Committee for each annual grant and may differ from year to year. The actual number of PSUs earned can vary from zero to 150 percent of the target depending on AIG’s performance relative to a specified peer group. Vesting occurs in three equal installments beginning on January 1 of the year immediately following the end of a performance period and January 1 of each of the next two years. Recipients must be employed at each vesting date to be entitled to share delivery, except upon the occurrence of an accelerated vesting event, such as an involuntary termination without cause, disability, retirement or death during the vesting period.

LTI awards granted in 2015 accrue dividend equivalent units (DEUs) in the form of additional PSUs whenever a cash dividend is declared on shares of AIG Common Stock; the DEUs are subject to the same vesting terms and conditions as the underlying PSUs. Neither dividends nor DEUs accrue on unvested PSUs or the shares underlying the PSUs for LTI awards granted in 2014 and 2013.

Performance Share Unit Goals and Valuation

The performance goals used to measure LTI awards granted in 2015 and 2014 pertain to AIG’s total shareholder return (TSR) and credit default swap (CDS) spread, weighted 75 percent and 25 percent, respectively, in each case relative to a specified peer group. The goals for the 2013 awards are AIG’s growth in tangible book value per common share (TBVPS) (excluding accumulated other comprehensive income) and TSR weighted 50 percent each, in each case relative to a specified peer group. The fair value of PSUs to be earned based on AIG’s TBVPS and CDS spreads was based on the closing price of AIG Common Stock on the grant date. However, PSUs granted in 2014 and 2013 that vest based on these goals were discounted by the present value of estimated dividends to be paid during the respective vesting periods as these awards do not accrue dividends or DEUs. The fair value of PSUs to be earned based on AIG’s TSR relative to a specified peer group was determined on the grant date using a Monte Carlo simulation.

The following table presents the assumptions used to estimate the fair value of PSUs that vest based on AIG’s TSR:

201520142013
Expected dividend yield(a)1.78%1.13%0.38%
Expected volatility(b)22.71%23.66%30.79%
Risk-free interest rate(c)1.01%0.76%0.50%

(a) The dividend yield is the projected annualized AIG dividend yield estimated by Bloomberg Professional service as of the valuation date.

(b) The expected volatility is based on the implied volatilities of actively traded stock options from the valuation date through the end of the PSU performance period as estimated by Bloomberg Professional service.

(c) The risk-free interest rate is the continuously compounded interest rate for the term between the valuation date and the end of the performance period that is assumed to be constant and equal to the interpolated value between the closest data points on the U.S. dollar LIBOR-swap curve as of the valuation date

The following table summarizes outstanding share-settled LTI awards(a):

Weighted Average
As of or for the YearNumber of PSUs(b) Grant-Date Fair Value
Ended December 31, 20152015 LTI2014 LTI2013 LTI2015 LTI2014 LTI2013 LTI
Unvested, beginning of year-4,036,5274,066,182$-$48.72$37.09
Granted6,445,63910,225-54.5552.83-
Vested(3,212,976)(1,270,263)(1,593,595)54.0948.5637.09
Forfeited(185,705)(217,130)(222,478)53.6648.7837.38
Unvested, end of year3,046,9582,559,3592,250,109$55.08$48.82$37.07

(a) Excludes SICO awards, DSUs and options, which are discussed under the SICO Plans, Non-Employee Plans and Stock Options sections, respectively.

(b) Represents target number of PSUs granted, and does not reflect potential increases or decreases that could result from the final outcome of the performance goals to be determined after the applicable performance period ends. The performance period for 2013 LTI awards ended December 31, 2015; the number of earned PSUs based on the results of the 2013 performance goals will be adjudicated in March 2016 by the Compensation and Management Resources Committee.

At December 31, 2015, the total unrecognized compensation cost (net of expected forfeitures) for the unvested PSUs was $190 million and the weighted-average and expected period of years over which that cost is expected to be recognized are 1.29 years and 4 years

SICO Plans

The SICO Plans, which have been closed to new participants since 2004, provide that shares of AIG Common Stock currently held by SICO are set aside for the benefit of the participants and distributed upon retirement. The SICO Board of Directors currently may permit an early payout of shares under certain circumstances. Prior to payout, the participant is not entitled to vote, dispose of or receive dividends with respect to such shares, and shares are subject to forfeiture under certain conditions, including but not limited to the participant’s termination of employment with us prior to normal retirement age. A significant portion of the awards under the SICO Plans vest the year after the participant reaches age 65, provided that the participant remains employed by us through age 65. The portion of the awards for which early payout is available vests on the applicable payout date.

SICO Plan awards issued in the form of restricted stock were valued based on the closing price of AIG’s Common Stock on the grant date. Although none of the costs of the various benefits provided under the SICO Plans have been paid by us, we have recorded compensation expense for the deferred compensation amounts payable to our employees by SICO, with an offsetting amount credited to Additional paid-in capital reflecting amounts deemed contributed by SICO. As of December 31, 2015, 31,964 shares of restricted stock remain unvested; the total unrecognized compensation cost (net of expected forfeitures) is $10 million and the weighted average and expected period of years over which those costs are expected to be recognized are 5.28 years and 21 years, respectively.

Non-Employee Plans

Our non-employee directors, who serve on our Board of Directors, receive share-based compensation in the form of fully vested deferred stock units (DSUs) with delivery deferred until retirement from the Board. DSUs granted in 2015, 2014 and 2013 accrue DEUs equal to the amount of any regular quarterly dividend that would have been paid by AIG if the shares of AIG Common Stock underlying the DSUs had been outstanding. In 2015, 2014 and 2013, we granted to non-employee directors 32,342, 28,477 and 25,735 DSUs, respectively, under the 2013 Plan, and recognized expense of $1.9 million, $1.5 million and $1.2 million, respectively.

Stock Options

Options granted under the AIG 2007 Stock Incentive Plan and the 1999 Stock Option Plan generally vested over four years (25 percent vesting per year) and expire 10 years from the date of grant. All outstanding options are vested and out of the money at December 31, 2015. There were no stock options granted since 2008. The aggregate intrinsic value for all unexercised options is zero.

The following table provides a roll forward of stock option activity:

Weighted
Average
Remaining
Weighted AverageContractual
As of or for the Year Ended December 31, 2015SharesExercise PriceLife
Options:
Exercisable at beginning of year202,275$1,037.742.17
Expired(108,763)$1,261.25
Exercisable at end of year93,512$777.782.16

Cash-settled Awards

Share-based cash-settled awards are recorded as liabilities until the final payout is made or the award is replaced with a stock-settled award. Compensation expense is recognized over the vesting periods, unless the award is fully vested on the grant date in which case the entire award value is immediately recognized as expense.

Unlike stock-settled awards, which generally have a fixed grant-date fair value (unless the award is subsequently modified), the fair value of unsettled or unvested cash-settled awards is remeasured at the end of each reporting period based on the change in fair value of one share of AIG Common Stock. The liability and corresponding expense are adjusted accordingly until the award is settled.

During the period we were subject to Troubled Asset Relief Program (TARP) restrictions, we issued various cash-settled share-based grants, including Stock Salary, TARP RSU awards, and other cash-settled RSU awards, to certain of our most highly compensated employees and executive officers in the form of restricted stock units that were either fully vested with payment deferred, or subject to specified service and performance conditions. After the repayment of our TARP obligations in December 2012, all performance conditions were satisfied; as a result, we no longer issue awards that are subject to TARP restrictions.

Restricted Stock Units

Stock Salary was earned and accrued at the same time or times as the salary would otherwise be paid in cash and is generally settled in installments on the first, second or third anniversary of grant in accordance with the terms of an employee’s award. Stock Salary grants were generally issued in the form of fully vested RSUs and are settled in cash based on the value of AIG Common Stock on the applicable settlement date. During 2015, 2014 and 2013, we paid $42 million, $89 million and $180 million, respectively, to settle awards. For those awards that were vested and unsettled at the end of each year, we recognized charges of $2 million, $7 million and $73 million in compensation expense for the years ended December 31, 2015, 2014 and 2013, respectively, to reflect fluctuations in the value of AIG Common Stock. At December 31, 2015, the number of vested but unsettled RSUs totaled 24,405, all of which were settled in January 2016.

In addition, other TARP-related cash-settled RSU granted and issued in March 2013 and 2012 remained unvested as follows:

Number of Units
Year Ended December 31, 2015RSUs*
Unvested, beginning of year1,404,645
Granted-
Vested(975,715)
Forfeited(15,972)
Unvested, end of year412,958
Net compensation expense for the year (in millions)$17

* Total unrecognized compensation as of December 31, 2015 is $1 million; the unvested RSUs will vest and settle in March 2016.

Long Term Incentive Plans

Certain employees were provided the opportunity to receive additional compensation in the form of cash and cash-settled SARs under the 2011 LTIP award or 100 percent cash for the 2012 LTIP award if certain performance measures were met. The ultimate value of these awards was contingent on AIG achieving performance measures over a two-year performance period and such value could range from zero to twice the target amount. Subsequent to the performance period, the earned awards were subject to an additional time-vesting period. This resulted in a graded vesting schedule for the cash portion of up to two years, while the SARs portion cliff-vests two years after the end of performance period.

The cash portion of the awards expensed in 2015, 2014 and 2013 totaled approximately $19 million, $57 million and $249 million, respectively. All payments remaining under these awards were made in January 2016.