Stock-Based Compensation

Description of Stock Plans

Under the stock incentive plan of 2012 (the 2012 Plan), up to 20 million shares of common stock are available for awards to our employees, officers, consultants, and directors. Awards may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other stock-based awards. Each full value award, defined as any award other than a stock option or stock appreciation right, is counted as 1.76 shares. The exercise price for stock options issued cannot be less than the fair value of the underlying common stock as of the grant date. Stock options generally have a term of eight years after the date of grant and vest after three years. At December 31, 2012, approximately 19.87 million shares were available for future grants under the 2012 Plan.

Under the stock incentive plan of 2007 (the 2007 Plan), which was terminated in May 2012 for purposes of any further grants, up to 35 million shares of common stock were available for awards to our employees, officers, consultants, and directors. Awards could be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, and other stock-based awards. Each full value award, defined as any award other than a stock option or stock appreciation right, was counted as 2.7 shares. Awards granted before the termination of the 2007 Plan remain outstanding in accordance with the plan's terms. Stock options generally have a term of eight years after the date of grant and vest after three years.

Under the stock plan of 1999 (the 1999 Plan), which was terminated in May 2007 for purposes of any further grants other than reload grants, up to 17.5 million shares of common stock were available for awards to our employees, officers, brokers, and directors. Awards could be in the form of stock options, stock appreciation rights, stock awards, dividend equivalent awards, or any other right or interest relating to stock. Awards granted before the termination of the 1999 Plan remain outstanding in accordance with the plan's terms. Stock options under the 1999 Plan have a maximum term of ten years after the date of grant and generally vest after three years.

We issue new shares of common stock for all of our stock plan vestings and exercises.

Nonvested Stock Awards

Activity for nonvested stock awards classified as equity is as follows:



			Weighted Average
	Shares		Grant Date
	(000s)		Fair Value
Outstanding at December 31, 2011	1,661		$	20.36
Granted	864		22.96
Vested	(1,070	)	18.18
Forfeited	(52	)	23.59
Outstanding at December 31, 2012	1,403		23.57

Nonvested stock awards vest over a one to three year service period, beginning at the date of grant, and the compensation cost is recognized ratably during the vesting period. Forfeitable dividend equivalents on nonvested stock awards are accrued in the form of additional restricted stock units. Compensation cost for nonvested stock awards subject to accelerated vesting upon retirement is recognized over the implicit service period.

The weighted average grant date fair value per share for nonvested stock awards granted during 2012, 2011, and 2010 was $22.96, $26.13, and $20.91, respectively. The total fair value of shares vested during 2012, 2011, and 2010 was $19.5 million, $19.2 million, and $19.0 million, respectively. At December 31, 2012, we had $10.9 million of unrecognized compensation cost related to nonvested stock awards that will be recognized over a weighted average period of 0.8 years.

Cash-Settled Awards

Activity for cash-settled awards classified as a liability is as follows:



			Weighted Average
	Shares		Grant Date
	(000s)		Fair Value
Outstanding at December 31, 2011	153		$	23.80
Granted	117		23.23
Vested	(63	)	23.25
Outstanding at December 31, 2012	207		23.72

Cash-settled awards vest over a one to three year service period, beginning at the date of grant, and the compensation cost is recognized ratably during the vesting period. Forfeitable dividend equivalents on cash-settled awards are accrued in the form of additional units. Compensation cost for cash-settled awards subject to accelerated vesting upon retirement is recognized over the implicit service period.

The amount payable per unit awarded is equal to the price per share of Unum Group's common stock at settlement of the award, and as such, we measure the value of the award each reporting period based on the current stock price. The effects of changes in the stock price during the service period are recognized as compensation cost over the service period. Changes in the amount of the liability due to stock price changes after the service period are compensation cost of the period in which the changes occur.

The weighted average grant date fair value per unit for cash-settled awards granted during 2012, 2011, and 2010 was $23.23, $26.22, and $20.79, respectively. The total fair value of cash-settled awards vested during 2012 and 2011 was $1.5 million and $0.7 million, respectively, and the total fair value of cash-settled awards paid during 2012 and 2011 was $1.5 million and $0.9 million, respectively. No cash-settled awards vested prior to 2011. There is no unrecognized compensation cost related to the cash-settled awards, other than future changes in the liability due to future stock price changes, as the units do not require additional future service.

Stock Options

Stock option activity is summarized as follows:



					Remaining	Intrinsic
	Shares		Weighted Average		Contractual Term	Value
	(000s)		Exercise Price		(in years)	(in millions)
Outstanding at December 31, 2011	1,477		$	20.13
Granted	276		23.35
Exercised	(62	)	11.37
Outstanding at December 31, 2012	1,691		20.98		4.6	$	3.1

Exercisable at December 31, 2012	1,202		$	19.86	3.7	$	3.1

All outstanding stock options at December 31, 2012 are expected to vest. Stock options vest over a one to three year service period, beginning at the date of grant, and the compensation cost is recognized ratably during the vesting period. Compensation cost for stock options subject to accelerated vesting upon retirement is recognized over the implicit service period.

The total intrinsic value of options exercised during 2012, 2011, and 2010 was $0.6 million, $3.9 million, and $3.2 million, respectively. The total fair value of options that vested during 2012, 2011, and 2010 was $2.3 million, $2.7 million, and $2.5 million, respectively. At December 31, 2012, we had $0.5 million of unrecognized compensation cost related to stock options that will be recognized over a weighted average period of 0.8 years.

The weighted average grant date fair value of options granted during 2012, 2011, and 2010 was $9.78, $11.73, and $9.04, respectively. We estimated the fair value on the date of grant using the Black-Scholes valuation model. The following assumptions were used to value the 2012, 2011, and 2010 grants:


•	Expected volatility of 52 percent, 53 percent, and 55 percent, respectively, based on our historical daily stock prices.


•	Expected life of 6.0 years, 5.5 years, and 5.0 years, respectively, based on historical average years to exercise.


•	Expected dividend yield of 1.80 percent, 1.41 percent, and 1.59 percent, respectively, based on the dividend rate at the date of grant.


•	Risk free interest rate of 1.13 percent, 2.37 percent, and 2.33 percent, respectively, based on the yield of treasury bonds at the date of grant.

Expense

Compensation expense for the stock plans, as reported in our consolidated statements of income, is as follows:



	Year Ended December 31
	2012		2011		2010
	(in millions of dollars)
Nonvested Stock Awards and Cash-Settled Awards	$	20.9	$	19.6	$	20.7
Stock Options	2.7		2.7		2.5
Other	0.6		1.2		2.0
Total Compensation Expense, Before Income Tax	$	24.2	$	23.5	$	25.2

Total Compensation Expense, Net of Income Tax	$	15.6	$	15.3	$	17.2

Cash received under all share-based payment arrangements for the years ended December 31, 2012, 2011, and 2010 was $4.9 million, $14.8 million, and $10.0 million, respectively.