Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2011

Stock-Based Compensation Plans

Stock-Based Compensation Plans

NOTE 21. Stock-Based Compensation Plans

        The Company has established the Incentive Plan and the 2003 Non-Employee Directors Plan ("2003 Directors Plan"), (referred to herein as the "Plans") pursuant to which employees and non-employees of the Company have been awarded stock options, restricted stock and/or restricted stock units, which expire at various times through 2017. The Company generally issues treasury shares in connection with option exercises, restricted stock awards or the settlement of vested restricted stock units to the extent there are adequate shares in treasury to satisfy such activity.

        The following is a recap of all Plans as of December 31, 2011:

Shares authorized for issuance	47,895,900
Share awards used:
Stock options granted and outstanding	8,107,339
Restricted stock awards granted and unvested	6,113,731
Restricted stock units granted and unvested	6,990,602
Restricted stock units granted and vested	1,541,346
Total share awards used	22,753,018
Shares available for future awards*	25,142,882

*

Awards above exclude options for 1.0 million shares and 1.0 million shares underlying RSUs granted to the Company's CEO outside of the Incentive Plan and pursuant to the "employee inducement" award exception of the NASDAQ rules in connection with his hiring in the second quarter of 2011.

        For the years ended December 31, 2011, 2010 and 2009, total stock-based compensation expense was $15.1 million, $54.3 million and $13.9 million, respectively, and the related tax benefit recognized in the Consolidated Statements of Operations was $6.4 million, $23.7 million and $5.4 million, respectively. Included within stock-based compensation expense for the year ended December 31, 2010 is approximately $34.2 million related to specific matters occurring during the year as further discussed below.

        During the fourth quarter of 2010, the Company modified the vesting terms of restricted stock and restricted stock units previously granted in connection with year-end bonuses to allow for continued vesting of such awards so long as the grantee's employment is not terminated for "cause" and the grantee does not compete or engage in certain other actions potentially harmful to the Company. Previously, unvested equity awards granted in connection with year-end bonuses would be forfeited if the grantee's employment with the Company were to terminate before vesting, with limited exceptions. In addition, similar modifications were made to certain equity awards previously granted in connection with 2008 and 2009 year-end compensation (excluding outstanding awards held by executive officers of the Company), which is applicable to terminations of employment after December 31, 2010. These changes resulted in approximately $6.7 million of expense that previously had been expected to be recognized in future periods instead being recognized in the fourth quarter of 2010. This general policy was subsequently changed back to the Company's previous policy during the third quarter of 2011, based upon the recommendation of the Company's newly hired Chief Executive Officer ("CEO") which was approved by the Company's Board of Directors. Under the approved changes to the Company's policy, it is expected that future equity awards in general will provide for forfeiture of awards by employees who leave the Company which results in the related compensation expense being recorded ratably over the vesting period of the award, generally 3 years, rather than being expensed ratably during the year with respect to which the service was provided. This change did not affect the terms of, or accounting for, current outstanding awards.

        In addition, during the year ended December 31, 2010, the Company recognized stock-based compensation expense of (i) approximately $12.7 million related to the remaining amortization of the former CEO's and the former Chief Financial Officer's ("CFO") outstanding equity awards since the dates of their separations during the first quarter of 2010 and (ii) approximately $2.3 million as a result of a modification to fully vest a senior executive's unvested restricted stock units and options in connection with a letter agreement regarding the senior executive's continued employment that was entered into with the Company on September 21, 2010.

        Compensation expense for the years ended December 31, 2010 and 2009 also includes $12.5 million and $1.5 million, respectively, of expense related to liability classified awards which is recorded within Accrued compensation in the Consolidated Statements of Financial Condition. There was no expense related to liability classified awards during the year ended December 31, 2011.

        At December 31, 2011, the total compensation expense related to non-vested awards (which are expected to vest) not yet recognized is $22.0 million, which is expected to be recognized over the remaining weighted average vesting period of 2.0 years.

        The actual tax benefit realized for the tax deductions for share-based compensation was $8.1 million, $9.0 million and $7.4 million for the years ended December 31, 2011, 2010 and 2009, respectively.

        The Incentive Plan provides for awards in a variety of forms, including, incentive stock options (within the meaning of Section 422 of the Internal Revenue Code), nonqualified stock options, restricted stock and restricted stock units. The Incentive Plan imposes a limit on the number of shares of the Company's common stock that may be subject to awards. On February 6, 2008, the Company's Board of Directors authorized, and on June 5, 2008, the Company's stockholders approved, an additional 10,675,000 shares for issuance pursuant to the Incentive Plan. On April 16, 2009, in connection with amending and restating the Incentive Plan, the Company's Board of Directors authorized and on June 16, 2009, the Company's stockholders approved an additional 5,000,000 shares for issuance pursuant to the Incentive Plan. An award relating to shares may be granted if the aggregate number of shares subject to then-outstanding awards, under the Incentive Plan and under the pre-existing plans, plus the number of shares subject to the award being granted do not exceed the sum of (i) 25% of the number of shares of common stock issued and outstanding immediately prior to the grant plus (ii) 15.675 million shares.

        The 2003 Directors Plan allows awards in the form of stock options and restricted shares. The 2003 Directors Plan imposes a limit on the number of shares of our common stock that may be subject to awards. On April 16, 2009, in connection with amending and restating the 2003 Directors Plan, the Company's Board of Directors authorized and on June 16, 2009, the Company's stockholders approved, increasing the number of shares available for issuance from 100,000 to 2,000,000 shares.

        Options:    Options have been granted with exercise prices not less than fair market value of the Company's common stock on the date of grant, as defined in each Plan, vest over a maximum of five years, and expire five to ten years after grant date.

        Unvested options are generally forfeited upon termination of employment, with limited exceptions. Option transactions for the three years ended December 31, 2011, 2010 and 2009 were as follows:

	Shares Subject to Option			Weighted Average Exercise Price
Balance at December 31, 2008		7,390,996		$	2.51
Options granted		256,702			4.52
Options exercised		(2,539,999	)		1.88
Options forfeited/expired		(480,388	)		4.04
Balance at December 31, 2009		4,627,311		$	3.29
Options granted		2,722,092			2.55
Options exercised		(1,250,000	)		2.31
Options forfeited/expired		—			—
Balance at December 31, 2010		6,099,403		$	3.16
Options granted*		4,373,686			1.76
Options exercised		—			—
Options forfeited/expired		(1,365,750	)		2.51
Balance at December 31, 2011		9,107,339		$	2.58

*

Options granted above include options for 1.0 million shares granted to the Company's CEO pursuant to the "employee inducement" award exception of the NASDAQ rules in connection with his hiring in the second quarter of 2011.

        There were no options exercised for the year ended December 31, 2011. For the years ended December 31, 2010 and 2009, the total intrinsic value of options exercised was $2.3 million and $11.0 million, respectively. No cash was received from the exercise of options, as a result of cashless exercises where shares were withheld to cover the exercise amount and taxes. At December 31, 2011, outstanding options for 9.1 million shares had a remaining average contractual term of 4.5 years and an intrinsic value of $0.2 million. At December 31, 2011, outstanding options for 4.4 million shares were exercisable, had a remaining average contractual term of 3.5 years and had an intrinsic value of zero as they were all out of the money.

        The following table summarizes information about stock options outstanding at December 31, 2011:

	Outstanding							Exercisable
Exercise Price Range	Shares			Average Life (years)		Average Exercise Price		Shares		Average Exercise Price
$1.45 - $2.00		4,673,686			5.6	$	1.77		303,100	$	1.91
$2.01 - $2.50		650,000			4.9		2.49		650,000		2.49
$2.51 - $3.00		1,700,000			3.1		3.00		1,448,334		3.00
$3.01 - $4.00		1,922,092			3.1		3.96		1,872,092		3.96
$4.01 - $7.50		161,561			2.5		5.56		161,561		5.56
Total		9,107,339	*		4.5	$	2.58		4,435,087	$	3.35

*

Options outstanding above include options for 1.0 million shares granted to the Company's CEO pursuant to the "employee inducement" award exception of the NASDAQ rules in connection with his hiring in the second quarter of 2011.

        The Black-Scholes option pricing model is used to determine the fair value of options granted. For year ended December 31 of each respective year, significant assumptions used to estimate the fair value of share based compensation awards include the following:

	2011*			2010			2009
Expected term**		3.94			3.70			6.00
Expected volatility		87.1	%		89.9	%		57.8	%
Expected dividends		—			—			—
Risk-free interest rate		1.2	%		1.0	%		3.0	%

*

Includes 1.0 million options granted to the Company's CEO pursuant to the "employee inducement" award exception of the NASDAQ rules in connection with his hiring in the second quarter of 2011.

**

The Company utilized the simplified method for calculating the expected term assumption for the years 2011, 2010 and 2009, as prescribed by ASC 718, due to insufficient historical stock option exercise experience.

        Restricted Stock Awards/Restricted Stock Units:    Restricted stock awards and restricted stock units have been valued at the market value of the Company's common stock as of the grant date and expensed over the service period. Awards granted which are not related to year-end compensation are amortized over the period in which the restrictions are outstanding, which is typically 3-5 years. Stock compensation expense associated with grants with performance conditions is recognized when it becomes probable that such performance conditions will be achieved. During 2009, performance awards were granted to the former CEO whose ultimate number of restricted stock units to be received was determined based upon the Company's pre-tax return on equity. No awards with performance conditions were granted in 2011 or 2010.

        Restricted stock awards/restricted stock units for the years ended December 31, 2011, 2010 and 2009 were as follows:

	Unvested Restricted Stock Awards			Weighted Average Grant-Date Fair Value Restricted Stock		Unvested Restricted Stock Units			Weighted Average Grant Date Fair Value Restricted Stock Units
Balance at December 31, 2008		7,337,546		$	1.90		6,303,214		$	1.80
Granted		5,675,544			5.53		3,786,558			4.55
Vested		(1,587,283	)		1.99		(2,416,062	)		1.69
Forfeited		(221,262	)		2.25		(600,001	)		2.43
Balance at December 31, 2009		11,204,545		$	3.72		7,073,709		$	3.05
Granted		3,715,133			3.36		3,521,315			3.08
Vested		(2,590,114	)		3.57		(3,831,886	)		2.58
Forfeited		(919,068	)		4.23		(571,804	)		4.39
Balance at December 31, 2010		11,410,496		$	3.60		6,191,334		$	3.22
Granted		2,583,084			1.92		6,547,866	*		1.96
Vested		(6,824,649	)		3.02		(3,195,351	)		2.87
Forfeited		(1,055,200	)		2.75		(1,553,247	)		2.53
Balance at December 31, 2011		6,113,731			3.68		7,990,602			2.47

*

Unvested RSUs include 1.0 million shares underlying RSUs granted to the Company's CEO pursuant to the "employee inducement" award exception of the NASDAQ rules in connection with his hiring in the second quarter of 2011.

        The total fair value of awards vested, based on the market value of the stock on the vest date, during the years ended December 31, 2011, 2010, and 2009 was $21.2 million, $18.3 million and $20.4 million, respectively.

Other

        At December 31, 2011 and December 31, 2010, there was approximately $0.5 million and $0.6 million, respectively, of accrued compensation within the Consolidated Statements of Financial Condition related to deferred compensation plans provided by the Company, which will be paid out between 2012 and 2016. As of February 28, 2007, the Company no longer permits new amounts to be deferred under these plans.