14. Benefit Plans

Stock-Based Compensation

The Company’s equity-based award plans provide for grants to Company employees and directors of incentive and non-qualified options to purchase common shares, rights to receive the appreciation in value of common shares, awards of common shares subject to restrictions on transfer, awards of common shares issuable in the future upon satisfaction of certain conditions and rights to purchase common shares and other awards based on common shares. Under the terms of the plans, awards available for grant were 8.9 million common shares at December 31, 2012.

During 2012, 2011 and 2010, $6.4 million, $6.8 million and $5.7 million, respectively, was charged to expense associated with awards under the Company’s equity-based award plans. This charge is included in general and administrative expenses in the Company’s consolidated statements of operations.

Stock Options

Stock options may be granted at per-share prices not less than fair market value at the date of grant and must be exercised within the maximum contractual term of 10 years thereof. Options granted under the plans generally vest over three years in one-third increments, beginning one year after the date of grant.

In previous years, the Company granted options to its directors. Options are no longer granted to the Company’s directors. Such options were granted at the fair market value of the Company’s common shares on the date of grant.

The fair values for option awards granted in 2012, 2011 and 2010 were estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:


	For the Year Ended December 31,
	2012	2011	2010
Weighted-average fair value of grants	$5.07	$5.63	$5.30
Risk-free interest rate (range)	0.5% - 1.1%	1.4% -3.0%	1.4% -2.6%
Dividend yield (range)	3.6% - 4.7%	3.4% - 4.9%	4.2% - 5.6%
Expected life (range)	4 - 5 years	7 years	4 - 5 years
Expected volatility (range)	50.8% - 66.8%	52.1% - 69.0%	87.0% - 97.8%

The risk-free rate was based upon a U.S. Treasury Strip with a maturity date that approximates the expected term of the award. The expected life of the award was derived by referring to actual exercise experience. The expected volatility of the stock was derived by using a 50/50 blend of implied and historical changes in the Company’s historical stock prices over a time frame consistent with the expected life of the award.

The following table reflects the stock option activity described above:


							Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value (thousands)
	Number of Options
	Employees			Directors
	(thousands)
Balance December 31, 2009		3,330			22		$	29.02
Granted		373			—			10.37
Exercised		(212	)		—			6.02
Forfeited		(268	)		(2	)		30.21

Balance December 31, 2010		3,223			20		$	28.28
Granted		276			—			13.72
Exercised		(192	)		—			6.39
Forfeited		(624	)		(10	)		41.02

Balance December 31, 2011		2,683			10		$	25.35
Granted		345			—			13.87
Exercised		(266	)		—			6.54
Forfeited		(166	)		(10	)		26.21

Balance December 31, 2012		2,596			—		$	25.70		5.3	$	7,877

Options exercisable at December 31,
2012		2,035			—		$	29.12		4.5	$	6,538
2011		2,230			10		$	28.00		5.2	$	5,177
2010		2,900			20		$	30.27		5.8	$	8,035

The following table summarizes the characteristics of the options outstanding at December 31, 2012 (in thousands):


	Options Outstanding
Range of Exercise Prices	Outstanding as of 12/31/12		Weighted- Average Remaining Contractual Life (years)		Weighted- Average Exercise Price		Options Exercisable
Range of Exercise Prices	Outstanding as of 12/31/12		Weighted- Average Remaining Contractual Life (years)		Weighted- Average Exercise Price		Exercisable as of 12/31/12		Weighted- Average Exercise Price
$0.00-$6.50		569		6.0	$	6.01		569	$	6.01
$6.51-$12.50		276		7.3		10.42		172		10.37
$12.51-$29.50		611		7.6		15.11		154		18.65
$29.51-$49.50		781		3.1		38.05		781		38.05
$49.51-$69.50		359		3.7		59.87		359		59.87

		2,596		5.3	$	25.70		2,035	$	29.12

The following table reflects the activity for unvested stock option awards for the year ended December 31, 2012 (options in thousands):


	Options			Weighted- Average Grant Date Fair Value
Unvested at December 31, 2011		453		$	5.34
Granted		345			5.06
Vested		(184	)		5.21
Forfeited		(53	)		5.19

Unvested at December 31, 2012		561		$	5.21

As of December 31, 2012, total unrecognized stock option compensation cost granted under the plans was $1.7 million, expected to be recognized over a weighted-average 1.8-year term.

Exercises of Employee Stock Options

The total intrinsic value of options exercised for the year ended December 31, 2012, was $2.2 million. The total cash received from employees as a result of employee stock option exercises for the year ended December 31, 2012 and 2011, was $1.7 million and $2.0 million, respectively. The Company settles employee stock option exercises primarily with newly issued common shares or with treasury shares, if available.

Restricted Stock Awards

In 2012, 2011 and 2010, the Board of Directors approved grants of 0.3 million, 0.2 million and 0.6 million restricted common shares, respectively, to executives of the Company. The restricted stock grants generally vest in equal annual amounts over a four-year period. Restricted share awards have the same cash dividend and voting rights as other common stock and are considered to be currently issued and outstanding. These grants have a weighted-average fair value at the date of grant ranging from $9.25 to $15.36, which was equal to the market value of the Company’s common shares at the date of grant. In 2012, 2011 and 2010, grants of 0.1 million common shares, in each year, were issued as compensation to the Company’s outside directors. These grants were issued equal to the market value of the Company’s common shares at the date of grant and immediately vested upon grant.

The following table reflects the activity for unvested restricted stock awards for the year ended December 31, 2012 (awards in thousands):


	Awards			Weighted- Average Grant Date Fair Value
Unvested at December 31, 2011		728		$	9.31
Granted		299			13.92
Vested		(433	)		8.22
Forfeited		(46	)		12.76

Unvested at December 31, 2012		548		$	12.39

As of December 31, 2012, total unrecognized compensation of restricted stock award arrangements granted under the plans was $6.8 million, expected to be recognized over a weighted-average, 2.3 year term.

Value Sharing Equity Program

In 2009, the Company’s Board of Directors approved and adopted the Value Sharing Equity Program (the “VSEP”) and the grant of awards to certain of the Company’s executives. The VSEP was designed to allow the Company to reward participants with a portion of “Value Created” on six specified measurement dates, the last of which occurred on December 31, 2012. The Company measured the Value Created during the period between the start of the VSEP and the applicable measurement date. Value Created was measured as the increase in the Company’s market capitalization (i.e., the product of the Company’s share price and the number of shares outstanding as of the measurement date), as adjusted for any equity issuances or equity repurchases between the start of the VSEP and the applicable measurement date.

Each participant was assigned a “percentage share” of the Value Created. On December 31, 2012, the final measurement date, each participant received a number of the Company’s common shares with an aggregate value equal to the participant’s full percentage share of the Value Created, although the number of the Company’s common shares awarded to a participant was reduced by the number of the Company’s common shares previously earned by the participant as of prior measurement dates. This prevented the participants from benefiting more than once for increases in the shares price of the Company’s common shares that occurred during earlier measurement periods.

The Company’s common shares granted to a participant are subject to an additional time-based vesting period and will generally vest in 20% annual increments beginning on the date of grant and on each of the first four anniversaries of the date of grant. The fair value of the VSEP grants was estimated on the date of grant using a Monte Carlo approach model based on the following assumptions:


		Range
Risk-free interest rate		1.9%
Dividend yield		6.2%
Expected life		3.4 years
Expected volatility		88%

The following table reflects the activity for unvested VSEP awards for the year ended December 31, 2012 (awards in thousands):


	Awards			Weighted- Average Grant Date Fair Value
Unvested at December 31, 2011		1,182		$	13.34
Issued		1,401			14.98
Vested		(706	)		14.04
Forfeited		(9	)		13.42

Unvested at December 31, 2012		1,868		$	14.31

As of December 31, 2012, $3.2 million of total unrecognized compensation costs was related to the two market-metric components associated with the awards granted under the VSEP and are expected to be recognized over the remaining four-year term, which includes the vesting period.

401(k) Plan

The Company has a 401(k) defined contribution plan covering substantially all of the officers and employees of the Company that permits participants to defer up to a maximum of 50% of their compensation subject to statutory limits. The Company matches the participant’s contribution in an amount equal to 50% of the participant’s elective deferral for the plan year up to a maximum of 6% of a participant’s base salary plus annual cash bonus, not to exceed the sum of 3% of the participant’s base salary plus annual cash bonus. The Company’s plan allows for the Company to make additional discretionary contributions. No discretionary contributions have been made. Employees’ contributions are fully vested, and the Company’s matching contributions vest 20% per year over five years. The Company funds all matching contributions with cash. The Company’s contributions for each of the three years ended December 31, 2012, 2011 and 2010, were $1.0 million, $1.1 million and $1.1 million, respectively. The 401(k) plan is fully funded at December 31, 2012.

Elective Deferred Compensation Plan

The Company has a non-qualified elective deferred compensation plan (“Elective Deferred Compensation Plan”) for certain officers that permits participants to defer up to 100% of their base salaries and annual performance-based cash bonuses, less applicable taxes and benefits deductions. The Company provides a matching contribution to any participant who has contributed the maximum permitted under the 401(k) plan. This matching contribution is equal to the difference between (a) 3% of the sum of the participant’s base salary and annual performance-based bonus deferred under the 401(k) plan and the deferred compensation combined and (b) the actual employer matching contribution under the 401(k) plan. Deferred compensation related to an employee contribution is charged to expense and is fully vested. Deferred compensation related to the Company’s matching contribution is charged to expense and vests 20% per year. Once an employee has been with the Company five years, all matching contributions are fully vested. The Company’s contributions were $0.1 million for the years ended December 31, 2012, 2011 and 2010. At December 31, 2012 and 2011, deferred compensation under the Elective Deferred Compensation Plan aggregated $2.9 million and $2.7 million, respectively. The Elective Deferred Compensation Plan is fully funded at December 31, 2012.

Equity Deferred Compensation Plan

The Company maintains the DDR Corp. Equity Deferred Compensation Plan (the “Equity Deferred Compensation Plan”), a non-qualified compensation plan for certain officers and directors of the Company to defer the receipt of restricted shares. At December 31, 2012 and 2011, there were 0.5 million and 0.4 million common shares of the Company in the Equity Deferred Compensation Plan valued at $7.2 million and $4.9 million, respectively. The Equity Deferred Compensation Plan was fully funded at December 31, 2012.

Vesting of restricted share grants of approximately 0.1 million common shares in 2012, 2011 and 2010 was deferred through the Equity Deferred Compensation Plan. The Company recorded $1.8 million, $1.4 million and $1.2 million in 2012, 2011 and 2010, respectively, in equity as deferred compensation obligations for the vested restricted shares deferred into the Equity Deferred Compensation Plan.

In 2012, 2011 and 2010, certain officers elected to have their deferred compensation distributed, which resulted in a reduction of the deferred obligation of $1.1 million, $2.3 million and $5.5 million, respectively.

Directors’ Deferred Compensation Plan

In 2000, the Company established the Directors’ Deferred Compensation Plan (the “Directors Plan”), a non-qualified compensation plan for the directors of the Company to defer the receipt of quarterly compensation. At December 31, 2012 and 2011, there were 0.4 million and 0.3 million common shares of the Company in the Directors Plan valued at $5.7 million and $3.7 million, respectively. The Directors Plan was fully funded at December 31, 2012.