15. Stock-Based Compensation

We maintain several stock-based compensation plans, which are described below. Total compensation expense for these plans was $46 million for 2014, $38 million for 2013, and $53 million for 2012. The total income tax benefit recognized in the income statement for these plans was $17 million for 2014, $14 million for 2013, and $20 million for 2012. Stock-based compensation expense related to awards granted to employees is recorded in “personnel expense” on the income statement; compensation expense related to awards granted to directors is recorded in “other expense.”

Our compensation plans allow us to grant stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, other awards which may be denominated or payable in or valued by reference to our common shares or other factors, discounted stock purchases, and deferred compensation to eligible employees and directors. At December 31, 2014, we had 79,938,471 common shares available for future grant under our compensation plans. In accordance with a resolution adopted by the Compensation and Organization Committee of KeyCorp’s Board of Directors, we may not grant options to purchase common shares, restricted stock or other shares under any long-term compensation plan in an aggregate amount that exceeds 6% of our outstanding common shares in any rolling three-year period.

Stock Options

Stock options granted to employees generally become exercisable at the rate of 25% per year. No option granted by KeyCorp will be exercisable less than one year after, or expire later than ten years from, the grant date. The exercise price is the closing price of our common shares on the grant date.

We determine the fair value of options granted using the Black-Scholes option-pricing model. This model was originally developed to determine the fair value of exchange-traded equity options, which (unlike employee stock options) have no vesting period or transferability restrictions. Because of these differences, the Black-Scholes model does not precisely value an employee stock option, but it is commonly used for this purpose. The model assumes that the estimated fair value of an option is amortized as compensation expense over the option’s vesting period.

The Black-Scholes model requires several assumptions, which we developed and update based on historical trends and current market observations. Our determination of the fair value of options is only as accurate as the underlying assumptions. The assumptions pertaining to options issued during 2014, 2013, and 2012 are shown in the following table.


Year ended December 31,	2014			2013			2012

Average option life		6.2 years			6.3 years			6.3 years
Future dividend yield		1.70	%		2.14	%		1.50	%
Historical share price volatility		.497			.495			.489
Weighted-average risk-free interest rate		1.9	%		1.1	%		1.2	%

Under KeyCorp’s 2013 Equity Compensation Plan, the Compensation and Organization Committee has authority to approve all stock option grants but may delegate some of its authority to grant awards from time to time. The committee has delegated to our Chief Executive Officer the authority to grant equity awards, including stock options, to any employee who is not designated an “officer” for purposes of Section 16 of the Exchange Act. No more than 3,000,000 common shares may be issued under this authority.

The following table summarizes activity, pricing and other information for our stock options for the year ended December 31, 2014.


	Number of Options			Weighted-Average Exercise Price Per Option		Weighted-Average Remaining Life (Years)		Aggregate Intrinsic Value ^(a)
Outstanding at December 31, 2013		25,705,942		$	19.83
Granted		730,611			12.92
Exercised		(3,050,309	)		8.72
Lapsed or canceled		(3,470,688	)		29.09
Outstanding at December 31, 2014		19,915,556		$	19.67		3.8	$	58


Expected to vest		3,045,216		$	9.37		7.6	$	14
Exercisable at December 31, 2014		16,635,502		$	21.69		3.0	$	44

(a)	The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of the option. At December 31, 2014, the fair value of the underlying stock was less than the weighted-average exercise price per option.

The weighted-average grant-date fair value of options was $5.26 for options granted during 2014, $3.55 for options granted during 2013, and $3.23 for options granted during 2012. Stock option exercises numbered 3,050,309 in 2014, 3,574,354 in 2013, and 421,846 in 2012. The aggregate intrinsic value of exercised options was $16 million for 2014, $13 million for 2013, and $1 million for 2012. As of December 31, 2014, unrecognized compensation cost related to nonvested options expected to vest under the plans totaled $4 million. We expect to recognize this cost over a weighted-average period of 2.4 years.

Cash received from options exercised was $26 million, $26 million, and $2 million in 2014, 2013, and 2012, respectively. The actual tax benefit realized for the tax deductions from options exercised totaled $2 million for 2014, $1 million for 2013, and less than $1 million for 2012.

Long-Term Incentive Compensation Program

Our Long-Term Incentive Compensation Program (the “Program”) rewards senior executives critical to our long-term financial success. Awards are granted annually in a variety of forms:

¿	deferred cash payments that generally vest and are payable at the rate of 25% per year;

¿	time-lapsed (service condition) restricted stock units payable in stock, which generally vest at the rate of 25% per year;

¿	performance units payable in stock, which vest at the end of the three-year performance cycle and will not vest unless Key attains defined performance levels; and

¿	performance units payable in cash, which vest at the end of the three-year performance cycle and will not vest unless Key attains defined performance levels.

Performance units vested in 2014 numbered 1,088,784 and were payable in cash. The total fair value of the performance units that vested in 2014 was $15 million. No performance units were scheduled to vest during 2013 and 2012; therefore, no corresponding payments were made during those years.

The following table summarizes activity and pricing information for the nonvested shares in the Program for the year ended December 31, 2014.


	Vesting Contingent on Service Conditions					Vesting Contingent on Performance and Service Conditions
	Number of Nonvested Shares			Weighted- Average Grant-Date Fair Value		Number of Nonvested Shares			Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2013		4,758,376		$	8.94		4,643,110		$	11.56
Granted		2,314,730			12.92		1,322,326			13.15
Vested		(1,679,312	)		8.94		(1,582,525	)		12.96
Forfeited		(369,582	)		10.52		(308,591	)		13.08
Outstanding at December 31, 2014		5,024,212		$	10.61		4,074,320		$	13.04

The compensation cost of time-lapsed and performance-based restricted stock or unit awards granted under the Program is calculated using the closing trading price of our common shares on the grant date.

Unlike time-lapsed and performance-based restricted stock or units, we do not pay dividends during the vesting period for performance shares or units that may become payable in excess of targeted performance.

The weighted-average grant-date fair value of awards granted under the Program was $13.00 during 2014, $10.96 during 2013, and $8.07 during 2012. As of December 31, 2014, unrecognized compensation cost related to nonvested shares expected to vest under the Program totaled $46 million. We expect to recognize this cost over a weighted-average period of 2.3 years. The total fair value of shares vested was $36 million in 2014, $23 million in 2013, and $8 million during 2012.

Other Restricted Stock Awards

We also may grant, upon approval by the Compensation and Organization Committee (or our Chief Executive Officer with respect to her delegated authority), other time-lapsed restricted stock or unit awards under various programs to recognize outstanding performance.

The following table summarizes activity and pricing information for the nonvested shares granted under these restricted stock or unit awards for the year ended December 31, 2014.


	Number of Nonvested Shares			Weighted-Average Grant-Date Fair Value
Outstanding at December 31, 2013		1,366,470		$	8.48
Granted		190,349			12.92
Vested		(634,787	)		8.68
Forfeited		(21,107	)		7.98
Outstanding at December 31, 2014		900,925		$	9.21

The weighted-average grant-date fair value of awards granted was $12.92 during 2014, $9.33 during 2013, and $7.98 during 2012. As of December 31, 2014, unrecognized compensation cost related to nonvested restricted stock or units expected to vest under these special awards totaled $3 million. We expect to recognize this cost over a weighted-average period of 2.3 years. The total fair value of restricted stock or units vested was $6 million during 2014, $12 million during 2013, and $14 million during 2012.

Deferred Compensation Plans

Our deferred compensation arrangements include voluntary and mandatory deferral programs for common shares awarded to certain employees and directors. Mandatory deferred incentive awards vest at the rate of 25% per year beginning one year after the deferral date for awards granted in 2012 and after, and 33-1/3% per year beginning one year after the deferral date for awards granted prior to 2012. Deferrals under the voluntary programs are immediately vested.

Several of our deferred compensation arrangements allow participants to redirect deferrals from common shares into other investments that provide for distributions payable in cash. We account for these participant-directed deferred compensation arrangements as stock-based liabilities and re-measure the related compensation cost based on the most recent fair value of our common shares. The compensation cost of all other nonparticipant-directed deferrals is measured based on the closing price of our common shares on the deferral date. We did not pay any stock-based liabilities during 2014, 2013, or 2012.

The following table summarizes activity and pricing information for the nonvested shares in our deferred compensation plans for the year ended December 31, 2014.


	Number of Nonvested Shares			Weighted-Average Grant-Date Fair Value
Outstanding at December 31, 2013		1,344,098		$	9.06
Granted		1,391,968			13.61
Dividend equivalents		38,188			13.77
Vested		(497,376	)		8.65
Forfeited		(54,263	)		12.04
Outstanding at December 31, 2014		2,222,615		$	12.01

The weighted-average grant-date fair value of awards granted was $13.61 during 2014, $11.18 during 2013, and $6.63 during 2012. As of December 31, 2014, unrecognized compensation cost related to nonvested shares expected to vest under our deferred compensation plans totaled $17 million. We expect to recognize this cost over a weighted-average period of 2.5 years. The total fair value of shares vested was $6 million during 2014, $7 million during 2013, and $7 million during 2012. Dividend equivalents presented in the preceding table represent the value of dividends accumulated during the vesting period.

Discounted Stock Purchase Plan

Our Discounted Stock Purchase Plan provides employees the opportunity to purchase our common shares at a 10% discount through payroll deductions or cash payments. Purchases are limited to $10,000 in any month and $50,000 in any calendar year, and are immediately vested. To accommodate employee purchases, we either issue treasury shares or acquire common shares on the open market on or around the fifteenth day of the month following the month employee payments are received. We issued 238,257 common shares at a weighted-average cost to the employee of $12.06 during 2014, 264,775 common shares at a weighted-average cost to the employee of $9.83 during 2013, and 301,794 common shares at a weighted-average cost to the employee of $7.30 during 2012.

Information pertaining to our method of accounting for stock-based compensation is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Stock-Based Compensation.”