Stock Options and Other Share-Based Compensation

12 Months Ended

Dec. 31, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Options and Other Share-Based Compensation

Note 20

Stock Options and Other Share-Based Compensation

Compensation expense for stock options for 2011, 2010 and 2009 was $265 ($172 after tax), $229 ($149 after tax) and $182 ($119 after tax), respectively. In addition, compensation expense for stock appreciation rights, restricted stock, performance units and restricted stock units was $214 ($139 after tax), $194 ($126 after tax) and $170 ($110 after tax) for 2011, 2010 and 2009, respectively. No significant stock-based compensation cost was capitalized at December 31, 2011 and 2010.

     Cash received in payment for option exercises under all share-based payment arrangements for 2011, 2010 and 2009 was $948, $385 and $147, respectively. Actual tax benefits realized for the tax deductions from option exercises were $121, $66 and $25 for 2011, 2010 and 2009, respectively.

     Cash paid to settle performance units and stock appreciation rights was $151, $140 and $89 for 2011, 2010 and 2009, respectively.

Chevron Long-Term Incentive Plan (LTIP) Awards under the LTIP may take the form of, but are not limited to, stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and nonstock grants. From April 2004 through January 2014, no more than 160 million shares may be issued under the LTIP, and no more than 64 million of those shares may be in a form other than a stock option, stock appreciation right or award requiring full payment for shares by the award recipient. For the major types of awards outstanding as of December 31, 2011, the contractual terms vary between three years for the performance units and 10 years for the stock options and stock appreciation rights.

Texaco Stock Incentive Plan (Texaco SIP) On the closing of the acquisition of Texaco in October 2001, outstanding options granted under the Texaco SIP were converted to Chevron options. These options, which had 10-year contractual lives extending into 2011, retained a provision for being restored. This provision enabled a participant who exercised a stock option to receive new options equal to the number of shares exchanged or who had shares withheld to satisfy tax withholding obligations to receive new options equal to the number of shares exchanged or withheld. The restored options were fully exercisable six months after the date of grant, and the exercise price was the market value of the common stock on the day the restored option was granted. Beginning in 2007, restored options were issued under the LTIP. No further awards may be granted under the former Texaco plans.

Unocal Share-Based Plans (Unocal Plans) When Chevron acquired Unocal in August 2005, outstanding stock options and stock appreciation rights granted under various Unocal Plans were exchanged for fully vested Chevron options and appreciation rights. These awards retained the same provisions as the original Unocal Plans. Unexercised awards began expiring in early 2010 and will continue to expire through early 2015.

     The fair market values of stock options and stock appreciation rights granted in 2011, 2010 and 2009 were measured on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions:

	Year ended December 31
	2011			2010			2009
Stock Options
Expected term in years1		6.2			6.1			6.0
Volatility2		31.0	%		30.8	%		30.2	%
Risk-free interest rate based on zero coupon U.S. treasury note		2.6	%		2.9	%		2.1	%
Dividend yield		3.6	%		3.9	%		3.2	%
Weighted-average fair value per option granted	$	21.24		$	16.28		$	15.36
Restored Options
Expected term in years1		1.2			1.2			1.2
Volatility2		20.6	%		38.9	%		45.0	%
Risk-free interest rate based on zero coupon U.S. treasury note		0.7	%		0.6	%		1.1	%
Dividend yield		3.4	%		3.8	%		3.5	%
Weighted-average fair value per option granted	$	7.55		$	12.91		$	12.38

1	Expected term is based on historical exercise and postvesting cancellation data.
2	Volatility rate is based on historical stock prices over an appropriate period, generally equal to the expected term.

     A summary of option activity during 2011 is presented below:

						Weighted-
				Weighted-		Average
				Average		Remaining	Aggregate
	Shares			Exercise		Contractual	Intrinsic
	(Thousands)			Price		Term	Value
Outstanding at January 1, 2011		74,852		$	67.04
Granted		14,260		$	94.46
Exercised		(15,844	)	$	60.20
Restored		33		$	103.96
Forfeited		(953	)	$	85.79
Outstanding at December 31, 2011		72,348		$	73.71	6.4 yrs	$	2,365
Exercisable at December 31, 2011		45,494		$	67.84	5.3 yrs	$	1,755

     The total intrinsic value (i.e., the difference between the exercise price and the market price) of options exercised during 2011, 2010 and 2009 was $668, $259 and $91, respectively. During this period, the company continued its practice of issuing treasury shares upon exercise of these awards.

     As of December 31, 2011, there was $265 of total unrecognized before-tax compensation cost related to non-vested share-based compensation arrangements granted or restored under the plans. That cost is expected to be recognized over a weighted-average period of 1.7 years.

     At January 1, 2011, the number of LTIP performance units outstanding was equivalent to 2,727,874 shares. During 2011, 1,011,200 units were granted, 810,071 units vested with cash proceeds distributed to recipients and 47,167 units were forfeited. At December 31, 2011, units outstanding were 2,881,836, and the fair value of the liability recorded for these instruments was $294. In addition, outstanding stock appreciation rights and other awards that were granted under various LTIP and former Texaco and Unocal programs totaled approximately 2.2 million equivalent shares as of December 31, 2011. A liability of $62 was recorded for these awards.