Equity-Based Compensation

In May 2012, our shareholders amended the 2006 Equity Incentive Plan to increase the number of shares of our common stock that may be delivered in satisfaction of stock and stock-based awards, including stock options, stock appreciation rights, restricted stock, deferred stock and performance awards, from 37 million shares to 52.5 million shares. In addition, up to 8 million shares from our 1997 Equity Incentive Plan were approved for issuance under the 2006 Plan. This included shares that were available for issuance when the plan expired on December 18, 2006, and any shares that subsequently become available due to cancellations and forfeitures. A total of 60.5 million shares is available for issuance under the 2006 Plan.

As of December 31, 2013, a cumulative total of 52.4 million shares had been awarded under the 2006 Plan, compared with cumulative totals of 45.3 million shares and 32.8 million shares as of December 31, 2012 and 2011, respectively. The 2006 Plan allows for shares withheld in payment of the exercise price of an award or in satisfaction of tax withholding requirements, shares forfeited due to employee termination, shares expired under options awards, or shares not delivered when performance conditions have not been met, to be added back to the pool of shares available for awards. As of December 31, 2013, 14 million shares had been awarded under the 2006 Plan but not delivered, and have become available for reissue.

The exercise price of non-qualified and incentive stock options and stock appreciation rights may not be less than the fair value of such shares on the date of grant. Stock options and stock appreciation rights granted under the 1997 and 2006 plans generally vest over four years and expire no later than ten years from the date of grant. For restricted stock awards granted under the plans, common stock is issued at the time of grant and recipients have dividend and voting rights. In general, these grants vest over three to four years. No restricted stock awards have been granted since 2010.

For deferred stock awards granted under the plans, no common stock is issued at the time of grant and the stock does not have dividend and voting rights. Generally, these grants vest over two to four years. Performance awards granted are earned over a performance period based on the achievement of defined goals, generally over one to four years. Payment for performance awards is made in shares of our common stock equal to its fair market value per share, based on certain financial ratios, after the conclusion of each performance period. No common stock options or stock appreciation rights have been granted since 2009.

In December 2012, malus-based forfeiture provisions were included in deferred stock awards granted to employees identified as “material risk-takers.” These malus-based forfeiture provisions provide for the reduction or cancellation of unvested deferred compensation, such as deferred stock awards, if it is determined that a material risk-taker made risk-based decisions that exposed State Street to inappropriate risks that resulted in a material unexpected loss at the business-unit, line-of-business or corporate level.

Compensation expense related to stock options, stock appreciation rights, restricted stock awards, deferred stock awards and performance awards, which we record as a component of compensation and employee benefits expense in our consolidated statement of income, was $355 million, $353 million and $261 million for the years ended December 31, 2013, 2012 and 2011, respectively. Such expense for 2013 and 2012 excluded $3 million and $26 million, respectively, associated with acceleration of expense in connection with the staff reductions discussed in note 21. This expense was included in the severance-related portion of the associated restructuring charges recorded in each respective year. The aggregate income tax benefit recorded in our consolidated statement of income related to compensation expense recorded as a component of compensation and employee benefits expense was $140 million, $139 million and $103 million for the years ended December 31, 2013, 2012 and 2011, respectively.

The following table presents information about the 2006 Plan and 1997 Plan as of December 31, 2013, and related activity during the years indicated:



	Shares (in thousands)		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Total Intrinsic Value (in millions)
Stock Options and Stock Appreciation Rights:
Outstanding as of December 31, 2011	7,709		$	53.37
Exercised	(1,459	)	38.09
Forfeited or expired	(612	)	51.03
Outstanding as of December 31, 2012	5,638		57.58
Exercised	(2,725	)	45.93
Forfeited or expired	(249	)	68.80
Outstanding as of December 31, 2013	2,664		$	68.45	2.3	$	20
Exercisable as of December 31, 2013	2,664		$	68.45	2.3	$	20

The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $42 million, $8 million and $6 million, respectively. As of December 31, 2013, there was no unrecognized compensation cost related to stock options and stock appreciation rights.

The following tables present activity related to other common stock awards during the years indicated:



	Shares (in thousands)		Weighted-Average Grant Date Fair Value
Restricted Stock Awards:
Outstanding as of December 31, 2011	4,165		$	43.25
Vested	(1,497	)	42.87
Forfeited	(66	)	44.64
Outstanding as of December 31, 2012	2,602		43.44
Vested	(1,339	)	42.47
Forfeited	(18	)	43.98
Outstanding as of December 31, 2013	1,245		$	44.47

The total fair value of restricted stock awards vested was $57 million, $64 million, and $66 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, total unrecognized compensation cost related to restricted stock, net of estimated forfeitures, was $8 million, which is expected to be recognized over a weighted-average period of six months.



	Shares (in thousands)		Weighted-Average Grant Date Fair Value
Deferred Stock Awards:
Outstanding as of December 31, 2011	8,953		$	42.34
Granted	11,405		38.48
Vested	(5,123	)	43.46
Forfeited	(421	)	39.27
Outstanding as of December 31, 2012	14,814		39.08
Granted	6,906		54.16
Vested	(6,332	)	40.97
Forfeited	(294	)	44.48
Outstanding as of December 31, 2013	15,094		$	45.07

The weighted-average grant date fair value of deferred stock awards granted in 2011 was $41.92 per share. The total fair value of deferred stock awards vested was $259 million, $223 million and $107 million for the years ended December 31, 2013, December 31, 2012 and 2011, respectively. As of December 31, 2013, total unrecognized compensation cost related to deferred stock awards, net of estimated forfeitures, was $400 million, which is expected to be recognized over a weighted-average period of 2.4 years.



	Shares (in thousands)		Weighted-Average Grant Date Fair Value
Performance Awards:
Outstanding as of December 31, 2011	2,629		$	42.52
Granted	764		37.78
Forfeited	(200	)	42.59
Paid out	(646	)	44.07
Outstanding as of December 31, 2012	2,547		40.70
Granted	494		53.60
Forfeited	(4	)	41.62
Paid out	(813	)	41.62
Outstanding as of December 31, 2013	2,224		$	43.24

The weighted-average grant date fair value of performance awards granted in 2011 was $42.28 per share. The total fair value of performance awards paid out was $34 million, $28 million and $10 million for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, total unrecognized compensation cost related to performance awards, net of estimated forfeitures, was $6 million, which is expected to be recognized over a weighted-average period of 1.7 years.

We utilize either treasury shares or authorized but unissued shares to satisfy the issuance of common stock under our equity incentive plans. We do not have a specific policy concerning purchases of our common stock to satisfy stock issuances, including exercises of stock options. We have a general policy concerning purchases of our common stock to meet issuances under our employee benefit plans, including option exercises and other corporate purposes. Various factors determine the amount and timing of our purchases of our common stock, including regulatory reviews, our regulatory capital requirements, the number of shares we expect to issue under employee benefit plans, market conditions (including the trading price of our common stock), and legal considerations. These factors can change at any time, and the number of shares of common stock we will purchase or when we will purchase them cannot be assured.