Share-Based Compensation

12 Months Ended

Sep. 30, 2011

Share-Based Compensation [Abstract]

Share-Based Compensation

11. Share-Based Compensation

During 2011, 2010 and 2009 we recognized $39.5 million, $36.3 million and $27.8 million of pre-tax share-based compensation expense, respectively. The total income tax benefit related to share-based compensation expense was $12.9 million during 2011, $11.9 million during 2010 and $9.1 million during 2009. We recognize compensation expense on grants of share-based compensation awards on a straight-line basis over the service period of each award recipient. As of September 30, 2011, total unrecognized compensation cost related to share-based compensation awards was $38.4 million, net of estimated forfeitures, which we expect to recognize over a weighted average period of approximately 1.7 years.

Our 2008 Long-Term Incentives Plan, as amended (2008 Plan), authorizes us to deliver up to 11.2 million shares of our common stock upon exercise of stock options, or upon grant or in payment of stock appreciation rights, performance shares, performance units, restricted stock units and restricted stock. Our 2003 Directors Stock Plan, as amended, authorizes us to deliver up to 0.5 million shares of our common stock upon exercise of stock options or upon grant of shares of our common stock and restricted stock units. Shares relating to awards under our 2008 Plan or our 2000 Long-Term Incentives Plan that terminate by expiration, forfeiture, cancellation or otherwise without the issuance or delivery of shares will be available for further awards under the 2008 Plan. Approximately 5.0 million shares under our 2008 Plan and 0.3 million shares under our 2003 Directors Stock Plan remain available for future grant or payment at September 30, 2011. We use treasury stock to deliver shares of our common stock under these plans. Our 2008 Plan does not permit share-based compensation awards to be granted after February 6, 2018.

Stock Options

We have granted non-qualified and incentive stock options to purchase our common stock under various incentive plans at prices equal to the fair market value of the stock on the grant dates. The exercise price for stock options granted under the plans may be paid in cash, shares of common stock or a combination of cash and shares. Stock options expire ten years after the grant date and vest ratably over three years.

The per share weighted average fair value of stock options granted during the years ended September 30, 2011, 2010 and 2009 was $21.39, $13.59 and $7.75, respectively. The total intrinsic value of stock options exercised was $157.3 million, $49.7 million and $7.4 million during 2011, 2010 and 2009, respectively. We estimated the fair value of each stock option on the date of grant using the Black-Scholes pricing model and the following assumptions:

	2011			2010			2009
Average risk-free interest rate		1.94	%		2.15	%		1.63	%
Expected dividend yield		2.37	%		3.16	%		2.47	%
Expected volatility		0.39			0.41			0.35
Expected term (years)		5.5			5.5			5.4

The average risk-free interest rate is based on U.S. treasury security rates corresponding to the expected term in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. We determined expected volatility using daily historical volatility of our stock price over the most recent period corresponding to the expected term as of the grant date. We determined the expected term of the stock options using historical data adjusted for the estimated exercise dates of unexercised options.

A summary of stock option activity for the year ended September 30, 2011 is:

								Aggregate
						Wtd. Avg.		Intrinsic Value
				Wtd. Avg.		Remaining		of In-The-Money
	Shares			Exercise		Contractual		Options
	(in thousands)			Price		Term (years)		(in millions)
Outstanding at October 1, 2010		10,351		$	44.34
Granted		1,727			69.87
Exercised		(4,164	)		41.46
Forfeited		(126	)		49.08
Cancelled		(7	)		51.94
Outstanding at September 30, 2011		7,781			51.46		6.8	$	72.4
Vested or expected to vest at September 30, 2011		7,480			51.40		6.8		69.6
Exercisable at September 30, 2011		3,911			50.01		5.3		37.0

Performance Share Awards

Certain officers and key employees are also eligible to receive shares of our common stock in payment of performance share awards granted to them. Grantees of performance shares will be eligible to receive shares of our common stock depending upon our total shareowner return, assuming reinvestment of all dividends, relative to the performance of the S&P 500 over a three-year period.

A summary of performance share activity for the year ended September 30, 2011 is as follows:

				Wtd. Avg.
	Performance			Grant Date
	Shares			Share
	(in thousands)			Fair Value
Outstanding at October 1, 2010		426		$	48.90
Granted		77			87.00
Vested		(104	)		70.32
Forfeited		(17	)		48.94
Outstanding at September 30, 2011		382			50.70

Maximum potential shares to be delivered in payment under the fiscal 2011 and 2010 awards are 148,960 shares and 270,460 shares, respectively. There will be a 200 percent payout of the target number of shares awarded in fiscal 2009, with a maximum of 345,432 shares to be delivered in payment under the awards in December 2011. There were 42 percent and 13 percent payouts of the target number of shares awarded in fiscal 2008 and 2007, with 43,767 and 10,618 shares delivered in payment under the awards in December 2010 and December 2009, respectively.

The per share fair value of performance share awards granted during the years ended September 30, 2011, 2010 and 2009 was $87.00, $54.81 and $31.82, respectively, which we determined using a Monte Carlo simulation and the following assumptions:

	2011			2010			2009
Average risk-free interest rate		0.63	%		1.22	%		1.46	%
Expected dividend yield		2.01	%		2.51	%		2.47	%
Expected volatility (Rockwell Automation)		0.49			0.48			0.40

The average risk-free interest rate is based on the three-year U.S. treasury security rate in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. The expected volatilities were determined using daily historical volatility for the most recent three-year period as of the grant date.

Restricted Stock and Restricted Stock Units

We grant restricted stock to certain employees, and non-employee directors may elect to receive a portion of their compensation in restricted stock units. Restrictions on restricted stock generally lapse over periods ranging from one to five years. We value restricted stock and restricted stock units at the closing market value of our common stock on the date of grant. The weighted average grant date fair value of restricted stock and restricted stock unit awards granted during the years ended September 30, 2011, 2010 and 2009 was $69.00, $43.76 and $29.38, respectively. The total fair value of shares vested during the years ended September 30, 2011, 2010, and 2009 was $4.5 million, $5.3 million, and $1.6 million, respectively.

A summary of restricted stock and restricted stock unit activity for the year ended September 30, 2011 is as follows:

	Restricted
	Stock and			Wtd. Avg.
	Restricted			Grant Date
	Stock Units			Share
	(in thousands)			Fair Value
Outstanding at October 1, 2010		294		$	44.56
Granted		68			69.00
Vested		(65	)		64.05
Forfeited		(21	)		42.44
Outstanding at September 30, 2011		276			47.52