Stock-Based and Other Compensation

Stock-Based Compensation

At December 31, 2013, we maintained several stock-based compensation plans as described below. The total compensation expense (net of forfeitures) for awards issued under these plans was $37.3 million, $26.2 million and $17.8 million for the years ended December 31, 2013, 2012 and 2011, respectively, all of which are included in Stock-based compensation expenses in the consolidated financial statements. The tax benefit recognized by us related to these awards totaled $18.4 million, $16.2 million and $7.8 million for the years ended December 31, 2013, 2012 and 2011, respectively.

2009 Incentive Plan

We maintain the W. P. Carey, Inc. 2009 Share Incentive Plan, or the 2009 Incentive Plan, which as amended currently authorizes the issuance of up to 5,900,000 shares of our common stock. At December 31, 2013, there were 3,977,040 shares remain available for issuance under the 2009 Share Incentive Plan. The 2009 Incentive Plan provides for the grant of (i) share options, (ii) RSUs, (iii) PSUs, and (iv) dividend equivalent rights. The vesting of grants under both plans is accelerated upon a change in our control and under certain other conditions.

In December 2007, the Compensation Committee approved the long-term incentive plan, or LTIP, and terminated further contributions to the Partnership Equity Unit Plan described below. The following table presents LTIP awards granted in the past three years (PSUs are reflected at 100% of target but may settle at more or less than the amount shown):



	2009 Incentive Plan
Fiscal Year	RSUs Awarded	PSUs Awarded
2013 ^(a)	171,804	85,900
2012 ^(b)	259,400	314,400
2011^(c)	524,550	291,600

__________


(a)	Includes 20,250 RSUs issued in connection with entering into employment agreements with certain employees. Also includes 10,000 PSUs awarded related to 2011 awards for which the previously undetermined terms and conditions of the grant were finalized in 2013.


(b)	Includes 78,000 RSUs and 142,000 PSUs issued in connection with entering into employment agreements with certain employees, and excludes 20,000 PSUs for which the terms and conditions were not determined at the time of grant. Also includes 10,000 PSUs awarded related to 2011 awards for which the previously undetermined terms and conditions of the grant were finalized in 2012.


(c)	Includes 340,000 RSUs and 100,000 PSUs issued in connection with entering into employment agreements with certain employees, and excludes 20,000 PSUs for which the terms and conditions were not determined at the time of grant.

2009 Non-Employee Directors Incentive Plan

We maintain the W. P. Carey, Inc. 2009 Non-Employee Directors’ Incentive Plan, or the 2009 Directors’ Plan, which authorizes the issuance of 325,000 shares of our common stock in the aggregate. In the discretion of our board of directors, the awards may be in the form of RSUs, share options or RSAs, or any combination of the permitted awards. In July 2013, we issued 13,211 RSAs, with a total value of $0.9 million, to our directors under the 2009 Directors’ Plan in lieu of the RSUs that had been granted in previous years, as permitted under the terms of that plan. These RSAs are scheduled to vest one year from the date of grant. At December 31, 2013, there were 231,864 shares that remained available for issuance under this plan.

Employee Share Purchase Plan

We sponsor an Employee Share Purchase Plan, or ESPP, pursuant to which eligible employees may contribute up to 10% of compensation, subject to certain limits, to purchase our common stock. Employees can purchase stock semi-annually at a price equal to 85% of the fair market value at certain plan defined dates. Compensation expense under this plan for the years ended December 31, 2013, 2012 and 2011 was $1.2 million, $0.6 million and $0.6 million, respectively.

Partnership Equity Unit Plan

During 2003, we adopted a non-qualified deferred compensation plan, called the Partnership Equity Plan, or PEP, under which a portion of any participating officer’s cash compensation in excess of designated amounts was deferred and the officer was awarded Partnership Equity Plan Units, or PEP Units. Each of the PEPs is a deferred compensation plan and is therefore considered to be outside the scope of current accounting guidance for stock-based compensation and subject to liability award accounting. The value of each PEP Unit is adjusted to reflect the underlying appraised value of the designated CPA^® REIT. Additionally, each PEP Unit is entitled to distributions equal to the distribution rate of the CPA^® REIT. All issuances of PEP Units, changes in the fair value of PEP Units and distributions paid are included in our compensation expense. On December 16, 2013, we paid $0.2 million in cash to the remaining holders of the PEP Units issued under the initial PEP, which was equal to the per-share Merger Consideration received by CPA^®:15 stockholders or the NAV of CPA^®:16 – Global, as applicable.

The plans are carried at fair value each quarter and are subject to changes in the fair value of the PEP units. Further contributions to the second PEP were terminated at December 31, 2007; however, this termination did not affect any awardees’ rights pursuant to awards granted under this plan. In December 2008, participants in the PEPs were required to make an election to either (i) remain in the PEPs, (ii) receive cash for their PEP Units (available to former employees only) or (iii) convert their PEP Units to fully vested RSUs (available to current employees only) to be issued under the 1997 Share Incentive Plan, or as amended, the 1997 Incentive Plan on June 15, 2009. Substantially all of the PEP participants elected to receive cash or convert their existing PEP Units to RSUs. The PEP participants electing to receive RSUs were required to defer receipt of the underlying shares of our common stock for a minimum of two years. While employed by us, these participants are entitled to receive dividend equivalents equal to the amount of dividends paid on the underlying common stock during the deferral period. At December 31, 2013 and 2012, we were obligated to issue 47,126 and 53,743 shares, respectively, of our common stock underlying these RSUs, which were recorded within W. P. Carey members’ equity as a Deferred compensation obligation of $1.2 million and $1.4 million, respectively. The remaining PEP liability pertaining to participants who elected to remain in the plans was $0.7 million at both December 31, 2013 and December 31, 2012. Those PEP Units are scheduled to be paid between 2017 and 2019.

Stock Options

Option activity and changes for all periods presented were as follows:



	Year Ended December 31, 2013
	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value
Outstanding – beginning of year	794,210		$	30.32
Exercised	(169,412	)	30.43
Forfeited / Expired	(5,197	)	29.84
Outstanding – end of year	619,601		$	30.30	2.59	$	19,239,738
Vested and expected to vest – end of year	619,601		$	30.30	2.59	$	19,239,738
Exercisable – end of year	511,811		$	30.18	2.45	$	15,950,707



	Years Ended December 31,
	2012					2011
	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)	Shares		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)
Outstanding – beginning of year	1,208,041		$	28.73		1,699,701		$	28.57
Exercised	(410,331	)	25.94			(449,660	)	27.71
Forfeited / Expired	(3,500	)	24.93			(42,000	)	32.85
Outstanding – end of year	794,210		$	30.32	3.19	1,208,041		$	28.73	3.29
Exercisable – end of year	623,218		$	30.22		959,779		$	28.36

Options granted under the 1997 Incentive Plan generally have a ten-year term and generally vest in four equal annual installments. Options granted under the 1997 Directors’ Plan have a ten-year term and vest generally over three years from the date of grant. We have not issued option awards since 2008. The total intrinsic value of options exercised during the years ended December 31, 2013, 2012 and 2011 was $5.7 million, $9.3 million and $4.6 million, respectively.

At December 31, 2013, all of our options were fully vested; however certain options had exercise limitations.

We have the ability and intent to issue shares upon stock option exercises. Historically, we have issued authorized but unissued common stock to satisfy such exercises. Cash received from stock option exercises and purchases under the ESPP during the years ended December 31, 2013, 2012 and 2011 was $2.3 million, $6.8 million and $1.2 million, respectively.

Restricted and Conditional Awards

Nonvested RSAs, RSUs and PSUs at December 31, 2013 and changes during the years ended December 31, 2013, 2012 and 2011 were as follows:



	RSA and RSU Awards				PSU Awards
	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2011	263,820		$	28.42	243,994		$	36.18
Granted	541,890		34.65		291,600		46.66
Vested ^(a)	(162,437	)	30.48		(48,925	)	39.78
Forfeited	(18,480	)	29.32		(14,055	)	42.14
Adjustment ^(b)	—		—		200,814		22.65
Nonvested at December 31, 2011	624,793		33.26		673,428		36.30
Granted	274,420		41.41		314,400		42.28
Vested ^(a)	(268,683	)	32.56		(235,189	)	23.66
Forfeited	(36,336	)	36.33		(49,494	)	33.96
Adjustment ^(b)	—		—		296,368		26.01
Nonvested at December 31, 2012	594,194		37.15		999,513		34.55
Granted ^(c)	185,015		57.69		86,189		84.33
Vested ^(a)	(233,098	)	36.76		(324,161	)	39.48
Forfeited	(26,503	)	43.05		(30,108	)	50.52
Adjustment ^(b)	—		—		489,287		67.22
Nonvested at December 31, 2013 ^(d)	519,608		$	45.19	1,220,720		$	28.28

__________

(a)

The total fair value of shares vested during the years ended December 31, 2013, 2012 and 2011 was $21.4 million, $14.3 million and $6.9 million, respectively. Upon vesting of the shares, employees have the option to take immediate delivery of the shares or defer receipt to a future date. At December 31, 2013 and 2012, we were obligated to issue 363,052 and 243,262 shares, respectively, of our common stock underlying these shares, which is recorded within W. P. Carey members’ equity as a Deferred compensation obligation of $10.1 million and $7.0 million, respectively.

(b)

Vesting and payment of the PSUs is conditional on certain company and market performance goals being met during the relevant three-year performance period. The ultimate number of PSUs to be vested will depend on the extent to which the performance goals are met and can range from zero to three times the original awards. Pursuant to a review of our current and expected performance versus the performance goals, we revised our estimate of the ultimate number of certain of the PSUs to be vested. As a result, we recorded adjustments in 2013, 2012 and 2011 to reflect the number of shares expected to be issued when the PSUs vest.

(c)

The grant date fair value of RSAs and RSUs are based on our stock price on the date of grant. The grant date fair value of PSUs were determined utilizing a Monte Carlo simulation model to generate a range of possible future stock prices for both us and the plan defined peer index over the three-year performance period. To estimate the fair value of PSUs granted during 2013, we used a risk-free interest rate of 0.37% and an expected volatility rate of 25.36% (the plan defined peer index assumes 24.83%) and assumed a dividend yield of zero.


(d)	At December 31, 2013, total unrecognized compensation expense was approximately $17.0 million related to nonvested PSUs, $13.6 million related to nonvested RSUs and $0.4 million related to nonvested RSAs, with aggregate weighted-average remaining term of 1.13 years.

At the end of each reporting period, we evaluate the ultimate number of PSUs we expect to vest based upon the extent to which we have met and expect to meet the performance goals and where appropriate revise our estimate and associated expense. We do not adjust the associated expense for revision on PSUs expected to vest based on market performance. Upon vesting, the RSUs and PSUs may be converted into shares of our common stock. Both the RSUs and PSUs carry dividend equivalent rights. Dividend equivalent rights on RSUs are paid in cash on a quarterly basis whereas dividend equivalent rights on PSUs accrue during the performance period and may be converted into additional shares of common stock at the conclusion of the performance period to the extent the PSUs vest. Dividend equivalent rights are accounted for as a reduction to retained earnings to the extent that the awards are expected to vest. For awards that are not expected to vest or do not ultimately vest, dividend equivalent rights are accounted for as additional compensation expense.

Other Compensation

Profit-Sharing Plan

We sponsor a qualified profit-sharing plan and trust that generally permits all employees, as defined by the plan, to make pre-tax contributions into the plan. We are under no obligation to contribute to the plan and the amount of any contribution is determined by and at the discretion of our board of directors. Our board of directors can authorize contributions to a maximum of 15% of an eligible participant’s compensation, limited to less than $0.1 million annually per participant. For the years ended December 31, 2013, 2012 and 2011, amounts expensed for contributions to the trust were $4.5 million, $4.4 million and $3.8 million, respectively, which were included in General and administrative expenses in the accompanying consolidated financial statements. The profit-sharing plan is a deferred compensation plan and is therefore considered to be outside the scope of current accounting guidance for stock-based compensation.

Other

We have employment contracts with certain senior executives. These contracts provide for severance payments in the event of termination under certain conditions including a change of control. During 2013, 2012 and 2011, we recognized severance costs totaling approximately $0.7 million, $1.1 million and $0.4 million, respectively, related to several former employees who did not have employment contracts. Such costs are included in General and administrative expenses in the accompanying consolidated financial statements.