Stock-Based Compensation

The 2011 Omnibus Incentive Compensation Plan (the “2011 Plan”) provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to employees and non-employee directors. The terms and conditions of awards to be granted are determined by our Board's nominating and compensation committees. Vesting requirements vary by award. At December 31, 2012, there were 3,771,649 shares remaining in the 2011 Plan for future grants.

Stock options and stock appreciation rights reduce the number of shares available for grant by one share for each award granted. All other awards that will be distributed in stock under the 2011 Plan will reduce the total number of shares available for grant by an amount equal to 2.35 times the number of shares awarded. If awards made under previous plans would entitle a plan participant to an amount of West stock in excess of the target amount, the additional shares (up to a maximum threshold amount) will be distributed under the 2011 Plan.

The following table summarizes our stock-based compensation expense for the years ended December 31:



($ in millions)	2012		2011		2010
Stock option and appreciation rights	$	5.3	$	4.4	$	3.7
Performance-vesting shares	6.0		3.0		2.2
Performance-vesting units	0.9		0.2		0.1
Performance-vesting shares/units dividend equivalents	0.1		0.1		0.2
Employee stock purchase plan	0.4		0.3		0.3
Deferred compensation plans	2.8		0.4		1.3
Total stock-based compensation expense	$	15.5	$	8.4	$	7.8

In 2011, $0.8 million of stock option expense and $0.7 million of performance-vesting shares expense, which relate to the retirement of our former President and Chief Operating Officer, were recorded within restructuring and other items. The remainder of the 2011 stock-based compensation expense balance was recorded within selling, general and administrative expenses.

The amount of unrecognized compensation expense for all nonvested awards as of December 31, 2012, was approximately $13.7 million, which is expected to be recognized over a weighted average period of 1.6 years.

Stock Options

Stock options granted to employees vest in equal annual increments over 4 years of continuous service. All awards expire 10 years from the date of grant. Upon the exercise of stock options, shares are issued in exchange for the exercise price of the options.

The following table summarizes changes in outstanding options:



(in millions, except per share data)	2012			2011			2010
Options outstanding, January 1	2.9			2.9			2.7
Granted	0.6			0.5			0.6
Exercised	(0.7		)	(0.4		)	(0.3		)
Forfeited	—			(0.1		)	(0.1		)
Options outstanding, December 31	2.8			2.9			2.9
Options exercisable, December 31	1.5			1.8			1.8

Weighted Average Exercise Price	2012			2011			2010
Options outstanding, January 1	$	35.76		$	32.32		$	29.09
Granted	42.94			40.85			42.47
Exercised	26.23			17.69			14.88
Forfeited	40.75			39.69			41.47
Options outstanding, December 31	$	39.67		$	35.76		$	32.32
Options exercisable, December 31	$	38.02		$	32.91		$	27.77

As of December 31, 2012, the weighted average remaining contractual life of options outstanding and of options exercisable was 6.5 years and 5.0 years, respectively.

As of December 31, 2012, the aggregate intrinsic value of total options outstanding was $41.7 million, of which $24.8 million represented vested options.

The fair value of the options was estimated on the date of grant using a Black-Scholes option valuation model that used the following weighted average assumptions in 2012, 2011 and 2010: a risk-free interest rate of 0.9%, 2.2% and 2.4%, respectively; stock volatility of 23.3%, 24.3% and 26.9%, respectively; and dividend yields of 1.7%, 1.7% and 1.5%, respectively. Stock volatility is estimated based on historical data and the impact from expected future trends. Expected lives, which are based on prior experience, averaged 6 years for 2012, 2011 and 2010. The weighted average grant date fair value of options granted in 2012, 2011 and 2010 was $8.02, $8.76 and $10.38, respectively.

For the years ended December 31, 2012, 2011 and 2010, the intrinsic value of options exercised was $16.9 million, $10.7 million and $5.9 million, respectively. The grant date fair value of options vested during those same periods was $3.8 million, $4.0 million and $3.5 million, respectively.

Stock Appreciation Rights

Stock appreciation rights (“SARs”) granted to eligible international employees vest in equal annual increments over 4 years of continuous service. All awards expire ten years from the date of grant. The fair value of each SAR is adjusted at the end of each reporting period with the resulting change reflected in expense. Upon exercise of a SAR, the employee receives cash for the difference between the grant date price and the fair market value of the Company's stock on the date of exercise. As a result of the cash settlement feature, SAR awards are recorded within other long-term liabilities.

The following table summarizes changes in outstanding SARs:



	2012		2011		2010
SARs outstanding, January 1	160,168		111,048		78,512
Granted	72,509		63,024		36,255
Exercised	(37,834	)	(7,685	)	(3,719	)
Forfeited	—		(6,219	)	—
SARs outstanding, December 31	194,843		160,168		111,048
SARs exercisable, December 31	55,146		58,900		41,439




Weighted Average Exercise Price	2012		2011		2010
SARs outstanding, January 1	$	40.34	$	39.74	$	38.04
Granted	42.44		41.13		42.68
Exercised	37.81		39.15		32.50
Forfeited	—		39.18		—
SARs outstanding, December 31	41.61		40.34		39.74
SARs exercisable, December 31	$	41.40	$	39.72	$	39.16

Performance Awards

In addition to stock options and SAR awards, we grant performance vesting share (“PVS”) awards and performance vesting unit (“PVU”) awards to eligible employees. These awards are earned based on the Company's performance against pre-established targets, including annual growth rate of revenue and return on invested capital (“ROIC”), over a specified performance period. Depending on the achievement of the targets, recipients of PVS awards are entitled to receive a certain number of shares of common stock, whereas, recipients of PVU awards are entitled to receive a payment in cash per unit based on the fair market value of a share of our common stock at the end of the performance period.

The following table summarizes changes in our outstanding PVS awards:



	2012			2011			2010
Non-vested PVS awards, January 1	328,519			347,550			327,498
Granted at target level	104,840			101,099			123,068
Adjustments above/(below) target	(60,077		)	(58,175		)	(48,364		)
Vested and converted	(41,930		)	(51,756		)	(50,337		)
Forfeited	(5,021		)	(10,199		)	(4,315		)
Non-vested PVS awards, December 31	326,331			328,519			347,550

Weighted Average Grant Date Fair Value	2012			2011			2010
Non-vested PVS awards, January 1	$	38.77		$	39.21		$	39.63
Granted at target level	42.66			40.85			42.34
Adjustments above/(below) target	31.28			41.95			44.99
Vested and converted	42.44			40.85			38.22
Forfeited	41.95			38.46			37.61
Non-vested PVS awards, December 31	$	42.17		$	38.77		$	39.21

The actual payout of PVS and PVU awards may vary from 0% to 200% of an employee's targeted amount. The fair value of PVS awards is based on the market price of our stock at the grant date and is recognized as expense over the performance period. The weighted average grant date fair value of PVS awards granted during the years 2012, 2011 and 2010 was $42.66, $40.85 and $42.34, respectively. We expect that the PVS awards will vest at 102.4% of their target award amounts, converting to 337,062 shares to be issued over an average remaining term of 1.0 year.

The fair value of PVU awards is also based on the market price of our stock at the grant date. These awards are revalued at the end of each quarter based on changes in our stock price. As a result of the cash settlement feature, PVU awards are recorded within other long-term liabilities.

The following table summarizes changes in our outstanding PVU awards:



	2012			2011			2010
Non-vested PVU awards, January 1	27,286			23,420			20,792
Granted at target level	13,550			13,442			7,697
Adjustments above/(below) target	(3,578		)	(4,165		)	(2,484		)
Vested and converted	(2,638		)	(3,963		)	(2,585		)
Forfeited	—			(1,718		)	—
Non-vested PVU awards, December 31	34,620			27,286			23,420

Weighted Average Grant Date Fair Value	2012			2011			2010
Non-vested PVU awards, January 1	$	39.30		$	38.94		$	39.17
Granted at target level	42.44			41.11			42.30
Adjustments above/(below) target	30.01			41.05			38.22
Vested and converted	42.44			40.85			38.22
Forfeited	—			37.55			—
Non-vested PVU awards, December 31	$	42.01		$	39.30		$	38.94

Employee Stock Purchase Plan

We also offer an Employee Stock Purchase Plan (“ESPP”) which provides for the sale of our common stock to eligible employees at 85% of the current market price on the last trading day of each quarterly offering period. Payroll deductions are limited to 25% of the employee's base salary, not to exceed $25 thousand in any one calendar year. In addition, employees may not buy more than 1,000 shares during any offering period (4,000 shares per year). Purchases under the ESPP were 51,505 shares, 55,388 shares and 56,608 shares for the years 2012, 2011 and 2010, respectively. At December 31, 2012, there were approximately 2.1 million shares available for issuance under the ESPP.

Deferred Compensation Plans

Our deferred compensation programs include a Non-Qualified Deferred Compensation Plan for Non-Employee Directors, under which non-employee directors may defer all or part of their annual cash retainers and meeting fees. The deferred fees may be credited to a stock-equivalent account. Amounts credited to this account are converted into deferred stock units based on the fair market value of one share of our common stock on the last day of the quarter. Deferred stock units are ultimately paid in cash at an amount determined by multiplying the number of units by the fair market value of our common stock at the date of termination. Similarly, a non-qualified deferred compensation plan for designated executive officers provides for the conversion of compensation into deferred stock units. As of December 31, 2012, the two deferred compensation plans held a total of 157,271 deferred stock units, which, due to their cash settlement feature, are recorded within other long-term liabilities. The liabilities are valued at the closing market price of our stock at the end of each period with the resulting change in value recorded in our income statement for the respective period. The Non-Qualified Deferred Compensation Plan for Non-Employee Directors also holds 97,554 deferred stock awards.

Annual Incentive Plan

Under our annual incentive plan, participants are paid bonuses on the attainment of certain financial goals, which they can elect to receive in either cash or shares of our common stock. If the employee elects payment in shares, they are also given a restricted incentive stock award equal to one share for each four bonus shares issued. The incentive stock awards vest at the end of four years provided that the participant has not made a disqualifying disposition of their bonus shares. Incentive stock award grants were 1,400 shares, 1,900 shares and 1,400 shares in 2012, 2011 and 2010, respectively. Incentive stock forfeitures of 400 shares, 1,400 shares and 50 shares occurred in 2012, 2011 and 2010, respectively. Compensation expense is recognized over the vesting period based on the fair market value of common stock on the award date: $42.44 per share granted in 2012, $40.85 per share granted in 2011 and $38.22 per share granted in 2010.