Employee Benefit Plans
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Dec. 31, 2011
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Employee Benefit Plans | 5. Employee Benefit Plans The Safety Insurance 401(k) Retirement Plan The Company sponsors the Safety Insurance Company 401(k) qualified defined contribution retirement plan (the "Retirement Plan"). The Retirement Plan is available to all eligible employees of the Company. An employee must be 21 years of age to be eligible to participate in the Retirement Plan and is allowed to contribute on a pre-tax basis up to the maximum allowed under federal law. The Retirement Plan is administered by the Company and is subject to the provisions of the Employee Retirement Income Security Act of 1974. At the close of each Retirement Plan year, the Company makes a matching contribution equal to 100% of the amount each participant contributed during the plan year from their total pay, up to a maximum amount of 8% of the participant's base salary, to those participants who have contributed to the Retirement Plan and were employed on the last day of the Retirement Plan year. Compensation expense related to the Retirement Plan was $2,385, $2,201, and $2,113 for the years ended December 31, 2011, 2010, and 2009, respectively.
Management Omnibus Incentive Plan
Long-term incentive compensation is provided under the Company's 2002 Management Omnibus Incentive Plan (“the Incentive Plan”) which provides for a variety of stock-based compensation awards, including nonqualified stock options, incentive stock options, stock appreciation rights and restricted stock (“RS”) awards.
On March 10, 2006, the Board approved amendments to the Incentive Plan, subject to shareholder approval, to (i) increase the number of shares of common stock available for issuance by 1,250,000 shares, (ii) remove obsolete provisions, and (iii) make other non-material changes. A total of 1,250,000 shares of common stock had previously been authorized for issuance under the Incentive Plan. The Incentive Plan, as amended, was approved by the shareholders at the 2006 Annual Meeting of Shareholders which was held on May 19, 2006. The maximum number of shares of common stock with respect to which awards may be granted is 2,500,000. Shares of stock covered by an award under the Incentive Plan that are forfeited will again be available for issuance in connection with future grants of awards under the plan. At December 31, 2011, there were 718,859 shares available for future grant. The Board of Directors and the Compensation Committee intend to issue more awards under the Incentive Plan in the future.
A summary of stock based awards granted under the Incentive Plan during the years 2007 through 2011 is as follows
(1) The fair value per share of the restricted stock grant is equal to the closing price of the Company's common stock on the grant date.
(2) The shares cannot be sold, assigned, pledged, or otherwise transferred, encumbered or disposed of until the recipient is no longer a member of the Board of Directors.
Stock Options
The fair value of stock options used to compute net income and EPS for the years ended December 31, 2011, 2010, and 2009 is the estimated fair value at grant date using the Black-Scholes option-pricing model with the following assumptions:
Expected dividend yield is the Company's dividend yield on the measurement date and is based on the assumption that the current yield will continue in the future. Expected volatility is based on historical volatility of the Company's common stock as well as the volatility of a peer group of property and casualty insurers measured for a period equal to the expected holding period of the option. The risk-free interest rate is based upon the yield on the measurement date of a zero-coupon U.S. Treasury bond with a maturity period equal to the expected holding period of the option. The expected holding period is based upon the simplified method provided in SEC Staff Accounting Bulletin No. 107, Share-Based Payment, which utilizes the mid-points between the vesting dates and the expiration date of the option award to calculate the overall expected term. There were no stock options granted during the years ended December 31, 2011, 2010, and 2009.
The following table summarizes stock option activity under the Incentive Plan.
At December 31, 2011, 2010, and 2009,the aggregate intrinsic value of outstanding shares under option was $554, $1,573, and $971 with a weighted average remaining contractual term of 3.7, 4.7, and 5.5 years, respectively. Aggregate intrinsic value represents the total pretax intrinsic value, based upon the Company's closing year-end stock price of $40.48, $47.72 and $36.23 at December 31, 2011, 2010, and 2009, respectively, which would have been received by the option holders had all option holders exercised their options as of those dates. The range of exercise prices on stock options outstanding under the Incentive Plan was $13.30 to $42.85 at both December 31, 2011 and 2010, and $12.00 to $42.85 at December 31, 2009. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010, and 2009 was $156, $1,080 and $442, respectively.
A summary of the status of non-vested options as of December 31, 2011 is presented below.
As of March 31, 2011, all compensation expense related to non-vested option awards had been recognized. Cash received from options exercised was $902, $1,990 and $367 for the years ended December 31, 2011, 2010, and 2009, respectively.
As a result of adopting ASC 718, Compensation-Stock Compensation on January 1, 2006, the Company's net income for the twelve months ended December 31, 2011 was lowered by $45, net of income tax benefit of $25. The Company's net income for the twelve months ended December 31, 2010 was lowered by $240, net of income tax benefit of $129. The impact on basic and diluted EPS was a reduction of less than $0.01 per share for the twelve months ended December 31, 2011 and a reduction of $0.02 per share for the twelve months ended December 31, 2010.
Restricted Stock
Restricted stock awarded to employees in the form of unvested shares is recorded at the market value of the Company's common stock on the grant date and amortized ratably as expense over the requisite service period.
The following table summarizes restricted stock activity under the Incentive Plan.
As of December 31, 2011, there was $6,528 of unrecognized compensation expense related to non-vested restricted stock awards that is expected to be recognized over a weighted average period of 1.6 years. The total fair value of the shares that were vested and unrestricted during the years ended December 31, 2011, 2010, and 2009 was $3,953, $3,782 and $3,412, respectively. For the years ended December 31, 2011, 2010, and 2009, the Company recorded compensation expense related to restricted stock of $2,870, $2,617 and $2,493, net of income tax benefits of $1,545, $1,409 and $1,342, respectively.
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