SHARE-BASED COMPENSATION

The Company records share-based compensation awards using a fair value method and recognizes compensation expense for an amount equal to the fair value of the share-based payment issued in its Consolidated Financial Statements. The Company’s share-based compensation plans include programs for stock options, restricted stock units (RSUs), stock appreciation rights (SARs), performance share units (PSUs) and deferred compensation.

Under the Company's incentive stock plan, the total number of ordinary shares authorized by the shareholders is 27.0 million, of which 9.1 million remains available as of December 31, 2011 for future incentive awards.

Compensation Expense

Share-based compensation expense related to continuing operations is included in Selling and administrative expenses within the Consolidated Statement of Income. The following table summarizes the expenses recognized:



In millions	2011			2010		2009
Stock options	$	22.3		$	30.8	$	36.8
RSUs	21.1			13.7		6.6
Performance shares	(0.5		)	28.6		22.4
Deferred compensation	1.1			1.5		2.7
SARs and other	(0.9		)	1.3		2.4
Pre-tax expense	43.1			75.9		70.9
Tax benefit	16.5			29.0		27.1
After tax expense	$	26.6		$	46.9	$	43.8
Amounts recorded in continuing operations	$	26.6		$	46.8	$	43.8
Amounts recorded in discontinued operations	—			0.1		—
Total	$	26.6		$	46.9	$	43.8

Stock Options / RSUs

The Company's equity grant approach allows for eligible participants to receive (i) stock options, (ii) RSUs or (iii) a combination of both stock options and RSUs. The average fair value of the stock options granted for the year ended December 31, 2011 and 2010 was estimated to be $13.99 per share and $10.16 per share, respectively, using the Black-Scholes option-pricing model. The following assumptions were used:



	2011		2010
Dividend yield	1.33	%	1.43	%
Volatility	34.81	%	37.38	%
Risk-free rate of return	2.45	%	2.36	%
Expected life (in years)	5.3		5.1

The fair value of each of the Company’s stock option and RSU awards is expensed on a straight-line basis over the required service period, which is generally the three-year vesting period. However, for stock options and RSUs granted to retirement eligible

employees, the Company recognizes expense for the fair value at the grant date. Expected volatility is based on the historical volatility from traded options on the Company’s stock.

The risk-free rate of return is based on the yield curve of a zero-coupon U.S. Treasury bond on the date the award is granted with a maturity equal to the expected term of the award. Historical data is used to estimate forfeitures within the Company’s valuation model. The Company’s expected life of the stock option awards is derived from historical experience and represents the period of time that awards are expected to be outstanding.

Changes in options outstanding under the plans for the years 2009, 2010 and 2011 are as follows:



	Shares subject to option		Weighted- average exercise price		Aggregate intrinsic value (millions)		Weighted- average remaining life
December 31, 2008	27,215,227		$	31.11
Granted	4,165,032		17.34
Exercised	(1,543,323	)	21.45
Cancelled	(1,978,853	)	31.99
December 31, 2009	27,858,083		29.54
Granted	2,631,467		31.72
Exercised	(7,255,729	)	20.81
Cancelled	(1,527,593	)	35.63
December 31, 2010	21,706,228		32.30
Granted	1,834,564		44.99
Exercised	(4,275,088	)	30.00
Cancelled	(650,428	)	35.36
Outstanding December 31, 2011	18,615,276		$	33.97	$	52.3	4.8
Exercisable December 31, 2011	14,007,462		$	33.99	$	37.8	3.9

The following table summarizes information concerning currently outstanding and exercisable options:



					Options outstanding				Options exercisable
Range of exercise price					Number outstanding at December 31, 2011	Weighted- average remaining life	Weighted- average exercise price		Number outstanding at December 31, 2011	Weighted- average remaining life	Weighted- average exercise price
$	—	—	$	10.00	112	0.1	$	9.98	112	0.1	$	9.98
10.01		—	20.00		3,351,200	4.7	16.95		2,293,386	4.0	17.03
20.01		—	30.00		1,198,010	3.3	24.64		1,190,010	3.3	24.62
30.01		—	40.00		9,303,154	4.4	35.83		7,464,759	3.8	36.84
40.01		—	50.00		4,634,428	5.9	44.46		2,994,195	4.4	43.19
50.01		—	60.00		128,372	6.0	52.26		65,000	5.8	53.82
$	9.98	—	$	55.22	18,615,276	4.8	$	33.97	14,007,462	3.9	$	33.99

At December 31, 2011, there was $21.5 million of total unrecognized compensation cost from stock option arrangements granted under the plan, which is primarily related to unvested shares of non-retirement eligible employees. The aggregate intrinsic value of options exercised during the year ended December 31, 2011 and 2010 was $76.2 million and $142.1 million, respectively. Generally, stock options vest ratably over a three-year period from their date of grant and expire at the end of ten years.

For RSUs granted to retirement eligible employees, the Company recognizes expense for the fair value of the RSUs at the grant date.

The following table summarizes RSU activity for the years 2009, 2010 and 2011:



	RSUs		Weighted- average grant date fair value
Outstanding and unvested at December 31, 2008	—		$	—
Granted	921,182		16.85
Vested	(6,521	)	16.85
Cancelled	(49,905	)	16.85
Outstanding and unvested at December 31, 2009	864,756		$	16.85
Granted	839,865		32.22
Vested	(290,868	)	16.95
Cancelled	(113,579	)	23.71
Outstanding and unvested at December 31, 2010	1,300,174		$	26.14
Granted	672,185		43.87
Vested	(512,614	)	24.20
Cancelled	(152,572	)	34.87
Outstanding and unvested at December 31, 2011	1,307,173		$	35.00

At December 31, 2011, there was $24.2 million of total unrecognized compensation cost from RSU arrangements granted under the plan, which is related to unvested shares of non-retirement eligible employees.

Performance Shares

The Company has a Performance Share Program (PSP) for key employees. The program provides awards in the form of PSUs based on performance against pre-established objectives. The annual target award level is expressed as a number of the Company’s ordinary shares. All PSUs are settled in the form of ordinary shares. As of December 31, 2011, the Company’s target award level for eligible employees is approximately 1.3 million shares.

On October 4, 2008, the Compensation Committee approved certain changes to the Company’s long-term incentive compensation programs to be implemented beginning with the 2009 performance year. Under these changes, the performance period under the Company’s PSP Program was changed from one year to three years starting with year 2009 in order to increase the long-term nature of incentive compensation for PSP participants. In addition, these PSUs are based on the Company’s relative EPS growth as compared to the industrial group of companies in the S&P 500 Index over the three-year performance period. To transition between the previous one-year PSP program and the revised three-year PSP program, there was a one-time PSU award with a two-year performance period for 2009 through 2010, which was based on the Company’s EPS growth relative to the industrial group of companies in the S&P 500 Index and the publicly announced Trane acquisition synergy savings.

The following table summarizes PSU activity for the maximum number of shares that may be issued for the years 2009, 2010 and 2011:



	Performance shares		Weighted-average grant date fair value
Outstanding and unvested at December 31, 2008	830,790		$	40.56
Granted	3,764,964		16.85
Vested	(286,790	)	43.52
Forfeited	(637,590	)	30.85
Outstanding and unvested at December 31, 2009	3,671,374		$	17.70
Granted	937,788		32.39
Vested	(140,904	)	39.00
Forfeited	(699,552	)	18.74
Outstanding and unvested at December 31, 2010	3,768,706		$	20.36
Granted	614,006		46.66
Vested	(633,504	)	16.95
Forfeited	(1,116,212	)	19.31
Outstanding and unvested at December 31, 2011	2,632,996		$	27.76

At December 31, 2011, there was $21.8 million of total unrecognized compensation cost from the PSP Program based on current performance, which is related to unvested shares. This compensation will be recognized over the required service period, which is generally the three-year vesting period.

SARs

All SARs outstanding as of December 31, 2011 are vested and expire ten years from the date of grant. All SARs exercised are settled with the Company’s ordinary shares.

The following table summarizes the information for currently outstanding SARs:



	Shares subject to exercise		Weighted- average exercise price		Aggregate intrinsic value (millions)		Weighted- average remaining life
Outstanding at December 31, 2008	1,073,472		$	34.02
Granted	—		—
Exercised	(29,038	)	22.73
Cancelled	(73,662	)	36.18
Outstanding at December 31, 2009	970,772		34.19
Granted	—		—
Exercised	(273,724	)	31.44
Cancelled	(86,066	)	35.38
Outstanding at December 31, 2010	610,982		35.31
Granted	—		—
Exercised	(115,419	)	32.40
Cancelled	(17,184	)	28.98
Outstanding at December 31, 2011	478,379		$	36.24	$	0.3	2.6
Exercisable at December 31, 2011	478,379		$	36.24	$	0.3	2.6

Note: The Company did not grant SARs during 2009, 2010, and 2011 and does not anticipate further granting in the future.

Deferred Compensation

The Company allows key employees to defer a portion of their eligible compensation into a number of investment choices, including its ordinary share equivalents. Any amounts invested in ordinary share equivalents will be settled in ordinary shares of the Company at the time of distribution.

Other Plans

The Company has issued stock grants as an incentive plan for certain key employees, with varying vesting periods. All stock grants are settled with the Company’s ordinary shares. At December 31, 2011, there were 45,099 stock grants outstanding, all of which were vested.