11. Share-Based Compensation

Under terms of its share-based compensation plans, Con-way grants various types of share-based compensation awards to employees and directors. The plans provide for awards in the form of stock options, nonvested stock (also known as restricted stock), performance-share plan units and stock appreciation rights ("SARs").

Con-way recognizes expense on a straight-line basis over the shorter of (1) the requisite service period stated in the award or (2) the period from the grant date of the award up to the employee's retirement-eligibility date if the award contains an accelerated-vesting provision. The following expense was recognized for share-based compensation:


(Dollars in thousands)	Years Ended December 31,
	2011			2010			2009
Salaries, wages and employee benefits	$	12,764		$	15,020		$	11,090
Deferred income tax benefit		(4,935	)		(5,803	)		(4,262	)
Net share-based compensation expense	$	7,829		$	9,217		$	6,828

As a result of executive severances in the third-quarter of 2010, Con-way modified the terms of outstanding awards for four executives. The modification resulted in the immediate vesting of certain awards and, as a result, Con-way recognized $1.1 million of expense.

The fair value of each stock option and SAR grant is estimated using the Black-Scholes option-pricing model, which considers the risk-free interest rate, and the expected award term, volatility and dividend yield. The risk-free interest rate is determined using the U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the award. The expected term of the award is derived from a binomial lattice model, and is based on the historical rate of voluntary exercises, post-vesting terminations and volatility. Expected volatility is based on the historical volatility of Con-way's common stock over the most recent period equal to the expected term of the award.

At December 31, 2011, Con-way had 1,933,604 common shares available for the grant of stock options, nonvested stock or other share-based compensation under its equity plans. Shares are issued from Con-way's balance of authorized common stock.

Stock Options

Stock options are granted at prices equal to the market value of the common stock on the date of grant and expire 10 years from the date of grant. Stock options are granted with three-year graded-vesting terms, under which one-third of the award vests each year. Certain option awards provide for accelerated vesting as a result of a change in control, qualifying retirement, death or disability (as defined in the stock option plans).

The following table summarizes stock-option activity for 2011:


	Number of Options			Weighted-Average Exercise Price
Outstanding at December 31, 2010		2,585,385		$	36.41
Granted		629,789			32.37
Exercised		(244,944	)		22.59
Expired or cancelled		(319,367	)		45.85
Outstanding at December 31, 2011		2,650,863		$	35.59

Exercisable at December 31, 2011		1,792,691		$	38.76


	Outstanding		Exercisable

Weighted-average remaining
contractual term	5.80 years		4.48 years
Aggregate intrinsic value (in thousands)	$	6,157	$	3,980

The aggregate intrinsic value reported in the table above represents the total pretax value that would have been received by employees and directors had all of the holders exercised their in-the-money stock options on December 31, 2011.

In 2011, 2010 and 2009, the aggregate intrinsic value of exercised options was $3.5 million, $1.9 million and $2.0 million, respectively. The total amount of cash received from the exercise of options in 2011, 2010 and 2009 was $5.5 million, $3.5 million and $4.2 million, respectively, and the related tax benefit realized from the exercise of options was $1.4 million, $0.8 million and $0.8 million, respectively.

At December 31, 2011, the total unrecorded deferred compensation cost of stock options, net of forfeitures, was $5.2 million, which is expected to be recognized over a weighted-average period of 1.93 years.

The following is a summary of the weighted-average assumptions used in the Black-Scholes option-pricing model and the calculated weighted-average grant-date fair value:


	2011			2010		2009
Estimated fair value	$	12.64			N/A	$	5.83
Risk-free interest rate		2.2	%		N/A		2.0	%
Expected term (years)		4.73			N/A		4.30
Expected volatility		48	%		N/A		39	%
Expected dividend yield		1.24	%		N/A		1.97	%

Nonvested Stock

Shares of nonvested stock are valued at the market price of Con-way's common stock at the date of award. Awards granted to directors are generally granted with three-year graded-vesting terms, while awards granted to employees generally vest three years from the award date. Nonvested stock awards provide for accelerated vesting as a result of a change in control, death or disability (as defined in the award agreement). The awards allow for pro-rata vesting if the award recipient leaves Con-way due to a qualifying retirement during the vesting period.

The following table summarizes nonvested stock activity for 2011:


	Number of Awards			Weighted-Average Grant-Date Fair Value
Outstanding at December 31, 2010		768,512		$	27.93
Awarded - Employees		278,383			32.41
Awarded - Directors		22,300			38.11
Vested		(156,881	)		37.78
Forfeited		(47,781	)		25.15
Outstanding at December 31, 2011		864,533		$	28.00

The total fair value of nonvested stock that vested in 2011, 2010 and 2009 was $5.4 million, $3.3 million and $1.4 million, respectively, based on Con-way's closing common stock price on the vesting date. At December 31, 2011, the total unrecorded deferred compensation cost of shares of nonvested stock, net of forfeitures, was $11.6 million, which is expected to be recognized over a weighted-average period of 1.65 years.

Stock Appreciation Rights

In 2010, Con-way awarded cash-settled SARs to eligible employees. The SARs were granted at the stock price on the grant date and have a three-year graded-vesting term. The awards provide for accelerated vesting if the employee ceases employment due to retirement, death, disability, or a change in control (as defined in the SAR agreement). The SARs are liability-classified awards and, as a result, Con-way re-measures the fair value of the awards each reporting period until the awards are settled. During the vesting period, compensation cost is recognized based on the proportionate amount of service rendered to date. Con-way will recognize any changes in fair value after the vesting period as compensation cost in the current period. The ultimate expense recognized for the SARs is equal to the intrinsic value at settlement. Con-way's accrued liability for cash-settled SARs of $3.1 million and $2.9 million at December 31, 2011 and 2010 was determined using a weighted-average fair value of $10.85 and $16.41 per SAR at December 31, 2011 and 2010, respectively.

The following table summarizes SAR activity for 2011:


	Number of Rights			Weighted-Average Exercise Price
Outstanding at December 31, 2010		627,746		$	28.92
Exercised		(63,123	)		28.92
Expired or cancelled		(41,517	)		28.92
Outstanding at December 31, 2011		523,106		$	28.92

Exercisable at December 31, 2011		173,465		$	28.92


	Outstanding		Exercisable

Weighted-average remaining
contractual term	8.12 years		8.12 years
Aggregate intrinsic value (in thousands)	$	126	$	42

The aggregate intrinsic value reported in the table above represents the total pretax value that would have been received by employees had all of the holders exercised their in-the-money SARs on December 31, 2011.

In 2011 and 2010, Con-way paid $0.6 million and $0.1 million to settle exercised SARs and realized a tax benefit of $0.2 million and $0.1 million, respectively.

At December 31, 2011, the total unrecorded deferred compensation cost of SARs, net of forfeitures, was $1.6 million, which is expected to be recognized over a weighted-average period of 1.00 years.

The following is a summary of the weighted-average assumptions used in the Black-Scholes option-pricing model and the calculated weighted-average grant-date fair value:


	2010
Estimated fair value	$	10.78
Risk-free interest rate		2.4	%
Expected term (years)		4.30
Expected volatility		48	%
Expected dividend yield		1.38	%