Share-Based Compensation Plans

Share-based incentive awards are provided to employees under our 2007 Incentive Award Plan (“2007 Plan”). The 2007 Plan is administered by the Compensation Committee of the Board of Directors ("Compensation Committee"). Awards under the 2007 Plan include stock options, restricted stock and other stock awards. The maximum number of shares of common stock that can be granted under the 2007 Plan is 17 million shares plus any shares awarded under the 2007 Plan and any prior plan that were forfeited or expired. Stock option awards reduce the number of shares available for grant on a one-for-one basis. All other awards reduce the number of shares available for grant by 2.5 shares for every one share of common stock awarded. The terms of each award and the exercise date are determined by the Compensation Committee. The 2007 Plan does not permit the holder of an award to elect cash settlement under any circumstances. At December 31, 2012, there were 384,826 shares available for grant under the 2007 Plan. If all shares available for grant were for awards other than stock options, shares available for grant would be 153,930.

Share-based compensation expense was $80.8 million, $74.5 million and $69.3 million in 2012, 2011 and 2010, respectively. At December 31, 2012, unamortized share-based compensation that will be expensed over the next 5 years is $302.5 million. We record a deferred tax asset for share-based compensation expense recognized for financial reporting that has not been deducted on our income tax return. If the actual tax deduction exceeds the deferred tax asset, the difference is recorded in additional paid-in capital (“APIC Pool”). If the actual tax deduction is less than the deferred tax asset and no APIC Pool exists, the difference is recorded in results of operations.

Stock Options

The exercise price of stock option awards may not be less than 100% of the market price of our common stock on the grant date and the option term cannot exceed ten years from the grant date. Typically, stock option awards vest 30% per year for the first two years and are fully vested three years from the grant date. Generally, stock option exercises are settled with treasury shares.

Stock option activity for the three years ended December 31, 2012 was:



	2012			2011			2010
	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price

Balance January 1	18,301,409		$26.22	24,513,590		$26.64	40,832,715		$29.37
Options granted under 2007 Plan	60,000		$49.65	90,000		$45.05	335,000		$38.86
Options exercised	(12,673,529	)	$26.47	(6,034,181	)	$28.17	(14,125,525	)	$33.03
Options forfeited	(97,000	)	$35.98	(268,000	)	$27.15	(2,528,600	)	$36.58

Balance December 31	5,590,880		$25.72	18,301,409		$26.22	24,513,590		$26.64



Exercisable December 31	5,333,880		$24.89	9,672,909		$27.85	7,885,090		$31.80

Options outstanding and exercisable at December 31, 2012 were:



			Options Outstanding			Options Exercisable
Range of Exercise Prices			Shares	Weighted Average Remaining Contractual Life	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price

$23.40	to	$29.99	4,992,880	6.2 years	$23.61	4,992,880	$23.61
$30.00	to	$44.99	362,000	7.5 years	$38.57	206,000	$38.13
$45.00	to	$52.83	236,000	5.3 years	$50.64	135,000	$52.11

			5,590,880			5,333,880

The fair value of each grant was determined on the grant date using the Black-Scholes option valuation model. The Black-Scholes assumptions (without adjusting for the risk of forfeiture and lack of liquidity) and the weighted average fair value per share for options granted were:



	2012	2011				2010
Expected option lives	5 years	5 years				5 years
Risk free interest rate	0.8%	0.9	%	-	1.8%	1.8	%	-	2.6%
Expected volatility	29.5%	27.2	%	-	29.2%	24.7	%	-	27.0%
Dividend yield	3.1%	2.3% - 2.8%				1.9% - 2.4%
Weighted average fair value per option granted	$10.42	$9.57				$8.25

Restricted Stock

Restricted stock activity for the three years ended December 31, 2012 was:



	2012		2011		2010

Balance January 1	6,038,978		3,026,086		3,471,929
Shares granted	2,515,127		4,274,807		868,273
Shares vested	(981,737	)	(1,096,441	)	(1,089,136	)
Shares forfeited	(330,878	)	(165,474	)	(224,980	)


Balance December 31	7,241,490		6,038,978		3,026,086




Weighted average per share fair value of shares granted	$49.55		$44.51		$36.63


Weighted average per share fair value at December 31	$45.34		$43.32		$41.79

Restricted shares typically vest 20% per year, provided the employee remains employed by us and are fully vested five years from the grant date. Restricted shares may not be sold, transferred, pledged or otherwise encumbered until the forfeiture restrictions lapse. Under most circumstances, the employee forfeits the shares if employment ceases prior to the end of the restriction period.

Performance Restricted Stock Units

In 2011, the Compensation Committee granted 413,909 performance restricted stock units ("PRSUs") to certain employees at a weighted average grant price of $48.56 ("2011 PRSUs"). In 2012, the Compensation Committee granted 166,426 PRSUs to certain employees at a weighted average grant price of $49.13 ("2012 PRSUs"). Each PRSU represents the right to receive one share of common stock on vesting. The ultimate number of PRSUs received by the employee depends on the Company's average return on equity over a three year period compared to the average return on equity of a peer group of five principal competitors over the same period. The 2011 PRSUs vest over five years and the 2012 PRSUs vest over three years. One half of the 2011 PRSUs have a service only vesting condition and compensation expense is recognized on a straight-line basis over the service period. The other half of the 2011 PRSUs and all the 2012 PRSUs have a service and performance vesting condition and compensation expense is recognized on a graded-vesting basis. Over the performance period, the recognition of compensation expense is adjusted upward or downward based on our estimate of the probability of achievement of the performance target for the portion of the awards subject to the performance vesting condition. In 2012, 41,387 shares of the 2011 PRSUs subject to the service only vesting condition vested and were distributed to the employees. We assume that substantially all the 2011 PRSUs and 2012 PRSUs subject to the service and performance condition will vest.

PRSU activity of the years ended December 31, 2012 and 2011 was:



	2012				2011
	Shares		Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Balance January 1	413,909		$	48.56	—
Granted	166,426		49.13		413,909	$	48.56
Distributed	(41,387	)	48.56		—	—
Forfeited	—		—		—	—

Balance December 31	538,948		$	48.74	413,909	$	48.56

ESPP

We have an employee stock purchase plan (“ESPP”) that enables employees to purchase our common stock through payroll deductions over each plan quarter at 95% of the market price on the last trading day of the plan quarter. Purchases are limited to 10% of eligible compensation as defined by the Employee Retirement Income Security Act of 1974 (“ERISA”). Employees purchased 189,307 shares, 161,929 shares and 267,931 shares in 2012, 2011 and 2010, respectively, all of which were treasury shares, for which $8.6 million, $7.0 million and $9.7 million, respectively, was paid to us. At December 31, 2012, 9,366,378 shares are available for the ESPP.