Share-Based Compensation Plans

Share-based incentive awards are provided to employees under our 2013 Incentive Award Plan (“2013 Plan”). The 2013 Plan, which was approved by the shareholders on May 21, 2013, is administered by the Compensation Committee of the Board of Directors ("Compensation Committee"). Awards under the 2013 Plan include stock options, restricted stock and other stock awards. The maximum number of shares of common stock that can be granted under the 2013 Plan is 33,040,000 shares, (i) less any stock options granted between January 1, 2013 and May 21, 2013 under the 2007 Incentive Award Plan (“2007 Plan”) on a one-for-one basis and all other awards granted between January 1, 2013 and May 21, 2013 under the 2007 Plan on a 3.5 share to one basis and (ii) plus any shares awarded under the 2013 Plan, 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 3.5 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 2013 Plan does not permit the holder of an award to elect cash settlement under any circumstances. At December 31, 2013, there were 32,762,420 shares available for grant under the 2013 Plan. If all shares available for grant were for awards other than stock options, shares available for grant would be 9,360,691.

Share-based compensation expense was $86.3 million, $80.8 million and $74.5 million in 2013, 2012 and 2011, respectively. At December 31, 2013, unamortized share-based compensation that will be expensed over the next five years is $257.2 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. To the extent that future tax deductions for share-based compensation are less than the deferred tax assets resulting from recording book share-based compensation expense, we expect to have a sufficient pool of excess tax benefits within the APIC Pool available to offset any potential future shortfalls.

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, 2013 was:



	2013			2012			2011
	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price	Shares		Weighted Average Exercise Price

Balance January 1	5,590,880		$25.72	18,301,409		$26.22	24,513,590		$26.64
Options granted	60,000		$70.68	60,000		$49.65	90,000		$45.05
Options exercised	(3,021,200	)	$26.01	(12,673,529	)	$26.47	(6,034,181	)	$28.17
Options (forfeited) reinstated	14,000		$23.40	(97,000	)	$35.98	(268,000	)	$27.15
Balance December 31	2,643,680		$26.39	5,590,880		$25.72	18,301,409		$26.22

Exercisable December 31	2,505,680		$24.67	5,333,880		$24.89	9,672,909		$27.85

Options outstanding and exercisable at December 31, 2013 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	2,337,680	5.2 years	$23.60	2,337,680	$23.60
$30.00	to	$44.99	163,000	6.7 years	$38.78	139,000	$37.97
$45.00	to	$59.99	83,000	8.2 years	$48.64	29,000	$47.37
$60.00	to	$70.68	60,000	9.9 years	$70.68	—	—
			2,643,680			2,505,680

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:



	2013	2012	2011

Expected option lives	5 years	5 years	5 years
Risk free interest rate	1.4%	0.8%	0.9	%	-	1.8%
Expected volatility	26.0%	29.5%	27.2	%	-	29.2%
Dividend yield	2.0%	3.1%	2.3	%	-	2.8%
Weighted average fair value per option granted	$14.50	$10.42	$9.57

Restricted Stock

Restricted stock activity for the three years ended December 31, 2013 was:



	2013		2012		2011

Balance January 1	7,241,490		6,038,978		3,026,086
Shares granted	706,900		2,515,127		4,274,807
Shares vested	(1,490,786	)	(981,737	)	(1,096,441	)
Shares forfeited	(366,907	)	(330,878	)	(165,474	)
Balance December 31	6,090,697		7,241,490		6,038,978

Weighted average grant date fair value of shares granted in the period	$60.98		$49.55		$44.51

Weighted average grant date fair value at December 31	$47.47		$45.34		$43.32

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

The Compensation Committee granted certain employees 413,909 performance restricted stock units (“PRSUs”) in 2011 (“2011 PRSUs”), 166,426 PRSUs in 2012 (“2012 PRSUs”) and 183,998 PRSUs in 2013 (“2013 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 four principal competitors over the same period. The 2011 PRSUs vest over five years and the 2012 and 2013 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 and 2013 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 2013 and 2012, 41,391 shares and 41,387 shares, respectively, of the 2011 PRSUs subject to the service only vesting condition vested and were distributed to the employees. We assume that substantially all the PRSUs subject to the service and performance condition will vest.

PRSU activity of the three years ended December 31, 2013 was:



	2013				2012				2011
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value
Balance January 1	538,948		$	48.74	413,909		$	48.56	—	—
Granted	183,998		57.77		166,426		49.13		413,909	$	48.56
Distributed	(41,391	)	48.56		(41,387	)	48.56		—	—
Forfeited	—		—		—		—		—	—
Balance December 31	681,555		$	51.19	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 175,002 shares, 189,307 shares and 161,929 shares in 2013, 2012 and 2011, respectively, all of which were treasury shares, for which $9.9 million, $8.6 million and $7.0 million, respectively, was paid to us. At December 31, 2013, 9,191,376 shares are available for the ESPP.