SHARE-BASED COMPENSATION

At December 31, 2011, a variety of Ford stock-based compensation grants and awards were outstanding for employees (including officers) and members of the Board of Directors. All stock-based compensation plans are approved by the shareholders.

We grant performance and time-based restricted stock units to our employees. Restricted stock units awarded in stock ("RSU-stock") provide the recipients with the right to shares of stock after a restriction period. We have stock-based compensation outstanding under two Long-Term Incentive Plans ("LTIP"): the 1998 LTIP and the 2008 LTIP. No further grants may be made under the 1998 LTIP. All outstanding stock-based compensation under the 1998 LTIP continues to be governed by the terms and conditions of the existing agreements for those grants. Grants may continue to be made under the 2008 LTIP through April 2018. Under the 2008 LTIP, 2% of our issued Common Stock as of December 31 becomes available for granting plan awards in the succeeding calendar year. Any unused portion is available for later years. The limit may be increased up to 3% in any year, with a corresponding reduction in shares available for grants in future years. At December 31, 2011 the number of unused shares carried forward was 96 million shares.

The fair value of the awards under the two plans is calculated differently:

1998 LTIP - Fair value is the average of the high and low market price of our Common Stock on the grant date.

2008 LTIP - Fair value is the closing price of our Common Stock on the grant date.

NOTE 20. SHARE-BASED COMPENSATION (Continued)

Outstanding RSU-stock are either strictly time-based or a combination of performance and time-based awards. Expenses associated with RSU-stock are recorded in Selling, administrative, and other expense.


•	Time-based RSU-stock generally have a graded vesting feature whereby one-third of each RSU-stock vests after the first anniversary of the grant date, one-third after the second anniversary, and one-third after the third anniversary. The expense is recognized using the graded vesting method.

•

Performance RSU-stock have a performance period (usually 1-3 years) and usually a restriction period (usually 1-3 years). Compensation expense for performance RSU-stock is recognized when it is probable and estimable as measured against the performance metrics. Expense is then recognized over the performance and restriction periods, if any, based on the fair market value of Ford Common Stock at grant date.

We also grant stock options to our employees. We measure the fair value of the majority of our stock options using the Black-Scholes option-pricing model, using historical volatility and our determination of the expected term. The expected term of stock options is the time period that the stock options are expected to be outstanding. Historical data are used to estimate option exercise behaviors and employee termination experience.

Stock options generally have a vesting feature whereby one-third of the stock options are exercisable after the first anniversary of the grant date, one-third after the second anniversary, and one-third after the third anniversary. Stock options expire ten years from the grant date and are expensed in Selling, administrative, and other expenses using a three-year graded vesting methodology.

We issue new shares of Common Stock upon settlement of RSU-stock and options settleable in shares. During 2012, we intend to implement a modest anti-dilutive share repurchase plan to offset share-based compensation.

Restricted Stock Units

RSU-stock activity during 2011 was as follows:



	Shares (millions)		Weighted- Average Grant- Date Fair Value		Aggregate Intrinsic Value (millions)
Outstanding, beginning of year	72.4		$	3.96
Granted	8.6		14.47
Vested	(44.4	)	3.19
Forfeited	(0.5	)	11.03
Outstanding, end of year	36.1		7.31		$	388.4
RSU-stock expected to vest	35.5		N/A		381.9

Intrinsic value of RSU-stock is measured by applying the closing stock price as of December 31 to the applicable number of units. The fair value and intrinsic value of RSU-stock during 2011, 2010, and 2009 were as follows (in millions, except RSU-stock per unit amounts):



	2011		2010		2009
Fair value
Granted	$	123	$	130	$	171
Weighted average for multiple grant dates (per unit)	14.47		12.69		2.13
Vested	141		112		66
Intrinsic value
Vested	478		522		95

NOTE 20. SHARE-BASED COMPENSATION (Continued)

Compensation cost for RSU-stock was as follows (in millions):



	2011		2010		2009
Compensation cost (a)	$	84	$	138	$	117

__________


(a)	Net of tax benefit of $49 million, $0, and $0 in 2011, 2010, and 2009, respectively.

As of December 31, 2011, there was approximately $49 million in unrealized compensation cost related to non-vested RSU-stock. This expense will be recognized over a weighted average period of 1.3 years.

Stock Options

Stock option activity was as follows:



	2011				2010				2009
	Shares (millions)		Weighted- Average Exercise Price		Shares (millions)		Weighted- Average Exercise Price		Shares (millions)		Weighted- Average Exercise Price
Outstanding, beginning of year	172.5		$	13.07	225.4		$	13.36	226.2		$	16.37
Granted	4.4		14.76		6.7		12.75		26.5		2.06
Exercised (a)	(8.2	)	9.25		(36.5	)	8.41		(1.3	)	7.35
Forfeited (including expirations)	(24.3	)	29.18		(23.1	)	23.18		(26.0	)	28.28
Outstanding, end of year	144.4		10.63		172.5		13.07		225.4		13.36
Exercisable, end of year	126.8		11.00		143.7		14.63		185.0		15.47

__________


(a)	Exercised at option price ranging from $1.96 to $16.91 during 2011, option price ranging from $1.96 to $16.91 during 2010, and option price ranging from $5.49 to $7.83 during 2009.

The total grant date fair value of options that vested during the years ended December 31 was as follows (in millions):



	2011		2010		2009
Fair value of vested options	$	36	$	37	$	41

We have 126.8 million fully-vested stock options, with a weighted-average exercise price of $11.00 and average remaining term of 3 years. We expect 17.2 million stock options (after forfeitures), with a weighted-average exercise price of $7.96 and average remaining term of 8 years, to vest in the future.

The intrinsic value for vested and unvested options during the years ended December 31 was as follows (in millions):



	2011		2010		2009
Intrinsic value of vested options (a)	$	257	$	623	$	132
Intrinsic value of unvested options (after forfeitures) (a)	74		324		246

__________


(a)	The intrinsic value for stock options is measured by comparing the awarded option price to the closing stock price at December 31.

We received approximately $76 million from the exercise of stock options in 2011. The tax benefit realized was de minimis. An equivalent of about $73 million in new issues were used to settle exercised options. For options exercised during the years ended December 31, 2011, 2010, and 2009, the difference between the fair value of the Common Stock issued and the respective exercise price was $54 million, $187 million, and $2 million, respectively.

Compensation cost for stock options was as follows (in millions):



	2011		2010		2009
Compensation cost (a)	$	30	$	34	$	29

__________


(a)	Net of tax benefit of $17 million, $0, and $0 in 2011, 2010, and 2009, respectively.

NOTE 20. SHARE-BASED COMPENSATION (Continued)

As of December 31, 2011, there was about $13 million in unrealized compensation cost related to non-vested stock options. This expense will be recognized over a weighted-average period of 1.3 years. A summary of the status of our non-vested shares and changes during 2011 follows:



	Shares (millions)		Weighted- Average Grant- Date Fair Value
Non-vested, beginning of year	28.8		$	2.77
Granted	4.4		8.48
Vested	(15.1	)	2.43
Forfeited	(0.5	)	2.79
Non-vested, end of year	17.6		4.49

The estimated fair value of stock options at the time of grant using the Black-Scholes option-pricing model was as follows:



	2011			2010			2009
Fair value per stock option	$	8.48		$	7.21		$	1.07
Assumptions:
Annualized dividend yield	—		%	—		%	—		%
Expected volatility	53.2		%	53.4		%	52.0		%
Risk-free interest rate	3.2		%	3.0		%	2.7		%
Expected stock option term (in years)	7.1			6.9			6.0

Details on various stock option exercise price ranges are as follows:



	Outstanding Options				Exercisable Options
Range of Exercise Prices	Shares (millions)	Weighted- Average Life (years)	Weighted- Average Exercise Price		Shares (millions)	Weighted- Average Exercise Price
$1.96 – $2.84	22.4	7.20	$	2.10	13.7	$	2.11
$5.11 – $10.18	41.5	4.21	7.42		41.5	7.42
$11.10 – $15.98	48.3	3.85	13.20		39.4	13.08
$16.09 – $17.05	32.2	0.30	16.88		32.2	16.88
Total stock options	144.4				126.8

Other Share-Based Awards

Under the 1998 LTIP and 2008 LTIP, we have granted other share-based awards to certain employees. These awards include restricted stock grants, cash-settled restricted stock units, and stock appreciation rights. These awards have various vesting criteria which may include service requirements, individual performance targets, and company-wide performance targets.

Other share-based compensation cost was as follows (in millions):



	2011			2010		2009
Compensation cost (a)	$	(9	)	$	6	$	11

__________


(a)	Net of tax of $3 million, $0, and $0 in 2011, 2010, and 2009, respectively.