NOTE 11. STOCK COMPENSATION PLANS

We have various equity plans under which our officers, senior management, other key employees and directors may be granted options to purchase IFF common stock or other forms of stock-based awards. Beginning in 2004, we granted Restricted Stock Units ("RSU's") as the principal element of our equity compensation for all eligible U.S. based employees and a majority of eligible overseas employees. Vesting of the RSU's is solely time based; the vesting period is primarily three years from date of grant. For a small group of employees, primarily overseas, we granted stock options prior to 2008.

The cost of all employee stock-based awards are principally recognized on a straight-line attribution basis over their respective vesting periods, net of estimated forfeitures. Total stock-based compensation expense included in our Consolidated Statement of Income was as follows:


	December 31,
(DOLLARS IN THOUSANDS)	2011			2010			2009
Equity-based awards	$	20,547		$	18,382		$	17,449
Liability-based awards		3,044			3,619			2,203

Total stock-based compensation		23,591			22,001			19,652
Less tax benefit		(7,730	)		(8,028	)		(7,102	)

Total stock-based compensation, net of tax	$	15,861		$	13,973		$	12,550

The shareholders of the Company approved the Company's 2010 Stock Award and Incentive Plan (the "2010 Plan") at the Annual Meeting of Shareholders held on April 27, 2010. The 2010 Plan was approved by the Company's Board of Directors (the "Board") on February 2, 2010, subject to shareholder approval. The 2010 Plan replaces the Company's 2000 Stock Award and Incentive Plan and the 2000 Supplemental Stock Award Plan (the "2000 Plans") and will provide the source for future deferrals of cash into deferred stock under the Company's Deferred Compensation Plan (with the Deferred Compensation Plan being deemed a subplan under the 2010 Plan for the sole purpose of funding deferrals under the IFF Share Fund).

Under the 2010 Plan, a total of 2,749,669 shares are authorized for issuance, including 749,669 shares remaining available under a previous plan that were rolled into the 2010 Plan. At December 31, 2011, 2,518,548 shares were subject to outstanding awards and 1,984,627 shares remained available for future awards under all of the Company's equity award plans, including the 2010 Plan (excluding shares not yet issued under open cycles of the Company's Long-Term Incentive Plan).

The Company offers a Long-Term Incentive Plan ("LTIP") for senior management. The targeted payout is 50% cash and 50% IFF stock at the end of the three-year cycle and provides for segmentation in which one-fourth of the award vests during each twelve-month period, with the final one-fourth segment vesting over the full three-year period. These awards are earned based on the achievement of defined EPS targets and our performance ranking of total shareholder return as a percentile of the S&P 500. When the award is granted, 50% of the target dollar value of the award is converted to a number of "notional" shares based on the closing price at the beginning of the cycle. For those shares whose payout is based on shareholder return as a percentile of the S&P 500, compensation expense is recognized using a graded-vesting attribution method, while compensation expense for the remainder of the performance shares (e.g., EPS targets) is recognized on a straight-line basis over the vesting period based on the probable outcome of the performance condition. The 2007-2009 cycle concluded at the end of 2009 and an aggregate 53,378 shares of our common stock were issued in February 2010.

On February 1, 2010, the Compensation Committee of the Company's Board of Directors approved a one-year supplemental performance metric for the Company's LTIP 2008-2010 cycle which was based on improvement in operating profit margin measured over the fiscal year 2010 period as compared to 2009. The 2008-2010 cycle concluded at the end of 2010 and an aggregate 78,072 shares of our common stock were issued in March 2011. The 2009-2011 cycle concluded at the end of 2011 and an aggregate 128,293 shares of our common stock will be issued in March 2012.

In 2006, our Board approved the Equity Choice Program (the "Program") for senior management. This program continues under the 2010 Plan. Eligible employees can choose from among three equity alternatives and will be granted such equity awards up to certain dollar awards depending on the participant's grade level. A participant may choose among (1) SSAR's, (2) RSU's or (3) PRS.

SSAR's and Stock Options

SSAR's granted become exercisable on the third anniversary of the grant date and have a maximum term of seven years. Stock options granted vest in periods ranging from one to three years and have a maximum term of ten years. We granted 77,864, 196,652 and 236,986 SSAR's during 2011, 2010 and 2009, respectively. No stock options were granted in 2011, 2010 and 2009.

We use the Binomial lattice-pricing model as our valuation model for estimating the fair value of options granted. In applying the Binomial model, we utilize historical information to estimate expected term and post-vesting terminations within the model. The expected term of an option is based on historical employee exercise behavior, vesting terms and a contractual life of primarily ten years for options and seven years for SSAR's. The risk-free interest rate for periods within the expected term of the award is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on an average of implied and historical volatility of the price of our common stock over the calculated expected term. We anticipate paying cash dividends in the future and therefore use an expected dividend yield in the valuation model; the cash dividend in effect at the time of grant was employed in this calculation.

Principal assumptions used in applying the Binomial model in 2011, 2010 and 2009 were:


	2011		2010		2009
Weighted average fair value of SSAR's granted during the period	$	11.47	$	10.41	$	7.08
Assumptions:
Risk-free interest rate		1.7%		2.2%		2.5%
Expected volatility		23.2%		29.8%		30.9%
Expected dividend yield		2.1%		2.2%		3.2%
Expected life, in years		5		5		5
Termination rate		0.99%		1.09%		0.91%
Exercise multiple		1.43		1.38		1.46

SSAR's and Stock options activity were as follows:


(SHARE AMOUNTS IN THOUSANDS)	Shares Subject to SSAR's/ Options			Weighted Average Exercise Price		SSAR's/ Options Exercisable
Balance at December 31, 2010		1,440		$	37.46		883
Granted		78		$	62.13
Exercised		(428	)	$	37.46

Balance at December 31, 2011		1,090		$	39.16		627

The weighted average exercise price of our SSAR's and options exercisable at December 31, 2011, 2010 and 2009 were $36.86, $36.14 and $34.20, respectively. The following tables summarize information concerning currently outstanding and exercisable SSAR's and options.

SSAR's and options outstanding at December 31, 2011 were as follows:


Price Range	Number Outstanding (in thousands)		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
$26 – $30		287		3.6	$	30.14
$31 – $35		224		1.1	$	33.05
$36 – $40		100		3.3	$	36.85
$41 – $50		330		4.6	$	43.79
$51 – $55		71		4.7	$	51.44
$56 – $65		78		6.4	$	62.13

		1,090			$	39.16	$	14,453

SSAR's and stock options exercisable as of December 31, 2011 were as follows:


Price Range	Number Exercisable (in thousands)		Weighted Average Remaining Contractual Life (in years)		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
$26 – $30		131		1.1	$	29.73
$31 – $35		224		1.2	$	33.05
$36 – $40		65		2.6	$	37.27
$41 – $50		136		3.3	$	42.18
$51 – $55		71		4.7	$	51.44

		627			$	36.86	$	9,760

The total intrinsic value of options/SSAR's exercised during 2011, 2010 and 2009 totaled $10 million, $14 million and $1 million, respectively.

As of December 31, 2011, there was $1.5 million of total unrecognized compensation cost related to non-vested SSAR awards granted; such cost is expected to be recognized over a weighted average period of 1.6 years.

Restricted Stock Units

We have granted RSU's to eligible employees and directors. Such RSU's are subject to forfeiture if certain employment conditions are not met. RSU's principally vest 100% at the end of three years and contain no performance criteria provisions. An RSU's fair value is calculated based on the market price of our stock at date of grant, with an adjustment to reflect the fact that such awards do not participate in dividend rights. The aggregate fair value is amortized to expense ratably over the vesting period.

RSU activity was as follows:


(SHARE AMOUNTS IN THOUSANDS)	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Balance at December 31, 2010		867		$	37.43
Granted		219		$	59.80
Vested		(267	)	$	42.58
Forfeited		(37	)	$	42.39

Balance at December 31, 2011		782		$	44.91

The total fair value of RSU's which vested during the year ended December 31, 2011 was $16.5 million.

As of December 31, 2011, there was $11.6 million of total unrecognized compensation cost related to non-vested RSU awards granted under the equity incentive plans; such cost is expected to be recognized over a weighted average period of 1.7 years.

Purchased Restricted Stock

PRS provides for eligible employees to purchase restricted shares of IFF stock at 50% of the fair market value on the grant date of the award. The shares generally vest on the third anniversary of the grant date, are subject to continued employment and other specified conditions and pay dividends if and when paid by us. Holders of PRS have, in most instances, all of the rights of stockholders, except that they may not sell, assign, pledge or otherwise encumber such shares. RSU's provide no such rights. We issued 174,212 shares of PRS in 2011 for an aggregate purchase price of $5.4 million covering 87,106 purchased shares, 213,714 shares of PRS in 2010 for $4.8 million covering 106,857 purchased shares and 218,134 shares in 2009 for $3 million covering 109,067 purchased shares.

PRS activity was as follows:


(SHARE AMOUNTS IN THOUSANDS)	Number of Shares			Weighted Average Grant Date Fair Value Per Share
Balance at December 31, 2010		525		$	19.32
Granted		174		$	31.07
Vested		(202	)	$	20.28

Balance at December 31, 2011		497		$	23.03

The total fair value of PRS's which vested during the year ended December 31, 2011 was $7.9 million.

As of December 31, 2011, there was $4.3 million of total unrecognized compensation cost related to non-vested PRS awards granted under the equity incentive plans; such cost is expected to be recognized over a weighted average period of 1.8 years.

Liability Awards

We have granted Cash RSU's to eligible employees that are paid out 100% in cash upon vesting. Such RSU's are subject to forfeiture if certain employment conditions are not met. Cash RSU's principally vest 100% at the end of three years and contain no performance criteria provisions. A Cash RSU's fair value is calculated based on the market price of our stock at date of our closing period and is accounted for as a liability award. The aggregate fair value is amortized to expense ratably over the vesting period.

Cash RSU activity was as follows:


(SHARE AMOUNTS IN THOUSANDS)	Cash RSUs			Weighted Average Fair Value Per Share
Balance at December 31, 2010		162		$	55.59
Granted		40		$	52.42
Vested		(45	)	$	62.74
Cancelled		(3	)	$	56.91

Balance at December 31, 2011		154		$	52.42

The total fair value of Cash RSU's which vested during the year ended December 31, 2011 was $2.8 million.

As of December 31, 2011, there was $2.4 million of total unrecognized compensation cost related to non-vested Cash RSU awards granted under the equity incentive plans; such cost is expected to be recognized over a weighted average period of 1.6 years. The aggregate compensation cost will be adjusted based on changes in the Company's stock price.