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Stock-Based Incentive Compensation Plans
 12 Months Ended
Dec. 31, 2012
Notes to Financial Statements [Abstract]  
Stock based incentive compensation plans

19. Stock-Based Incentive Compensation Plans

 

LNC Stock-Based Incentive Plans

 

We sponsor two stock-based incentive plans for our employees and directors and for the employees and agents of our subsidiaries that provide for the issuance of stock options, performance shares (performance-vested shares as opposed to service-vested shares), stock appreciation rights (“SARs”) and restricted stock units (“RSUs”). We issue new shares to satisfy option exercises.

 

Total compensation expense (in millions) by award type for all of our stock-based incentive plans was as follows:

       For the Years Ended December 31, 
       2012 2011 2010 
Stock options$ 8 $ 8 $ 5 
Performance shares  5   2   (1) 
SARs  1   -   - 
RSUs and nonvested stock  17   12   12 
 Total$ 31 $ 22 $ 16 
                
Recognized tax benefit$ 11 $ 8 $ 6 

Total unrecognized compensation expense (in millions) and expected weighted-average life (in years) by award type for all of our stock-based incentive plans was as follows:

       For the Years Ended December 31,
       2012 2011 2010
         Weighted-   Weighted-   Weighted-
         Average   Average   Average
       Expense Period Expense Period Expense Period
Stock options$ 6  1.8 $ 6  1.7 $ 4  1.8
Performance shares  9  1.6   4  2.0   -  -
SARs  1  3.3   1  3.4   1  3.7
RSUs and nonvested stock  20  1.3   17  1.7   19  1.9
 Total unrecognized stock-based               
  incentive compensation expense$ 36   $ 28   $ 24  

In the first quarter of 2012, a performance period from 2012-2014 was approved for certain of our executive officers by the Compensation Committee. The award for executive officers participating in this performance period consisted of LNC RSUs representing approximately 29%, LNC stock options representing approximately 35% and LNC performance shares representing approximately 36% of the total award. LNC stock options granted for this performance period have a maximum contractual term of ten years and vest ratably over the three-year period, based solely on a service condition. Depending on the performance results for this period, the ultimate payout of performance shares could range from zero to 200% of the target award. Under the 2012-2014 plan, a total of 766,217 LNC RSUs, 903,502 LNC stock options and 306,456 LNC performance shares were granted.

 

In the first quarter of 2011, a performance period from 2011-2013 was approved for certain of our executive officers by the Compensation Committee. The award for executive officers participating in this performance period consisted of LNC RSUs representing approximately 34%, LNC stock options representing approximately 33% and LNC performance shares representing approximately 33% of the total award. LNC stock options granted for this performance period have a maximum contractual term of ten years and vest ratably over the three-year period, based solely on a service condition. Under the 2011-2013 plan, a total of 221,813 LNC RSUs, 459,093 LNC stock options and 215,137 LNC performance shares were granted.

 

In the first quarter of 2010, a performance period from 2010-2012 was approved for certain of our executive officers by the Compensation Committee. The award for executive officers participating in this performance period consisted of LNC stock options representing approximately 34% and LNC RSUs representing approximately 66% of the total award. LNC stock options granted for this performance period have a maximum contractual term of ten years and vest ratably over the three-year period, based solely on a service condition. Under the 2010-2012 plan, a total of 301,524 LNC stock options and 575,353 LNC RSUs were granted.

 

The option price assumptions used for our stock option awards were as follows:

       For the Years Ended December 31, 
       2012 2011 2010 
Weighted-average fair value per option granted$ 8.35 $ 13.88 $ 16.91 
Assumptions:            
 Dividend yield  1.9%   1.2%   1.3% 
 Expected volatility  42.0%   48.5%   72.5% 
 Risk-free interest rate 0.9-1.2%  1.4-2.9%  2.7-3.3% 
 Expected life (in years)  5.8   6.7   6.3 

The fair value of options is determined using a Black-Scholes options valuation model with the assumptions disclosed in the table above.  The dividend yield is based on the expected dividend rate during the expected life of the option.  Expected volatility is based on the implied volatility of exchange-traded securities and the historical volatility of the LNC stock price.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant.  The expected life of the options granted represents the weighted-average period of time from the grant date to the date of exercise, expiration or cancellation based upon historical behavior.

 

Information with respect to our incentive plans involving stock options with performance conditions (aggregate intrinsic value shown in millions) was as follows:

             Weighted-    
         Weighted-  Average   
         Average  Remaining  Aggregate
         Exercise Contractual Intrinsic
       Shares Price  Term  Value
Outstanding as of December 31, 2011 1,849,448 $ 48.19       
Granted - original 99,113   27.26       
Exercised (includes shares tendered) (1,298)   16.24       
Forfeited or expired (679,668)   51.16       
 Outstanding as of December 31, 2012 1,267,595 $ 45.29   4.15  $ 1
                  
Vested or expected to vest as of December 31, 2012 (1) 1,245,410 $ 45.60   4.16  $ 1
                  
Exercisable as of December 31, 2012 1,156,671 $ 46.93   4.19  $ 1

  • Includes estimated forfeitures.

 

The total fair value of options vested during the years ended December 31, 2012, 2011 and 2010, was $1 million, $2 million and $9 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010, was zero.

 

Information with respect to our incentive plans involving stock options with service conditions (aggregate intrinsic value shown in millions) was as follows:

             Weighted-    
         Weighted-  Average   
         Average  Remaining  Aggregate
         Exercise Contractual Intrinsic
       Shares Price  Term  Value
Outstanding as of December 31, 2011 6,650,558 $ 46.73       
Granted - original 954,642   24.75       
Exercised (includes shares tendered) (22,798)   16.01       
Forfeited or expired (2,066,641)   51.69       
 Outstanding as of December 31, 2012 5,515,761 $ 41.20   4.07  $ 5
                  
Vested or expected to vest as of December 31, 2012 (1) 5,273,417 $ 41.89   3.85  $ 5
                  
Exercisable as of December 31, 2012 4,304,041 $ 45.46   2.72  $ 4

  • Includes estimated forfeitures.

 

The total fair value of options vested during the years ended December 31, 2012, 2011 and 2010, was $4 million, $7 million and $4 million, respectively. The total intrinsic value of options exercised during the years ended December 31, 2012, 2011 and 2010, was zero.

 

Information with respect to our performance shares was as follows:

          Weighted-  
          Average  
         Grant-Date 
       Shares  Fair Value  
Nonvested as of December 31, 2011 197,449  $ 31.02  
Granted 306,456    30.07  
Forfeited (24,407)    33.29  
 Nonvested as of December 31, 2012 479,498  $ 32.48  

SARs

 

Under our incentive compensation plan, we issue SARs to certain planners and advisors who have full-time contracts with us. The SARs under this plan are rights on our stock that are cash settled and become exercisable in increments of 25% over the four-year period following the SARs grant date. SARs are granted with an exercise price equal to the fair market value of our stock at the date of grant and, unless cancelled earlier due to certain terminations of employment, expire five years from the date of grant. Generally, such SARs are transferable only upon death.

 

We recognize compensation expense for SARs based on the fair value method using the Black-Scholes option-pricing model. Compensation expense and the related liability are recognized on a straight-line basis over the vesting period of the SARs. The SARs liability is marked-to-market through net income, which causes volatility in net income (loss) as a result of changes in the market value of our stock and reported within commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss). The SARs liability as of December 31, 2012 and 2011 was $1 million and reported within other liabilities on our Consolidated Balance Sheets.

 

The option price assumptions used for our SARs were as follows:

       For the Years Ended December 31, 
       2012 2011 2010 
Weighted-average fair value per SAR granted$ 8.91 $ 9.41 $ 7.81 
Assumptions:            
 Dividend yield  1.4%   1.9%   2.4% 
 Expected volatility  40.7%   39.1%   38.2% 
 Risk-free interest rate  1.3%   2.2%   1.8% 
 Expected life (in years)  5.0   5.0   5.0 

The assumptions above are the same as those discussed for options above, except the dividend yield is based on the current dividend rate at the date of grant, expected volatility is based on the implied volatility of exchange-traded securities and the expected life represents the contractual term.

 

Information with respect to our SARs plan (aggregate intrinsic value shown in millions) was as follows:

             Weighted-    
         Weighted-  Average   
         Average  Remaining  Aggregate
         Exercise Contractual Intrinsic
       Shares Price  Term  Value
Outstanding as of December 31, 2011 671,325 $ 43.26       
Granted - original 80,225   27.29       
Exercised (includes shares tendered) (11,875)   16.24       
Forfeited or expired (169,994)   64.98       
 Outstanding as of December 31, 2012 569,681 $ 35.01   1.79  $ 1
                  
Vested or expected to vest as of December 31, 2012 (1) 549,971 $ 35.32   1.74  $ 1
                  
Exercisable as of December 31, 2012 405,876 $ 38.01   1.19  $ 1

  • Includes estimated forfeitures.

 

The payment for SARs exercised during the years ended December 31, 2012, 2011 and 2010, was zero.

 

RSUs

 

We award RSUs under the incentive compensation plan, generally subject to a three-year vesting period. Information with respect to our restricted stock units was as follows:

          Weighted-  
          Average  
         Grant-Date 
       Shares  Fair Value  
Outstanding as of December 31, 2011 1,779,353  $ 23.94  
Granted 766,217    25.08  
Vested (653,848)    18.29  
Forfeited (175,315)    26.20  
 Outstanding as of December 31, 2012 1,716,407  $ 26.49