Stock-Based Compensation

9 Months Ended

Dec. 31, 2011

Stock-based Compensation Disclosure [Abstract]

Stock-Based Compensation

7.  Stock-Based Compensation

Legg Mason’s stock-based compensation includes stock options, employee stock purchase plans, restricted stock awards and units, performance shares payable in common stock, and deferred compensation payable in stock.  Shares available for issuance under the active equity incentive plan as of December 31, 2011, were 13,081. On July 26, 2011, the equity incentive plan was amended to increase the available shares by 6,500. Options under Legg Mason’s employee stock plans have been granted at prices not less than 100% of the fair market value. Options are generally exercisable in equal increments over four to five years and expire within eight to ten years from the date of grant.

Compensation expense relating to stock options for the three months ended December 31, 2011 and 2010, was $3,511 and $6,855, respectively, and for the nine months endedDecember 31, 2011 and 2010, was $11,192 and $15,936, respectively.

Stock option transactions during the nine months endedDecember 31, 2011 and 2010, respectively, are summarized below:

	Nine Months Ended December 31,
	2011				2010
	Number of shares		Weighted-average exercise price per share		Number of shares		Weighted-average exercise price per share
Options outstanding at March 31	5,419		$	59.82	6,054		$	57.75
Granted	810		33.99		711		33.11
Exercised	(14	)	26.41		(597	)	22.07
Canceled/forfeited	(375	)	48.84		(687	)	48.73
Options outstanding at December 31	5,840		$	57.03	5,481		$	59.57

At December 31, 2011, options were exercisable for 3,415 shares with a weighted-average exercise price of $72.70 and a weighted-average remaining contractual life of 3.2 years.  Unamortized compensation cost related to unvested options (2,425 shares) at December 31, 2011, of $25,821 is expected to be recognized over a weighted-average period of 1.8 years.

The weighted-average fair value of option grants during the nine months endedDecember 31, 2011 and 2010, using the Black-Scholes option-pricing model, was $13.13 and $14.35 per share, respectively.

The following weighted-average assumptions were used in the model for grants in fiscal 2012 and 2011:

	Nine Months Ended December 31,
	2011		2010
Expected dividend yield	1.39	%	1.39	%
Risk-free interest rate	1.95	%	2.38	%
Expected volatility	47.16	%	52.78	%
Expected lives (in years)	5.12		5.18

Compensation expense relating to restricted stock and restricted stock units for the three months ended December 31, 2011 and 2010, was $8,876 and $9,883, respectively, and for the nine months endedDecember 31, 2011 and 2010, was $25,484 and $25,951, respectively.

Restricted stock and restricted stock unit transactions during the nine months endedDecember 31, 2011 and 2010, respectively, are summarized below:

	Nine Months Ended December 31,
	2011				2010
	Number of shares		Weighted-average grant date value		Number of shares		Weighted-average grant date value
Unvested shares at March 31	2,637		$	33.01	1,605		$	34.80
Granted	1,315		33.79		1,786		32.95
Vested	(806	)	32.44		(475	)	36.39
Canceled/forfeited	(55	)	32.85		(205	)	29.82
Unvested shares at December 31	3,091		$	33.49	2,711		$	33.68

Unamortized compensation cost related to unvested restricted stock and restricted stock unit awards at December 31, 2011, of $69,175 is expected to be recognized over a weighted-average period of 1.8 years.

Compensation expense relating to the stock purchase plan and deferred compensation payable in stock for the three months ended December 31, 2011 and 2010, was $101 and $100, respectively, and for the nine months endedDecember 31, 2011 and 2010, was $385 and $438, respectively.

During the nine months ended December 31, 2011 and 2010, non-employee directors were granted 12 and 17 restricted stock units and 31 and 31 shares of common stock at a fair value of $1,375 and $1,425, respectively. As of December 31, 2011 and 2010, non-employee directors held 193 and 220 stock options, respectively, which are included in the outstanding options presented in the table above. As of December 31, 2011 and 2010, non-employee directors held 75 and 62 restricted stock units, respectively, which vest on the grant date and are therefore not included in the unvested shares of restricted stock and restricted stock units in the table above.  During the nine months ended December 31, 2011, non-employee directors did not exercise any stock options and no restricted stock units were distributed. During the nine months ended December 31, 2010, non-employee directors exercised 9 stock options and 7 restricted stock units were distributed. During the nine months ended December 31, 2011 and 2010, there were 27 and 59 non-employee director stock options canceled or forfeited, respectively.

During the June 2011 quarter, Legg Mason established a long-term incentive plan (the "LTIP") under its equity incentive plan, which provides an additional element of compensation that is based on performance. Under the LTIP, executive officers were granted cash value performance units in the June 2011 quarter that will vest at the end of a three year period based upon Legg Mason's cumulative adjusted earnings per share over the period. Awards granted under the LTIP may be settled in cash and/or shares of Legg Mason common stock, at the discretion of Legg Mason. The estimated amount of the award is being expensed over the vesting period based on a probability assessment of the expected outcome under the LTIP provisions.

As part of the Company's restructuring initiative, as further discussed in Note 11, the employment of certain recipients of stock option and restricted stock awards has been terminated. The termination benefits extended to these employees included accelerated vesting of any portion of their equity incentive awards that would not have vested by January 1, 2012, under the original terms of the awards. During fiscal 2011, the portion of the awards subject to accelerated vesting were revalued and are being expensed over the new vesting period, the impact of which is included above.