NOTE 14 - STOCK COMPENSATION PLANS

At December 31, 2013, we have two share-based compensation plans, which are described below. The compensation cost that has been charged against income for those plans was $21.1 million, $20.6 million and $15.9 million in 2013, 2012 and 2011, respectively, which primarily was recorded in Selling, general and administrative expenses in the Statements of Consolidated Operations. The total income tax benefit recognized in the Statements of Consolidated Operations for share-based compensation arrangements was $7.4 million, $7.2 million and $5.6 million for 2013, 2012 and 2011, respectively.

Employees’ Plans

On May 11, 2010, our shareholders approved and adopted an amendment and restatement of the ICE Plan to increase the authorized number of shares available for issuance under the plan and to provide an annual limitation on the number of shares available to grant to any one participant in any fiscal year of 500,000 common shares. As of December 31, 2011, our ICE Plan authorized up to 11.0 million of our common shares to be issued as stock options, SARs, restricted shares, restricted share units, retention units, deferred shares and performance shares or performance units. Any of the foregoing awards may be made subject to attainment of performance goals over a performance period of one or more years. Each stock option and SAR will reduce the common shares available under the ICE Plan by one common share. Each other award will reduce the common shares available under the ICE Plan by two common shares. The performance shares and performance share units are intended to meet the requirements of section 162(m) of the Internal Revenue Code for deduction.

The ICE Plan was terminated on May 8, 2012 and no additional grants will be issued from the ICE Plan after this date; however, all awards previously granted under the ICE Plan continue in full force and effect in accordance with the terms of the award.

The 2012 Equity Plan was approved by our Board of Directors on March 13, 2012 and our shareholders approved it on May 8, 2012, effective as of March 13, 2012. The 2012 Equity Plan replaced the ICE Plan. The maximum number of shares that may be issued under the 2012 Equity Plan is 6.0 million common shares. On March 11, 2013, the Compensation and Organization Committee of the Board of Directors approved a grant under our shareholder-approved 2012 Equity Plan for the 2013 to 2015 performance period. A total of 1.0 million shares were granted under the award, consisting of 0.8 million performance shares and 0.2 million restricted share units. In addition, 0.1 million restricted share units related to retention or employees newly hired were granted during 2013. Dividend equivalents are accrued on unvested performance shares and restricted share units and payable in cash upon vesting.

For the outstanding ICE Plan and Equity Plan awards, each performance share, if earned, entitles the holder to receive common shares or cash for participants in China within a range between a threshold and maximum number of our common shares, with the actual number of common shares earned dependent upon whether the Company achieves certain objectives and performance goals as established by the Committee. The performance share or unit grants vest over a period of three years and are intended to be paid out in common shares or cash in certain circumstances. Performance for the 2011 to 2013 performance period is measured on the basis of two factors: 1) relative TSR for the period and 2) three-year cumulative free cash flow. The relative TSR for the 2011 to 2013 performance period is measured against the constituents of the S&P Metals and Mining ETF Index on the last day of trading of the performance period. Performance for the 2012 to 2014 and for the 2013 to 2015 performance periods are measured only on the basis of relative TSR for the period and measured against the constituents of the S&P Metals and Mining ETF Index on the last day of trading of the performance period. The final payouts for the 2011 to 2013 performance period, the 2012 to 2014 performance period and the 2013 to 2015 performance period will vary from zero to 200 percent of the original grant. The restricted share units are subject to continued employment, are retention based, will vest at the end of the respective performance period, and are payable in common shares or cash in certain circumstances at a time determined by the Committee at its discretion.

Upon the occurrence of a change in control, all performance shares, restricted share units, restricted stock, performance units and retention units granted to a participant prior to October 2013 will vest and become nonforfeitable and will be paid out in cash for awards currently outstanding. For any future equity grants after September 2013, if we experience a change in control, then the vesting of all such grants only will accelerate following a termination associated with the change in control and if the common shares are not substituted.

Following is a summary of our Performance Share Award Agreements currently outstanding:



Performance Share Plan Year	Performance Shares Outstanding		Forfeitures (1)	Grant Date	Performance Period
2013	574,941		177,279	March 11, 2013	1/1/2013 - 12/31/2015
2012	239,072		70,768	March 12, 2012	1/1/2012 - 12/31/2014
2011	156,178		32,112	March 8, 2011	1/1/2011 - 12/31/2013
2011	1,717		373	April 14, 2011	1/1/2011 - 12/31/2013
2011	1,290		—	May 2, 2011	1/1/2011 - 12/31/2013
2010	12,480	(2)	—	March 8, 2010	12/31/2009 - 12/31/2013
2009	44,673	(2)	—	December 17, 2009	12/31/2009 - 12/31/2013


(1)	The 2013 and 2012 awards are based on assumed forfeitures. The 2011 awards reflect actual forfeitures.


(2)	Represents the target payout as of December 31, 2013 related to the 44,673 shares awarded on December 17, 2009 and the 12,480 shares awarded on March 8, 2010 based upon the Compensation Committee’s ability to exercise negative discretion.

The performance shares awarded under the ICE Plan to the Company’s retired Chief Executive Officer on December 17, 2009 and March 8, 2010 of 67,009 shares and 18,720 shares met the aggregate value-added performance objective under the award terms as of December 31, 2010. The number of shares paid out under these particular awards at the end of each incentive period will be determined by the Compensation Committee based upon the achievement of certain other performance factors evaluated solely at the Compensation Committee’s discretion and may be reduced from the 67,009 shares and 18,720 shares granted. Based on the Compensation Committee’s ability to exercise negative discretion, the targeted payout for the award was 44,673 shares and 12,480 shares, respectively, as of December 31, 2013. These other performance factors are in addition to the aggregate value-added performance objective. Pursuant to the terms of the retired Chief Executive Officer's severance agreement and release, he will receive at least the target number of shares under the December 17, 2009 and March 8, 2010 awards.

Nonemployee Directors

The Directors’ Plan authorizes us to issue up to 800,000 common shares to nonemployee Directors. Under the Share Ownership Guidelines in effect for 2013 ("Guidelines"), a Director is required by the end of five years from date of election or September 1, 2010, whichever is later, to hold common shares with a market value of at least $250,000. If, as of December 1 annually, the nonemployee Director does not meet the Guidelines, the nonemployee Director must take a portion of the annual retainer fee in common shares with a market value of $24,000 (“Required Retainer”) until such time as the nonemployee Director reaches the ownership required by the Guidelines. Once the nonemployee Director meets the Guidelines, the nonemployee Director may elect to receive the Required Retainer in cash. Since April 1, 2011, nonemployee Directors have received an annual retainer fee of $60,000.

The Directors’ Plan also provides for an Annual Equity Grant ("Equity Grant"). The Equity Grant is awarded at our annual meeting each year to all nonemployee Directors elected or re-elected by the shareholders and a pro-rata amount is awarded to new directors upon their appointment. The value of the Equity Grant is payable in restricted shares with a three-year vesting period from the date of grant. The closing market price of our common shares on our annual meeting date is divided into the Equity Grant to determine the number of restricted shares awarded. In 2011, nonemployee Directors each received Equity Grants of $80,000 and that amount was increased effective May 8, 2012 to $85,000. The Directors’ Plan offers the nonemployee Director the opportunity to defer all or a portion of the Directors’ annual retainer fee, committee chair retainers, meeting fees and the Equity Grant into the Directors’ Plan. A nonemployee Director who is 69 or older at the Equity Grant date will receive common shares with no restrictions.

For the last three years, Equity Grant shares have been awarded to elected or re-elected nonemployee Directors as follows:



Year of Grant	Unrestricted Equity Grant Shares	Restricted Equity Grant Shares	Deferred Equity Grant Shares
2011	1,850	6,475	1,850
2012	1,498	8,988	2,996
2013	3,985	31,506	7,970

Other Information

The following table summarizes the share-based compensation expense that we recorded for continuing operations in 2013, 2012 and 2011:



	(In Millions, except per share amounts)
	2013			2012			2011
Cost of goods sold and operating expenses	$	6.3		$	4.0		$	2.7
Selling, general and administrative expenses	14.8			16.6			13.2
Reduction of operating income from continuing operations before income taxes and equity income (loss) from ventures	21.1			20.6			15.9
Income tax benefit	(7.4		)	(7.2		)	(5.6		)
Reduction of net income attributable to Cliffs shareholders	$	13.7		$	13.4		$	10.3
Reduction of earnings per share attributable to Cliffs shareholders:
Basic	$	0.09		$	0.09		$	0.07
Diluted	$	0.08		$	0.09		$	0.07

Determination of Fair Value

The fair value of each grant is estimated on the date of grant using a Monte Carlo simulation to forecast relative TSR performance. A correlation matrix of historic and projected stock prices was developed for both the Company and our predetermined peer group of mining and metals companies. The fair value assumes that performance goals will be achieved.

The expected term of the grant represents the time from the grant date to the end of the service period for each of the three plan-year agreements. We estimate the volatility of our common shares and that of the peer group of mining and metals companies using daily price intervals for all companies. The risk-free interest rate is the rate at the grant date on zero-coupon government bonds, with a term commensurate with the remaining life of the performance plans.

The following assumptions were utilized to estimate the fair value for the 2013 performance share grants:



Grant Date	Grant Date Market Price		Average Expected Term (Years)	Expected Volatility	Risk-Free Interest Rate	Dividend Yield	Fair Value		Fair Value (Percent of Grant Date Market Price)
March 11, 2013	$	23.83	2.81	52.9%	0.40%	2.52%	$	17.01	71.38%

The fair value of the restricted share units is determined based on the closing price of the Company’s common shares on the grant date. The restricted share units granted under either the ICE Plan or 2012 Equity Plan vest over a period of three years.

Restricted share units, restricted stock awards, deferred stock allocation and performance share activity under our long-term equity plans and Directors’ Plans are as follows:



	2013		2012		2011
	Shares		Shares		Shares
Restricted awards:
Outstanding and restricted at beginning of year	393,787		425,166		371,712
Granted during the year	396,844		151,869		125,059
Vested	(118,973	)	(161,741	)	(61,330	)
Canceled	(85,574	)	(21,507	)	(10,275	)
Outstanding and restricted at end of year	586,084		393,787		425,166
Performance shares:
Outstanding at beginning of year	772,484		877,435		843,238
Granted during the year ¹	806,271		501,346		263,816
Issued ²	(289,054	)	(574,518	)	(215,870	)
Forfeited/canceled	(249,248	)	(31,779	)	(13,749	)
Outstanding at end of year	1,040,453		772,484		877,435
Vested or expected to vest as of December 31, 2013	1,030,351
Directors’ retainer and voluntary shares:
Outstanding at beginning of year	2,880		2,611		2,509
Granted during the year	8,136		1,823		1,815
Canceled	(1,521	)	—		—
Vested	(2,166	)	(1,554	)	(1,713	)
Outstanding at end of year	7,329		2,880		2,611
Reserved for future grants or awards at end of year:
Employee plans	2,988,310
Directors’ plans	40,932
Total	3,029,242


¹	The shares granted during the year include 54,051 shares, 191,506 shares and 71,956 shares for each year presented, respectively, related to the 23%, 50% and 50% payout associated with the prior-year pool as actual payout exceeded target.


²	For each year presented, the shares vested on December 31, 2012, December 31, 2011 and December 31, 2010, respectively, and were valued on February 21, 2013, February 13, 2012 and February 14, 2011, respectively.

A summary of our outstanding share-based awards as of December 31, 2013 is shown below:



	Shares		Weighted Average Grant Date Fair Value
Outstanding, beginning of year	1,169,151			$61.81
Granted	1,211,251			$19.84
Vested	(410,193	)		$51.24
Forfeited/expired	(336,343	)		$36.42
Outstanding, end of year	1,633,866			$40.20

The total compensation cost related to outstanding awards not yet recognized is $18.2 million at December 31, 2013. The weighted average remaining period for the awards outstanding at December 31, 2013 is approximately 1.9 years.