3.	Share Plans

Total share-based compensation expense was $10 million and $5 million for the first quarter of 2013 and 2012, respectively. Total compensation expense for restricted stock units during the first quarter of 2013 and 2012 was $7 million and $3 million, respectively. Restricted stock units are valued at market value on the date of grant and are typically expensed over a three to four year vesting period. Total compensation expense for stock option awards was $3 million and $2 million for the first quarter of 2013 and 2012, respectively. Option awards are granted with an exercise price equal to the market price of our common shares on the date of grant. Option awards generally vest over a three-year period and are expensed over the vesting period.

During the first quarter of 2013, we issued our annual share-based compensation grants under the Pentair Ltd. 2012 Stock and Incentive Plan to eligible employees. The total number of awards issued was approximately 1.2 million, of which 0.9 million were stock options and 0.3 million were restricted stock units. The weighted-average grant date fair value of the stock options and restricted stock units issued was $13.89 and $50.60, respectively.

We estimated the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model, modified for dividends and using the following assumptions:


	March 30, 2013		March 31, 2012

Risk-free interest rate		0.69%		0.96%
Expected dividend yield		2.01%		2.48%
Expected share price volatility		36.0%		36.5%
Expected term (years)		5.7		5.7

These estimates require us to make assumptions based on historical results, observance of trends in our share price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, share-based compensation expense, as calculated and recorded under the accounting guidance, could have been affected.

We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected share price volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free interest rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.