10. Stock-Based Compensation Plans

(a) General

As of December 31, 2011, Alleghany had stock-based payment plans for parent-level employees and directors. As described in more detail below, parent-level, stock-based payments to current employees do not include stock options but consist only of restricted stock awards, including restricted stock units and performance share awards. Parent-level, stock-based payments to non-employee directors consist of annual awards of stock options and restricted stock, including restricted stock units. In addition, as of December 31, 2011, RSUI and PCC had their own stock-based payment plans, which are described below.

Amounts recognized as compensation expense in the consolidated statements of earnings and comprehensive income with respect to stock-based awards under plans for parent-level employees and directors were $2.8 million, $6.5 million and $6.9 million in 2011, 2010 and 2009, respectively. The amount of related income tax benefit recognized as income in the consolidated statements of earnings and comprehensive income with respect to these plans was $1.0 million, $2.3 million and $2.4 million in 2011, 2010 and 2009, respectively. In 2011, 2009 and 2009, $1.8 million, $2.1 million and $3.8 million of Common Stock at fair market value, respectively, and $5.8 million, $2.9 million and $2.1 million of cash, respectively, was paid by Alleghany under plans for parent-level employees and directors. As noted above, as of December 31, 2011 and December 31, 2010, all outstanding awards were accounted for under the fair-value-based method of accounting.

Alleghany does not have an established policy or practice of repurchasing shares of Common Stock in the open market for the purpose of delivering Common Stock upon the exercise of stock options. Alleghany issues authorized but not outstanding shares of Common Stock to settle option exercises in those instances where the number of shares it has repurchased are not sufficient to settle an option exercise.

(b) Director Stock Option and Restricted Stock Plans

Alleghany’s 2005 Directors’ Stock Plan, which expired on December 31, 2009, provided for the automatic grant of nonqualified options to purchase 500 shares of Common Stock, as well as an automatic grant of 250 shares of restricted Common Stock or, under certain circumstances, restricted stock units, to each non-employee director on an annual basis. In 2010, Alleghany established the 2010 Directors’ Stock Plan which provides for the same automatic grants to directors as the 2005 Directors’ Stock Plan. In 2011 and 2010, Alleghany awarded a total of 2,500 restricted shares and units, which vest over a one year period.

A summary of option activity under the above plans as of December 31, 2011 and changes during the year then ended is presented below:


Options	Shares (000)			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (years)		Aggregate Intrinsic Value ($ millions)
Outstanding at January 1, 2011		53		$	230
Granted		5			329
Exercised		(10	)		168
Forfeited or expired		—			—

Outstanding as of December 31, 2011		48		$	252		4.7	$	2.3

Exercisable as of December 31, 2011		39		$	240		3.8	$	2.2

The weighted-average grant-date fair value of options granted during the years 2011, 2010 and 2009, was $133, $130 and $98. The total intrinsic value of options exercised during the years ended December 31, 2011, 2010 and 2009, was $1.4 million, $1.6 million and $1.1 million, respectively.

A summary of the status of Alleghany’s non-vested shares as of December 31, 2011, and changes during the year ended December 31, 2011, is presented below:


Non-vested Shares	Shares (000)			Weighted-Average Grant-Date Fair Value
Non-vested at January 1, 2011		9		$	120
Granted		5			133
Vested		(5	)		119
Forfeited		—			—

Non-vested as of December 31, 2011		9		$	126

As of December 31, 2011, there was $0.8 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements granted under the 2005 and 2010 Directors’ Stock Plans. That cost is expected to be recognized over a weighted-average period of approximately one year. The total fair value of shares vested during the years ended December 31, 2011, 2010 and 2009, was $1.3 million, $1.6 million and $1.1 million, respectively.

(c) Alleghany 2002 and 2007 Long-Term Incentive Plans

Alleghany provided incentive compensation to management employees through its 2002 Long-Term Incentive Plan (the “2002 LTIP”) until December 31, 2006 when the 2002 LTIP expired. In December 2006, Alleghany adopted the 2007 Long-Term Incentive Plan (the “2007 LTIP”) which was approved by Alleghany stockholders in April 2007. The provisions of the 2002 LTIP and 2007 LTIP are substantially similar. Awards under the 2002 LTIP and 2007 LTIP may include, but are not limited to, cash and/or shares of Common Stock, rights to receive cash and/or shares of Common Stock and options to purchase shares of Common Stock, including options intended to qualify as incentive stock options under the Internal Revenue Code of 1986, as amended, and options not intended to so qualify. Under the 2002 LTIP and 2007 LTIP, the following types of awards are outstanding:

(i) Performance Share Awards — Participants are entitled, at the end of a four-year award period, to a maximum amount equal to the value of one and one-half shares of Common Stock for each performance share issued to them based on market value on the payment date. Payouts are made provided defined levels of performance are achieved. Prior to 2009, awards were generally made in cash to the extent of minimum statutory withholding requirements in respect of an award, with the balance in Common Stock. Expense was recognized over the performance period on a pro rata basis. In 2009, Alleghany modified its payout policy to allow participants to elect the percentage of performance shares to be paid in cash, subject to certain limitations. As a result, the accounting for all awards was changed pursuant to GAAP, whereby the fair value of each award outstanding is recorded, with changes therefrom recorded as an expense. The fair value is calculated based primarily on: the value of Common Stock as of the balance sheet date; the degree to which performance targets specified in the 2002 LTIP and 2007 LTIP have been achieved; and the time elapsed with respect to each award period. The resulting change in accounting in the fourth quarter of 2009 reduced Alleghany’s net earnings by $3.0 million after-tax.

(ii) Restricted Share Awards — From time to time, Alleghany has awarded to certain management employees restricted shares of Common Stock. These awards entitle the participants to a specified maximum amount equal to the value of one share of Common Stock for each restricted share issued to them based on the market value on the grant date. In many instances, payouts are made, provided defined levels of performance are achieved. As of December 31, 2011, 57,405 restricted shares were outstanding, of which 33,972 were granted in 2004 and 23,433 were granted in 2003. The expense is recognized ratably over the performance period, which can be extended under certain circumstances.

(d) RSUI Restricted Share Plan

RSUI has a Restricted Stock Unit Plan (the “RSUI Plan”) for the purpose of providing equity-like incentives to key employees of RSUI. Under the RSUI Plan, restricted stock units (“units”) are issued. Additional units, defined as the “Deferred Equity Pool,” were issued in 2011, 2010 and 2009 and may be created in the future if certain financial performance measures are met. Units may only be settled in cash. The fair value of each unit is calculated, pursuant to GAAP, as stockholder’s equity of RSUI, adjusted for certain capital transactions and accumulated compensation expense recognized under the RSUI Plan, divided by the sum of RSUI common stock outstanding and the original units available under the RSUI Plan. The units vest on the fourth anniversary of the date of grant and contain certain restrictions, relating to, among other things, forfeiture in the event of termination of employment and transferability. In 2011, 2010 and 2009, RSUI recorded $26.2 million, $29.6 million and $36.9 million, respectively, in compensation expense related to the RSUI Plan. During the same periods, a deferred tax benefit of $9.2 million, $10.4 million and $12.9 million, respectively, related to the compensation expense was recorded.

(e) PCC Option Plans

During 2010, PCC granted non-qualified stock options (the “Options”) to two senior PCC executives. The Options vest over two years and expire in five years. Under the terms of the grants, the executives may purchase from AIHL common stock of PCC representing an aggregate of approximately 5 percent of PCC common stock outstanding, at a price based on grant-date book value of PCC. Once the Options are exercised, the PCC common stock held by each executive may be converted to cash at either AIHL’s election or the executive’s election, based on PCC’s book value. The compensation expense recorded by PCC in 2011 and 2010 was immaterial.