Long-term Incentive Plans

12 Months Ended

Dec. 31, 2016

Long-Term Incentive Plans [Abstract]

Long-Term Incentive Plans

Note 16: Long-term Incentive Plans

Plan Description

The Company maintains the MBIA Inc. 2005 Omnibus Incentive Plan (the “Omnibus Plan”), as amended on May 7, 2009 and May 1, 2012. Under the Omnibus Plan a maximum of14,000,000shares of the Company’s common stock can be used for any type of award including stock options, performance shares, performance units, restricted stock, restricted stock units and dividend equivalents. Any shares issued under the Omnibus Plan in connection with stock options shall be counted against this limit as 1 share covered by such option. For all awards other than stock options, any shares issued shall be counted against this limit as 1.28 shares for every share issued after the May 1, 2012 amendment and two shares for every share issued prior to the May 1, 2012 amendment.

The stock option component of the Omnibus Plan enables key employees of the Company and its subsidiaries to acquire shares of common stock of the Company or to benefit from appreciation in the price of the common stock of the Company. The stock option grants, which may be awarded every year, provide the right to purchase shares of common stock at the fair value of the stock on the date of the grant. Options granted will either be Incentive Stock Options (“ISOs”) that qualify under Section 422(a) of the Internal Revenue Code, or Non-Qualified Stock Options (“NQSOs”). ISOs and NQSOs are granted at a price not less than 100% of the fair value, defined as the closing price on the grant date, of the Company’s common stock. Options are exercisable as specified at the time of grant depending on the level of the recipient (generally five years) and expire either seven or ten years from the date of grant (or shorter if specified or following termination of employment).

Under the restricted stock component of the Omnibus Plan, certain employees are granted restricted shares of the Company’s common stock. These awards have a restriction period lasting three to five years depending on the type of award, after which time the awards fully vest. During the vesting period, these shares may not be sold. Restricted stock may be granted to all employees. 

There were 5,565,306 shares available for future grants under the Omnibus Plan as of December 31,2016.

In accordance with accounting guidance for share-based payments, the Company expenses the fair value of employee stock options and other forms of stock-based compensation. In addition, the guidance classifies share-based payment awards as either liability awards, which are remeasured at fair value at each balance sheet date, or equity awards, which are measured on the grant date and not subsequently remeasured. Generally, awards with cash-based settlement repurchase features or that are settled at a fixed dollar amount are classified as liability awards, and changes in fair value will be reported in earnings. Awards with net-settlement features or that permit a cashless exercise with third-party brokers are classified as equity awards and changes in fair value are not reported in earnings. The Company’s long-term incentive plans include features which result in equity awards.In addition, the guidance requires the use of a forfeiture estimate. The Company uses historical employee termination information to estimate the forfeiture rate applied to current stock-based awards.

The Company maintains voluntary retirement benefits, which provide certain benefits to eligible employees of the Company upon retirement. A description of these benefits is included in the Company’s proxy statement. One of the components of the retirement program for those employees that are retirement eligible is to continue to vest all performance-based stock options and restricted share awards beyond the retirement date in accordance with the original vesting terms and to immediately vest all outstanding time-based stock options and restricted share grants. The accounting guidance for share-based payment requires compensation costs for those employees to be recognized from the date of grant through the retirement eligible date, unless there is a risk of forfeiture, in which case the compensation cost is recognized in accordance with the original vesting schedule. Accelerated expense, if any, relating to this retirement benefit for both stock option awards and restricted stock awards has been included in the compensation expense amounts.

Restricted Stock

The fair value of the restricted shares awarded, net of cancellations, determined on the grant date was $5 million and $4 million for 2016 and 2015, respectively. The amount of unearned compensation, net of estimated forfeitures, was $9 million as of December 31,2016, which is expected to be recognized as expense over a weighted average period of 2.1 years. Unearned compensation is amortized to expense over the appropriate three to five-year vesting period.

Compensation expense related to the restricted shares, net of estimated forfeitures, was $16 million, $20 million and $18 million for the years endedDecember 31,2016, 2015 and 2014, respectively. The tax charge related to the restricted shares awards during 2016and 2015was $1 million and $2 million,respectively. The tax benefit related to the restricted share awards during2014 was $2 million.

A summary of the Company’s restricted shares outstanding as of December 31,2016, 2015 and 2014, and changes during the years ended on those dates, is presented in the following table:

	Restricted Share Activity
	2016			2015			2014
	Number of Shares	Weighted Average Price Per Share		Number of Shares	Weighted Average Price Per Share		Number of Shares	Weighted Average Price Per Share
Outstanding at beginning of year	4,727,319	$	9.9302	6,358,826	$	10.0047	3,832,115	$	7.6438
Granted	756,381		8.2722	481,636		8.8012	3,263,472		12.0284
Vested	(917,039)		13.6196	(2,112,343)		9.8988	(613,641)		5.9661
Forfeited	(650,000)		6.2601	(800)		5.0500	(123,120)		10.2942
Outstanding at end of year	3,916,661	$	9.3553	4,727,319	$	9.9302	6,358,826	$	10.0047

Stock Options

The Company determines the fair value for stock option awards at the date of grant and is estimated using the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions, are fully transferable, and contain both service and some performance conditions. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility.

During 2016, 2015 and 2014, there were no stock option awards granted. During 2016 and2015, the Company expensed deferred tax assets of $1 million and $2 million, respectively, related to the stock option awards as a charge through the statements of operations. During2014, the Company expensed a deferred tax asset of $4 million, related to the stock option awards as a charge to paid-in capital. As of December 31,2016, there was no remaining unrecognized compensation cost and all stock options had vested.

A summary of the Company’s stock options outstanding as of December 31,2016, 2015 and 2014, and changes during the years ended on those dates, is presented in the following tables:

	2016			2015			2014
		Weighted			Weighted			Weighted
		Average			Average			Average
	Number of	Price		Number of	Price		Number of	Price
Options	Shares	Per Share		Shares	Per Share		Shares	Per Share
Outstanding at beginning of year	2,325,300	$	6.3703	2,548,000	$	10.9888	3,715,406	$	20.6883
Exercised	(2,050,000)		4.4722	-		-	(400,000)		4.0200
Expired or forfeited	(37,500)		57.5100	(222,700)		59.2118	(767,406)		61.5815
Outstanding at end of year	237,800	$	14.6689	2,325,300	$	6.3703	2,548,000	$	10.9888
Exercisable at end of year	237,800	$	14.6689	2,325,300	$	6.3703	1,798,000	$	13.4660

The following table summarizes information about outstanding stock options as of December 31,2016:

Stock Options Outstanding

Stock Options Exercisable

Weighted

Weighted

Average

Weighted

Aggregate

Average

Weighted

Aggregate

Remaining

Average

Intrinsic

Remaining

Average

Intrinsic

Range of Average

Number of

Contractual

Exercise

Value

Number of

Contractual

Exercise

Value

Exercise Price

Options

Life in Years

Price

(in millions)

Options

Life in Years

Price

(in millions)

$5.05 - $70.86

237,800

0.20

$

14.6689

$

1

237,800

0.20

$

14.6689

$

1

Performance Based Awards

During 2014, the Company granted three million restricted shares to certain key employees which have a vesting schedule dependent on the achievement of certain stock price targets of the Company. The grants and corresponding compensation expense have been included in the above restricted stock disclosures. As permitted by the accounting guidance for share-based payments, the Company estimates the fair value of awards that contain market performance conditions at the date of grant using a binomial lattice model with a Monte Carlo simulation. The binomial lattice model can better incorporate assumptions about a stock price path because the model can accommodate a large number of potential stock prices over the award’s term in comparison to the Black-Scholes model.