11. Share-based Compensation and Benefit Plans

Incentive Compensation. During the second quarter of 2011, our Board of Trust Managers adopted, and on May 11, 2011 our shareholders approved, the 2011 Share Incentive Plan of Camden Property Trust (the “2011 Share Plan”). Under the 2011 Share Plan, we may issue up to a total of approximately 9.1 million fungible units (the “Fungible Pool Limit”), which is comprised of approximately 5.8 million new fungible units plus approximately 3.3 million fungible units previously available for issuance under our 2002 share incentive plan based on a 3.45 to 1.0 fungible unit-to full value award conversion ratio. Fungible units represent the baseline for the number of shares available for issuance under the 2011 Share Plan. Different types of awards are counted differently against the Fungible Pool Limit, as follows:


•	Each share issued or to be issued in connection with an award, other than an option, right or other award which does not deliver the full value at grant of the underlying shares, will be counted against the Fungible Pool Limit as 3.45 fungible pool units;


•	Options and other awards which do not deliver the full value at grant of the underlying shares and which expire more than five years from date of grant will be counted against the Fungible Pool Limit as one fungible pool unit; and


•	Options, rights and other awards which do not deliver the full value at date of grant and expire five years or less from the date of grant will be counted against the Fungible Pool Limit as 0.83 of a fungible pool unit.

As of December 31, 2012, approximately 7.9 million fungible units were available under the 2011 Share Plan, which results in approximately 2.3 million common shares which could be granted pursuant to full value awards based on the 3.45 to 1.0 fungible unit-to-full value award conversion ratio.

Awards which may be granted under the 2011 Share Plan include incentive share options, non-qualified share options (which may be granted separately or in connection with an option), share awards, dividends and dividend equivalents and other equity based awards. Persons eligible to receive awards under the 2011 Share Plan are trust managers, directors of our affiliates, executive and other officers, key employees and consultants, as determined by the Compensation Committee of our Board of Trust Managers. The 2011 Share Plan will expire on May 11, 2021. In July 2012, the 2011 Share Plan was amended to provide that the annual share grants to our trust managers will vest as determined by the Compensation Committee of our Board of Trust Managers at the date of grant, subject to the provision of the 2011 Share Plan.

Options. Options are exercisable, subject to the terms and conditions of the plan, in increments ranging from 20% to 33.33% per year on each of the anniversaries of the date of grant. The plan provides that the exercise price of an option will be determined by the Compensation Committee of the Board of Trust Managers on the day of grant, and to date all options have been granted at an exercise price that equals the fair market value on the date of grant. Options were exercised at prices ranging from $30.06 to $51.37 per option during the year ended December 31, 2012 and at prices ranging from $30.06 to $62.32 per option during the year ended December 31, 2011.

The total intrinsic value of options exercised was approximately $12.2 million, $9.6 million, and $1.5 million during the years ended December 31, 2012, 2011 and 2010, respectively. As of December 31, 2012, there was approximately $0.4 million of total unrecognized compensation cost related to unvested options, which is expected to be amortized over the next two years. At December 31, 2012, outstanding options and exercisable options had a weighted average remaining life of approximately 3.9 years and 2.9 years, respectively.

The following table summarizes outstanding share options and exercisable options at December 31, 2012:



	Outstanding Options (1)			Exercisable Options (1)
Range of Exercise Prices	Number	Weighted Average Price		Number	Weighted Average Price
$30.06-$31.48	210,750	$	30.06	14,943	$	30.12
$41.16-$43.94	255,632	42.72		237,000	42.62
$45.53-$73.32	372,372	49.07		299,263	49.33
Total options	838,754	$	42.36	551,206	$	45.92


(1)	The aggregate intrinsic value of outstanding and exercisable options at December 31, 2012 was approximately $21.8 million and $12.4 million, respectively. The aggregate intrinsic values were calculated as the excess, if any, between our closing share price of $68.21 per share on December 31, 2012 and the strike price of the underlying award.

Valuation Assumptions. Options generally have a vesting period of three to five years. We estimate the fair values of each option award on the date of grant using the Black-Scholes option pricing model. No new options were granted in 2011 or 2012.

The following assumptions were used for options granted in 2010:



	Year Ended December 31,
	2010
Weighted average fair value of options granted	$11.69
Expected volatility	35.6% - 39.2%
Risk-free interest rate	3.6% - 3.7%
Expected dividend yield	4.1% - 4.4%
Expected life (in years)	7 - 9

Our computation of expected volatility for 2010 is based on the historical volatility of our common shares over a time period equal to the expected life of the option and ending on the grant date. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield on our common shares is estimated using the annual dividends paid in the prior year and the market price on the date of grant. Our computation of expected life for 2010 is estimated based on historical experience of similar awards, giving consideration to the contractual terms of the share-based awards.

Share Awards and Vesting. Share awards generally have a vesting period of five years. The compensation cost for share awards is based on the market value of the shares on the date of grant and is amortized over the vesting period. To estimate forfeitures, we use actual forfeiture history. At December 31, 2012, the unamortized value of previously issued unvested share awards was approximately $33.1 million which is expected to be amortized over the next four years. The total fair value of shares vested during the years ended December 31, 2012, 2011, and 2010 was approximately $13.9 million, $11.5 million, and $10.6 million, respectively. At December 31, 2012, there were approximately 2.3 million full value share awards available for issuance.

Total compensation cost for option and share awards charged against income was approximately $13.7 million, $12.3 million, and $11.7 million for 2012, 2011, and 2010, respectively. Total capitalized compensation cost for option and share awards was approximately $1.4 million, $0.9 million, and $1.0 million for 2012, 2011 and 2010, respectively.

The following table summarizes activity under our share incentive plans for the three years ended December 31:



	Options Outstanding		Weighted Average Exercise / Grant Price		Nonvested Share Awards Outstanding		Weighted Average Exercise / Grant Price
Options and nonvested share awards outstanding at December 31, 2009	1,983,358		$	41.39	595,153		$	46.20
2010 Activity:
Granted	55,895		43.94		372,661		40.05
Exercised/Vested	(141,213	)	32.54		(214,923	)	49.17
Forfeited	(50,904	)	46.65		(11,386	)	39.64
Net activity	(136,222	)			146,352
Balance at December 31, 2010	1,847,136		$	42.37	741,505		$	42.16
2011 Activity:
Granted	—		—		347,084		57.00
Exercised/Vested	(504,838	)	42.59		(243,874	)	47.19
Forfeited	(2,762	)	48.02		(25,961	)	44.51
Net activity	(507,600	)			77,249
Balance at December 31, 2011	1,339,536		$	42.27	818,754		$	46.88
2012 Activity:
Granted	—		—		346,330		63.51
Exercised/Vested	(468,839	)	40.86		(282,552	)	49.28
Forfeited	(31,943	)	60.56		(20,279	)	52.05
Net activity	(500,782	)			43,499
Total options and nonvested share awards outstanding at December 31, 2012	838,754		$	42.36	862,253		$	52.64

Employee Share Purchase Plan (“ESPP”). We have established an ESPP for all active employees and officers who have completed one year of continuous service. Participants may elect to purchase our common shares through payroll deductions and/or through semi-annual contributions. At the end of each six-month offering period, each participant’s account balance is applied to acquire common shares at 85% of the market value, as defined, on the first or last day of the offering period, whichever price is lower. We currently use treasury shares to satisfy ESPP share requirements. Each participant must hold the shares purchased for nine months in order to receive the discount, and a participant may not purchase more than $25,000 in value of shares during any plan year, as defined. The following table presents information related to our ESPP:



	2012		2011		2010
Shares purchased	20,137		19,914		29,100
Weighted average fair value of shares purchased	$	67.80	$	63.29	$	50.70
Expense recorded (in millions)	$	0.3	$	0.3	$	0.5

In January 2013, approximately 4,985 shares were purchased under the ESPP related to the 2012 plan year.

Rabbi Trust. We established a rabbi trust for a select group of participants in which share awards granted under the share incentive plan and salary and other cash amounts earned may be deposited. The rabbi trust is an irrevocable trust and no portion of the trust fund may be used for any purpose other than the delivery of those assets to the participants. The assets held in the rabbi trust are subject to the claims of our general creditors in the event of bankruptcy or insolvency. The rabbi trust is in use only for deferrals made prior to 2005, including bonuses related to service in 2004 but paid in 2005.

The value of the assets of the rabbi trust is consolidated into our financial statements. Granted share awards held by the rabbi trust are classified in equity in a manner similar to the manner in which treasury stock is accounted. Subsequent changes in the fair value of the shares are not recognized. The deferred compensation obligation is classified as an equity instrument and changes in the fair value of the amount owed to the participant are not recognized. At December 31, 2012 and 2011, approximately 1.9 million and 2.0 million share awards, respectively, were held in the rabbi trust. Additionally, as of December 31, 2012 and 2011, the rabbi trust held trading securities totaling approximately $35.7 million and $45.2 million, respectively, which represents cash deferrals made by plan participants. Market value fluctuations on these trading securities are recognized in income in accordance with GAAP and the liability due to participants is adjusted accordingly.

At December 31, 2012 and 2011, approximately $25.7 million and $28.7 million, respectively, was required to be paid to us by plan participants upon the withdrawal of any assets from the rabbi trust, and is included in “Accounts receivable-affiliates” in our consolidated financial statements.

Non-Qualified Deferred Compensation Plan. The Non-Qualified Deferred Compensation Plan (the “Plan”), effective December 1, 2004, is an unfunded arrangement established and maintained primarily for the benefit of a select group of participants. Eligible participants shall commence participation in the Plan on the date the deferral election first becomes effective. We will credit to the participant’s account an amount equal to the amount designated as the participant’s deferral for the plan year as indicated in the participant’s deferral election(s). Any modification to or termination of the Plan will not reduce a participant’s right to any vested amounts already credited to his or her account. At December 31, 2012 and 2011, approximately 1.0 million and 0.9 million share awards, respectively, were held in the Plan. Additionally, as of December 31, 2012 and 2011, the Plan held trading securities totaling approximately $15.2 million and $14.5 million, respectively, which represents cash deferrals made by plan participants. Market value fluctuations on these trading securities are recognized in income in accordance with GAAP and the liability due to participants is adjusted accordingly.

401(k) Savings Plan. We have a 401(k) savings plan, which is a voluntary defined contribution plan. Under the savings plan, every employee is eligible to participate, beginning on the date the employee has completed six months of continuous service with us. Each participant may make contributions to the savings plan by means of a pre-tax salary deferral, which may not be less than 1% or more than 60% of the participant’s compensation. The federal tax code limits the annual amount of salary deferrals which may be made by any participant. We may make matching contributions on the participant’s behalf up to a predetermined limit. The matching contribution made for the years ended December 31, 2012, 2011 and 2010 was approximately $2.2 million, $1.8 million and $1.3 million, respectively. A participant’s salary deferral contribution is 100% vested and nonforfeitable. A participant will become vested in our matching contributions 33% after one year of service, 67% after two years of service and 100% after three years of service. Administrative expenses under the savings plan were paid by us and were not significant for all periods presented.