Stock- Based Compensation

12 Months Ended

Dec. 31, 2011

Share-based Compensation [Abstract]

Stock-Based Compensation

18. Stock-Based Compensation

We maintain several stock-based compensation plans, which are described below. Total compensation expense for these plans was $45 million for 2011, $55 million for 2010 and $54 million for 2009. The total income tax benefit recognized in the income statement for these plans was $17 million for 2011, $21 million for 2010 and $20 million for 2009. Stock-based compensation expense related to awards granted to employees is recorded in “personnel expense” on the income statement; compensation expense related to awards granted to directors is recorded in “other expense.”

Our compensation plans allow us to grant stock options, restricted stock, performance shares, discounted stock purchases and deferred compensation to eligible employees and directors. At December 31, 2011, we had 29,250,626 Common Shares available for future grant under our compensation plans. In accordance with a resolution adopted by the Compensation and Organization Committee of Key’s Board of Directors, we may not grant options to purchase Common Shares, restricted stock or other shares under any long-term compensation plan in an aggregate amount that exceeds 6% of our outstanding Common Shares in any rolling three-year period.

Stock Option Plans

Stock options granted to employees generally become exercisable at the rate of 25% per year for those granted in 2011 and at the rate of 33-1/3% per year for those granted in years prior to 2011 beginning one year from their grant date; options expire no later than ten years from their grant date. The exercise price is the closing price of our Common Shares on the date of grant.

We determine the fair value of options granted using the Black-Scholes option-pricing model. This model was originally developed to determine the fair value of exchange-traded equity options, which (unlike employee stock options) have no vesting period or transferability restrictions. Because of these differences, the Black-Scholes model does not precisely value an employee stock option, but it is commonly used for this purpose. The model assumes that the estimated fair value of an option is amortized as compensation expense over the option’s vesting period.

The Black-Scholes model requires several assumptions, which we developed and update based on historical trends and current market observations. Our determination of the fair value of options is only as accurate as the underlying assumptions. The assumptions pertaining to options issued during 2011, 2010 and 2009 are shown in the following table.

Year ended December 31,	2011			2010			2009
Average option life		6.2 years			6.1 years			6.0 years
Future dividend yield		.43	%		.48	%		.72	%
Historical share price volatility		.479			.473			.460
Weighted-average risk-free interest rate		2.6	%		2.2	%		3.0	%

The Compensation and Organization Committee approves all stock option grants. The following table summarizes activity, pricing and other information for our stock options for the year ended December 31, 2011.

	Number of Options			Weighted-Average Exercise Price Per Option		Weighted-Average Remaining Life (Years)		Aggregate Intrinsic Value		(a)
Outstanding at December 31, 2010		32,982,923		$	22.97
Granted		3,683,051			8.87
Exercised		(121,089	)		5.55
Lapsed or canceled		(3,612,267	)		26.27
Outstanding at December 31, 2011		32,932,618		$	21.12		5.0	$	8
Expected to vest		5,747,983		$	8.29		8.7	$	2
Exercisable at December 31, 2011		26,456,386		$	24.25		4.1	$	7

(a) The intrinsic value of a stock option is the amount by which the fair value of the underlying stock exceeds the exercise price of the option. At December 31, 2011, the fair value of the underlying stock was less than the weighted-average exercise price per option.

The weighted-average grant-date fair value of options was $4.11 for options granted during 2011, $3.71 for options granted during 2010 and $2.37 for options granted during 2009. 121,089 and 79,786 stock options were exercised in 2011 and 2010, respectively. The aggregate intrinsic value of exercised options for 2011 and 2010 was $.3 million and $.2 million, respectively. No options were exercised during 2009. As of December 31, 2011, unrecognized compensation cost related to nonvested options expected to vest under the plans totaled $9 million. We expect to recognize this cost over a weighted-average period of 2.6 years.

Cash received from options exercised for 2011 and 2010 was $.7 million and $.4 million, respectively. The actual tax benefit realized for the tax deductions from options exercised totaled $.1 million for both 2011 and 2010.

Long-Term Incentive Compensation Program

Our Long-Term Incentive Compensation Program (the “Program”) rewards senior executives critical to our long-term financial success; and covers three-year performance cycles, with a new cycle beginning each year. Awards are granted in a variety of forms:

¿ deferred cash payments;

¿ time-lapsed restricted stock, which generally vests after the end of the three-year or four-year cycle as applicable for which it was granted;

¿ performance-based restricted stock, which will not vest unless Key attains defined performance levels;

¿ performance shares payable in stock, which will not vest unless Key attains defined performance levels; and

¿ performance shares payable in cash, which will not vest unless Key attains defined performance levels.

During 2011, 2010 and 2009, we did not pay cash awards in connection with vested performance shares.

The following table summarizes activity and pricing information for the nonvested shares in the Program for the year ended December 31, 2011.

	Vesting Contingent on Service Conditions					Vesting Contingent on Performance and Service Conditions
	Number of Nonvested Shares			Weighted- Average Grant-Date Fair Value		Number of Nonvested Shares			Weighted- Average Grant-Date Fair Value
Outstanding at December 31, 2010		1,594,104		$	10.32		1,892,176		$	8.76
Granted		3,321,443			9.23		1,061,987			8.79
Vested		(359,472	)		22.58		(365,449	)		5.36
Forfeited		(232,104	)		8.40		(1,526,727	)		8.76
Outstanding at December 31, 2011		4,323,971		$	8.57		1,061,987		$	8.78

The compensation cost of time-lapsed and performance-based restricted stock awards granted under the Program is calculated using the closing trading price of our Common Shares on the grant date.

Unlike time-lapsed and performance-based restricted stock, performance shares payable in stock and those payable in cash for exceeding targeted performance do not pay dividends during the vesting period. Consequently, the fair value of these awards is calculated by reducing the share price at the date of grant by the present value of estimated future dividends forgone during the vesting period, discounted at an appropriate risk-free interest rate.

The weighted-average grant-date fair value of awards granted under the Program was $9.12 during 2011, $6.74 during 2010 and $6.56 during 2009. As of December 31, 2011, unrecognized compensation cost related to nonvested shares expected to vest under the Program totaled $28 million. We expect to recognize this cost over a weighted-average period of 2.8 years. The total fair value of shares vested was $10 million during 2011, $7 million during 2010 and $2 million during 2009.

Other Restricted Stock Awards

We also may grant, upon approval by the Compensation and Organization Committee, other time-lapsed restricted stock awards under various programs to recognize outstanding performance. At December 31, 2011, 2,062,679 of the nonvested shares shown in the table below relate to February 2010 and March 2009 grants of time-lapsed restricted stock to qualifying executives. These awards generally vest after three years of service.

The following table summarizes activity and pricing information for the nonvested shares granted under these restricted stock awards for the year ended December 31, 2011.

	Number of Nonvested Shares			Weighted-Average Grant-Date Fair Value
Outstanding at December 31, 2010		5,461,855		$	9.06
Granted		937,419			9.25
Vested		(2,540,615	)		11.30
Forfeited		(171,875	)		8.71
Outstanding at December 31, 2011		3,686,784		$	7.58

The weighted-average grant-date fair value of awards granted was $9.25 during 2011, $6.96 during 2010 and $6.44 during 2009. As of December 31, 2011, unrecognized compensation cost related to nonvested restricted stock expected to vest under these special awards totaled $9 million. We expect to recognize this cost over a weighted-average period of 1.7 years. The total fair value of restricted stock vested was $29 million during 2011, $23 million during 2010, and $3 million during 2009.

Deferred Compensation Plans

Our deferred compensation arrangements include voluntary and mandatory deferral programs for Common Shares awarded to certain employees and directors. Mandatory deferred incentive awards, together with a 15% employer matching contribution, vest at the rate of 33-1/3% per year beginning one year after the deferral date. Deferrals under the voluntary programs are immediately vested, except for any employer match, which generally will vest after three years of service. The voluntary deferral programs provide an employer match ranging from 6% to 15% of the deferral.

Several of our deferred compensation arrangements allow participants to redirect deferrals from Common Shares into other investments that provide for distributions payable in cash. We account for these participant-directed deferred compensation arrangements as stock-based liabilities and re-measure the related compensation cost based on the most recent fair value of our Common Shares. The compensation cost of all other nonparticipant-directed deferrals is measured based on the closing price of our Common Shares on the deferral date. We did not pay any stock-based liabilities during 2011, 2010 or 2009.

The following table summarizes activity and pricing information for the nonvested shares in our deferred compensation plans for the year ended December 31, 2011.

	Number of Nonvested Shares			Weighted-Average Grant-Date Fair Value
Outstanding at December 31, 2010		890,939		$	8.00
Granted		1,104,820			8.03
Dividend equivalents		52,724			7.29
Vested		(655,981	)		8.73
Forfeited		(54,177	)		7.97
Outstanding at December 31, 2011		1,338,325		$	7.64

The weighted-average grant-date fair value of awards granted was $8.03 during 2011, $7.93 during 2010 and $6.83 during 2009. As of December 31, 2011, unrecognized compensation cost related to nonvested shares expected to vest under our deferred compensation plans totaled $4 million. We expect to recognize this cost over a weighted-average period of 1.8 years. The total fair value of shares vested was $5 million during 2011, $6 million during 2010 and $6 million during 2009. Dividend equivalents presented in the preceding table represent the value of dividends accumulated during the vesting period.

Discounted Stock Purchase Plan

Our Discounted Stock Purchase Plan provides employees the opportunity to purchase our Common Shares at a 10% discount through payroll deductions or cash payments. Purchases are limited to $10,000 in any month and $50,000 in any calendar year, and are immediately vested. To accommodate employee purchases, we acquire shares on the open market on or around the fifteenth day of the month following the month employee payments are received. We issued 297,091 shares at a weighted-average cost of $7.71 during 2011, 241,445 shares at a weighted-average cost of $7.69 during 2010 and 371,417 shares at a weighted-average cost of $6.31 during 2009.

Information pertaining to our method of accounting for stock-based compensation is included in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Stock-Based Compensation.”