Humana 2010 Annual Report Download - page 115

Humana Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
contribution direction. Based on the closing price of our common stock of $54.74 on December 31, 2010,
approximately 14% of the retirement and savings plan’s assets were invested in our common stock, or
approximately 4.1 million shares, representing 2% of the shares outstanding as of December 31, 2010. At
December 31, 2010, approximately 7.2 million shares of our common stock were reserved for issuance under our
defined contribution retirement and savings plans.
Stock-Based Compensation
We have plans under which options to purchase our common stock and restricted stock awards have been
granted to executive officers, directors and key employees. The terms and vesting schedules for stock-based
awards vary by type of grant. Generally, the awards vest upon time-based conditions. The stock awards of
retirement-eligible participants granted on or after January 1, 2010 will continue to vest upon retirement from the
Company. Our equity award program includes a retirement provision that treats all employees with a
combination of age and years of service with the Company totaling 65 or greater, with a minimum required age
of 55 and a minimum requirement of 5 years of service, as retirement-eligible. Upon exercise, stock-based
compensation awards are settled with authorized but unissued company stock. The compensation expense that
has been charged against income for these plans was as follows for the years ended December 31, 2010, 2009,
and 2008:
2010 2009 2008
(in thousands)
Stock-based compensation expense by type:
Stock options ..................................... $21,757 $ 19,555 $ 18,202
Restricted stock awards ............................. 41,190 46,315 37,167
Total stock-based compensation expense ........... 62,947 65,870 55,369
Tax benefit recognized .......................... (23,057) (24,128) (20,282)
Stock-based compensation expense, net of tax . . . $ 39,890 $ 41,742 $ 35,087
The tax benefit recognized in our consolidated financial statements is based on the amount of compensation
expense recorded for book purposes. The actual tax benefit realized in our tax return is based on the intrinsic
value, or the excess of the market value over the exercise or purchase price, of stock options exercised and
restricted stock awards vested during the period. The actual tax benefit realized for the deductions taken on our
tax returns from option exercises and restricted stock award vesting totaled $14.9 million in 2010, $16.3 million
in 2009, and $16.9 million in 2008. There was no capitalized stock-based compensation expense.
The stock plans provide that one restricted share is equivalent to 1.7 stock options. At December 31, 2010,
there were 12,375,233 shares reserved for stock award plans, including 3,225,299 shares of common stock
available for future grants assuming all stock options or 1,897,235 shares available for future grants assuming all
restricted shares.
Stock Options
Stock options are granted with an exercise price equal to the fair market value of the underlying common
stock on the date of grant. Our stock plans, as approved by the Board of Directors and stockholders, define fair
market value as the average of the highest and lowest composite stock prices reported by the New York Stock
Exchange on a given date. Exercise provisions vary, but most options vest in whole or in part 1 to 3 years after
grant and expire 7 to 10 years after grant. Upon grant, stock options are assigned a fair value based on the Black-
Scholes valuation model. Compensation expense is recognized on a straight-line basis over the total requisite
service period, generally the total vesting period, for the entire award. For stock options granted on or after
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