Verizon Wireless 2012 Annual Report Download - page 70

68
NOTE 10
STOCKBASED COMPENSATION
Verizon Communications Long-Term Incentive Plan
The Verizon Communications Inc. Long-Term Incentive Plan (the
Plan) permits the granting of stock options, stock appreciation rights,
restricted stock, restricted stock units, performance shares, performance
stock units and other awards. The maximum number of shares available
for awards from the Plan is 119.6 million shares.
Restricted Stock Units
The Plan provides for grants of Restricted Stock Units (RSUs) that gener-
ally vest at the end of the third year after the grant. The RSUs granted
prior to January 1, 2010 are classified as liability awards because the
RSUs will be paid in cash upon vesting. The RSUs granted subsequent
to January 1, 2010 are classified as equity awards because the RSUs will
be paid in Verizon common stock upon vesting. The RSU equity awards
are measured using the grant date fair value of Verizon common stock
and are not remeasured at the end of each reporting period. Dividend
equivalent units are also paid to participants at the time the RSU award
is paid, and in the same proportion as the RSU award.
Performance Stock Units
The Plan also provides for grants of Performance Stock Units (PSUs) that
generally vest at the end of the third year after the grant. As defined
by the Plan, the Human Resources Committee of the Board of Directors
determines the number of PSUs a participant earns based on the extent
to which the corresponding performance goals have been achieved
over the three-year performance cycle. The PSUs are classified as liability
awards because the PSU awards are paid in cash upon vesting. The PSU
award liability is measured at its fair value at the end of each reporting
period and, therefore, will fluctuate based on the price of Verizon
common stock as well as performance relative to the targets. Dividend
equivalent units are also paid to participants at the time that the PSU
award is determined and paid, and in the same proportion as the PSU
award. The granted and cancelled activity for the PSU award includes
adjustments for the performance goals achieved.
The following table summarizes Verizon’s Restricted Stock Unit and
Performance Stock Unit activity:
(shares in thousands)
Restricted
Stock Units
Performance
Stock Units
Outstanding January 1, 2010 19,443 29,895
Granted 8,422 17,311
Payments (6,788) (14,364)
Cancelled/Forfeited (154) (462)
Outstanding December 31, 2010 20,923 32,380
Granted 6,667 10,348
Payments (7,600) (12,137)
Cancelled/Forfeited (154) (2,977)
Outstanding December 31, 2011 19,836 27,614
Granted 6,350 20,537
Payments (7,369) (8,499)
Cancelled/Forfeited (148) (189)
Outstanding December 31, 2012 18,669 39,463
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
As of December 31, 2012, unrecognized compensation expense related
to the unvested portion of Verizon’s RSUs and PSUs was approximately
$0.4 billion and is expected to be recognized over approximately
two years.
The RSUs granted in 2012 and 2011, and classified as equity awards,
have weighted-average grant date fair values of $38.67 and $36.38 per
unit, respectively. During 2012, 2011 and 2010, we paid $0.6 billion, $0.7
billion and $0.7 billion, respectively, to settle RSUs and PSUs classified as
liability awards.
Verizon Wireless’ Long-Term Incentive Plan
The Verizon Wireless Long-Term Incentive Plan (the Wireless Plan) pro-
vides compensation opportunities to eligible employees of Verizon
Wireless (the Partnership). Under the Wireless Plan, Value Appreciation
Rights (VARs) were granted to eligible employees. As of December
31, 2012, all VARs were fully vested. We have not granted new VARs
since 2004.
VARs reflect the change in the value of the Partnership, as defined in
the Wireless Plan. Similar to stock options, the valuation is determined
using a Black-Scholes model. Once VARs become vested, employees can
exercise their VARs and receive a payment that is equal to the difference
between the VAR price on the date of grant and the VAR price on the
date of exercise, less applicable taxes. All outstanding VARs are fully exer-
cisable and have a maximum term of 10 years. All VARs were granted at
a price equal to the estimated fair value of the Partnership, as defined in
the Wireless Plan, at the date of the grant.
The following table summarizes the assumptions used in the Black-
Scholes model during 2012:
End of Period
Risk-free rate 0.19%
Expected term (in years) 0.62
Expected volatility 43.27%