Verizon Wireless 2013 Annual Report Download - page 58

56
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 are classied
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 par-
ticipants 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 dened 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 classied 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, 2011 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
Granted 4,950 7,470
Payments (7,246) (22,703)
Cancelled/Forfeited (180) (506)
Outstanding December 31, 2013 16,193 23,724
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
As of December 31, 2013, 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 2013 and 2012 have weighted-average grant date
fair values of $47.96 and $38.67 per unit, respectively. During 2013, 2012
and 2011, we paid $1.1 billion, $0.6 billion and $0.7 billion, respectively, to
settle RSUs and PSUs classied as liability awards.
Verizon Wireless’ Long-Term Incentive Plan
The Verizon Wireless Long-Term Incentive Plan (the Wireless Plan) provides
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, 2013, all
VARs were fully vested. We have not granted new VARs since 2004.
VARs reect the change in the value of the Partnership, as dened 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 dierence between
the VAR price on the date of grant and the VAR price on the date of exer-
cise, less applicable taxes. All outstanding VARs are fully exercisable 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 dened in the Wireless
Plan, at the date of the grant.
The following table summarizes the assumptions used in the Black-
Scholes model during 2013:
End of Period
Risk-free rate 0.11%
Expected term (in years) 0.12
Expected volatility 43.27%
The risk-free rate is based on the U.S. Treasury yield curve in eect at the
time of the measurement date. Expected volatility was based on a blend of
the historical and implied volatility of publicly traded peer companies for a
period equal to the VARs expected life ending on the measurement date.