EQUITY-BASED COMPENSATION

Restricted Stock Units and Awards

Restricted stock units (RSUs) and restricted stock awards (RSAs) have been issued to certain employees and directors at fair market value at the date of grant. The RSUs entitle the holder to receive one ordinary share for each RSU upon vesting, generally over three or four years. RSAs are issued and outstanding at the time of grant, but remain subject to forfeiture until vested, generally over three or four years. A summary of the RSU and RSA activity for 2013 follows:



(Restricted stock units and awards in millions)	Number of restricted stock units and awards		Weighted-average fair value per unit and award
Non-vested at January 1	3.4		$	42.47
Granted	1.5		57.75
Vested	(1.3	)	37.71
Forfeited	(0.2	)	50.70
Non-vested at December 31	3.4		$	51.37

Information related to RSUs and RSAs follows:



	2013		2012		2011
Pretax expense for RSUs and RSAs	$	69	$	46	$	50
After-tax expense for RSUs and RSAs	45		30		32

As of December 31, 2013, total compensation expense not yet recognized related to non-vested RSUs and RSAs was $111, and the weighted-average period in which the expense is expected to be recognized is 2.2 years. Excess tax benefit for equity-based compensation totaled $10 for 2013.

Stock Options

Under various plans, stock options have been granted to certain employees and directors to purchase ordinary shares at prices equal to fair market value on the date of grant. Substantially all of these options vest ratably during the three-year period following the date of grant and expire 10 years from the date of grant. Compensation expense is recognized for stock options based on the fair value of the options at the date of grant and amortized on a straight-line basis over the period the employee or director is required to provide service.

The Company uses a Black-Scholes option pricing model to estimate the fair value of stock options. The principal assumptions utilized in valuing stock options include the expected stock price volatility (based on the most recent historical period equal to the expected life of the option); the expected option life (an estimate based on historical experience); the expected dividend yield; and the risk-free interest rate (an estimate based on the yield of United States Treasury zero coupon with a maturity equal to the expected life of the option). A summary of the assumptions used in determining the fair value of stock options follows:



	2013			2012			2011
Expected volatility	36		%	35		%	33		%
Expected option life in years	5.5			5.5			5.5
Expected dividend yield	2.0		%	2.0		%	2.0		%
Risk-free interest rate	1.5 to 0.8%			1.0 to 0.9%			2.2% to 1.4%
Weighted-average fair value of stock options granted	$	17.49		$	14.08		$	14.56

A summary of stock option activity follows:



(Options in millions)	Weighted-average price per option		Options		Weighted-average remaining contractual life in years	Aggregate intrinsic value
Outstanding at January 1, 2013	$	39.45	10.8
Granted	63.15		0.8
Exercised	35.76		(3.6	)
Forfeited and canceled	50.76		(0.1	)
Outstanding at December 31, 2013	$	43.43	7.9		4.4	$	259

Exercisable at December 31, 2013	$	40.05	6.4		3.4	$	232
Reserved for future grants at December 31, 2013			17.7

The aggregate intrinsic value in the table above represents the total excess of the $76.12 closing price of Eaton ordinary shares on the last trading day of 2013 over the exercise price of the stock option, multiplied by the related number of options outstanding and exercisable. The aggregate intrinsic value is not recognized for financial accounting purposes and the value changes based on the daily changes in the fair market value of the Company's ordinary shares.

Information related to stock options follows:



	2013		2012		2011
Pretax expense for stock options	$	11	$	7	$	5
After-tax expense for stock options	7		5		4
Proceeds from stock options exercised	121		95		71
Income tax benefit related to stock options exercised
Tax benefit classified in operating activities in the Consolidated Statements of Cash Flows	3		5		13
Excess tax benefit classified in financing activities in the Consolidated Statements of Cash Flows	22		13		33
Intrinsic value of stock options exercised	102		60		62
Total fair value of stock options vesting	$	11	$	7	$	5

Stock options exercised, in millions of options	3.565		3.099		2.541

As of December 31, 2013, total compensation expense not yet recognized related to non-vested stock options was $14, and the weighted-average period in which the expense is expected to be recognized is 2 years.