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Employee Share-Based Incentive Compensation Plans | 3 Months Ended
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Mar. 31, 2012
Employee Share-Based Incentive Compensation Plans |
Employee Share-Based Incentive Compensation Plans |
Note 12. Employee Share-Based Incentive Compensation Plans White Mountains’ Long-Term Incentive Plan (the “WTM Incentive Plan”) provides for grants of various types of share-based and non share-based incentive awards to key employees and service providers of the Company and certain of its subsidiaries. White Mountains’ share-based compensation incentive awards consist of performance shares, restricted shares and stock options. Share-Based Compensation Based on White Mountains Common Shares WTM Performance Shares Performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. Performance share awards vest, subject to the attainment of performance goals, at the end of a three-year period and are valued based on the market value of common shares at the time awards are paid. The following table summarizes performance share activity for the three months ended March 31, 2012 and 2011 for performance shares granted under the WTM Incentive Plan and phantom performance shares granted under the Sirius Group Performance Plan (the “WTM Phantom Share Plan”):
|  | Three Months Ended March 31, |
|  | 2012 |  | 2011 |
Millions, except share amounts |  | Target Performance Shares Outstanding |  | Accrued Expense |  | Target Performance Shares Outstanding |  | Accrued Expense |
Beginning of period |  | 150,064 |  | $ | 66.1 |  | 163,184 |  | $ | 29.4 |
Shares paid or expired (1) |  | (68,357 | ) | (48.4 | ) | (51,131 | ) | — |
New grants |  | 35,932 |  | — |  | 37,425 |  | — |
Assumed forfeitures and cancellations (2) |  | 811 |  | 1.0 |  | 342 |  | (.1 | )
Expense recognized |  | — |  | 8.7 |  | — |  | 6.3 |
Ending March 31, |  | 118,450 |  | $ | 27.4 |  | 149,820 |  | $ | 35.6 |
(1) WTM performance share payments in 2012 for the 2009-2011 performance cycle ranged from 147% to 155% of target. There were no payments made in 2011 for the 2008-2010 performance cycle; those performance shares did not meet the threshold performance goals and expired. (2) Amounts include changes in assumed forfeitures, as required under GAAP. For the 2009-2011 performance cycle, the Company issued common shares for 9,577 performance shares earned and all other performance shares earned were settled in cash. If 100% of the outstanding WTM performance shares had vested on March 31, 2012, the total additional compensation cost to be recognized would have been $34.5 million, based on accrual factors at March 31, 2012 (common share price and payout assumptions). Performance Shares granted under the WTM Incentive Plan The following table summarizes performance shares outstanding and accrued expense for performance shares awarded under the WTM Incentive Plan at March 31, 2012 for each performance cycle:
|  | Target WTM |  |  |
|  | Performance |  |  |
|  | Shares |  | Accrued |
Millions, except share amounts |  | Outstanding |  | Expense |
Performance cycle: |  |  |  |  |
2010 – 2012 |  | 42,890 |  | $ | 15.4 |
2011 – 2013 |  | 37,675 |  | 8.9 |
2012 – 2014 |  | 35,932 |  | 1.7 |
Sub-total |  | 116,497 |  | 26.0 |
Assumed forfeitures |  | (2,912 | ) | (.7 | )
Total at March 31, 2012 |  | 113,585 |  | $ | 25.3 |
Phantom Performance Shares granted under WTM Phantom Share Plan The following table summarizes phantom performance shares outstanding and accrued expense for grants made under WTM Phantom Share Plan at March 31, 2012 for each performance cycle:
|  | Target WTM |  |  |
|  | Phantom |  |  |
|  | Performance |  |  |
|  | Shares |  | Accrued |
Millions, except share amounts |  | Outstanding |  | Expense |
Performance cycle: |  |  |  |  |
2010 – 2012 |  | 4,990 |  | $ | 2.1 |
2011 – 2013(1) |  | — |  | — |
2012 – 2014(1) |  | — |  | — |
Sub-total |  | 4,990 |  | 2.1 |
Assumed forfeitures |  | (125 | ) | — |
Total at March 31, 2012, |  | 4,865 |  | $ | 2.1 |
(1) All performance shares for the 2011-2013 and 2012-2014 performance cycles were granted from the WTM Incentive Plan Restricted Shares The following outlines the unrecognized compensation cost associated with the outstanding restricted share awards for the three months ended March 31, 2012 and 2011:
|  | Three Months Ended March 31, |
|  | 2012 |  | 2011 |
Millions, except share amounts |  | Restricted Shares |  | Unamortized Issue Date Fair Value |  | Restricted Shares |  | Unamortized Issue Date Fair Value |
Non-vested, |  |  |  |  |  |  |  |  |
Beginning of period |  | 72,000 |  | $ | 13.3 |  | 46,250 |  | $ | 14.1 |
Issued |  | 28,460 |  | 13.7 |  | 27,000 |  | 9.8 |
Vested |  | (7,000 | ) | — |  | — |  | — |
Forfeited |  | — |  | — |  | — |  | — |
Expense recognized |  | — |  | (2.5 | ) | — |  | (2.2 | )
Non-vested at March 31, |  | 93,460 |  | $ | 24.5 |  | 73,250 |  | $ | 21.7 |
During the first quarter of 2012, White Mountains issued 25,460 restricted shares that vest on January 1, 2015 and 3,000 restricted shares that vest in two equal annual installments beginning in February 2014. During the first quarter of 2011, White Mountains issued 27,000 restricted shares that vest on January 1, 2014. The restricted shares contain dividend participation features, and therefore, are considered participating securities. The unrecognized compensation cost at March 31, 2012 is expected to be recognized ratably over the remaining vesting periods. Non-Qualified Options In January 2007, the Company issued 200,000 seven-year Non-Qualified Options to the Company’s Chairman and CEO that vested in equal annual installments over five years and that had an initial exercise price of $650 per common share that escalated at an annual rate of 5% less the annual regular dividend rate. At the 2010 Annual General Meeting of Members held on May 26, 2010, the Company’s shareholders approved the following amendments to the Non-Qualified Options: (1) extend the term of the Non-Qualified Options by three years to January 20, 2017; (2) freeze the exercise price at $742 per common share, the exercise price on February 24, 2010; (3) extinguish 75,000 of the 200,000 Non-Qualified Options; and (4) limit the potential in-the-money value of the Non-Qualified Options in excess of $100 million to 50% of the amount in excess of $100 million. For the three months ended March 31, 2011, White Mountains recognized $0.1 million of expense. As of March 31, 2011 the Non-Qualified Options were fully amortized. Share-Based Compensation Based on OneBeacon Ltd. Common Shares The OneBeacon Long-Term Incentive Plan (the “OneBeacon Incentive Plan”) provides for grants of various types of share-based and non share-based incentive awards to key employees of OneBeacon Ltd. and certain of its subsidiaries. OneBeacon’s share-based incentive awards consist of OneBeacon performance shares, stock options granted in connection with OneBeacon’s initial public offering, restricted shares and restricted stock units (“RSUs”). OneBeacon Performance Shares OneBeacon performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. OneBeacon performance share awards vest, subject to the attainment of performance goals, at the end of a three-year period and are valued based on the market value of OneBeacon Ltd. common shares at the time awards are paid. The following table summarizes performance share activity for the three months ended March 31, 2012 and 2011 for OneBeacon performance shares granted under the OneBeacon Incentive Plan:
|  | Three Months Ended March 31, |
|  | 2012 |  | 2011 |
|  | Target |  |  |  | Target |  |  |
|  | Performance |  |  |  | Performance |  |  |
|  | Shares |  | Accrued |  | Shares |  | Accrued |
Millions, except share amounts |  | Outstanding |  | Expense |  | Outstanding |  | Expense |
Beginning of period |  | 642,667 |  | $ | 9.7 |  | 1,464,295 |  | $ | 18.5 |
Payments and deferrals (1)(2) |  | (249,733 | ) | (7.5 | ) | (936,150 | ) | (10.5 | )
New awards |  | 181,290 |  | — |  | 194,900 |  | — |
Assumed forfeitures and cancellations (3) |  | (4,479 | ) | — |  | (4,873 | ) | — |
Expense recognized |  | — |  | 1.0 |  | — |  | .4 |
Ending March 31, |  | 569,745 |  | $ | 3.2 |  | 718,172 |  | $ | 8.4 |
(1) OneBeacon performance share payments in 2012 for the 2009-2011 performance cycle were at 138.6% of target. OneBeacon performance shares payments in 2011 for the 2008-2010 performance cycle were at 68.5% of target. Amounts include deposits into OneBeacon’s deferred compensation plan. (2) OneBeacon performance share payments also include accelerated payments resulting from the OneBeacon Personal Lines and Commercial Lines Transactions. The accelerated OneBeacon performance shares payments for the 2009-2011 and 2010-2012 performance cycles were on a pro rata basis and at a performance factor of 100%. (3) Amounts include changes in assumed forfeitures, as required under GAAP. If 100% of the outstanding OneBeacon performance shares had been vested on March 31, 2012, the total additional compensation cost to be recognized would have been $4.6 million, based on accrual factors at March 31, 2012 (common share price and payout assumptions). The following table summarizes OneBeacon performance shares outstanding awarded under the OneBeacon Incentive Plan at March 31, 2012 for each performance cycle:
|  | Target OneBeacon |  |  |
|  | Performance |  |  |
|  | Shares |  | Accrued |
Millions, except share amounts |  | Outstanding |  | Expense |
Performance cycle: |  |  |  |  |
2009 – 2011 |  | 9,168 |  | $ | .3 |
2010 – 2012 |  | 242,098 |  | 1.6 |
2011 – 2013 |  | 151,563 |  | 1.1 |
2012 – 2014 |  | 181,290 |  | .3 |
Sub-total |  | 584,119 |  | 3.3 |
Assumed forfeitures |  | (14,374 | ) | (.1 | )
Total at March 31, 2012 |  | 569,745 |  | $ | 3.2 |
OneBeacon Restricted Shares The following outlines the unrecognized compensation cost associated with the outstanding restricted share awards for the three months ended March 31, 2012:
|  | Three Months Ended March 31, |
|  | March 31, 2012 |
Millions, except share amounts |  | Restricted Shares |  | Unamortized Issue Date Fair Value |
Non-vested, |  |  |  |  |
Beginning of period |  | 630,000 |  | $ | 7.7 |
Issued |  | 300,000 |  | 4.6 |
Vested |  | — |  | — |
Forfeited |  | — |  | — |
Expense recognized |  | — |  | (.4 | )
Non-vested at March 31, |  | 930,000 |  | $ | 11.9 |
On March 1, 2012, OneBeacon issued 300,000 restricted shares that vest in two equal annual installments beginning on February 28, 2014. On May 25, 2011, OneBeacon issued 630,000 restricted shares to its CEO that vest in four equal annual installments beginning on February 22, 2014. Concurrently with the grant of the restricted shares, 35,000 OneBeacon performance shares issued to OneBeacon’s CEO for the 2011-2013 performance share cycle were forfeited and performance share awards to OneBeacon’s CEO for the next 5 years will also be reduced by 35,000 shares. The restricted shares contain dividend participation features, and therefore, are considered participating securities. The unrecognized compensation cost at March 31, 2012 is expected to be recognized ratably over the remaining vesting periods. Non-Qualified Options In November 2006, in connection with its initial public offering, OneBeacon Ltd. issued to its key employees 1,420,000 OneBeacon Non-Qualified Options to acquire OneBeacon Ltd. common shares at an above-market fixed exercise price. The following table summarizes option activity for the three months ended March 31, 2012 and 2011:
|  | Three Months Ended March 31, |
|  | 2012 |  | 2011 |
Millions, except share amounts |  | Target Options Outstanding |  | Expense Amortized |  | Target Options Outstanding |  | Expense Amortized |
Beginning of period |  | 740,870 |  | $ | 5.0 |  | 768,652 |  | $ | 4.5 |
New awards |  | — |  | — |  | — |  | — |
Forfeitures and cancellations |  | — |  | — |  | — |  | — |
Vested and expired |  | — |  | — |  | — |  | — |
Exercised |  | — |  | — |  | — |  | — |
Expense recognized |  | — |  | — |  | — |  | .1 |
Ending March 31, |  | 740,870 |  | $ | 5.0 |  | 768,652 |  | $ | 4.6 |
The options vest in equal installments on each of the third, fourth and fifth anniversaries of their issuance and expire 5.5 years from the date of issuance. The fair value of each option award at grant was estimated using a Black-Scholes option pricing model using an expected volatility assumption of 30%, a risk-free interest rate assumption of 4.6%, a forfeiture assumption of 5%, an expected dividend rate assumption of 3.4% and an expected term assumption of 5.5 years. The options originally had a per share exercise price of $30.00. On May 27, 2008, the OneBeacon Compensation Committee of the Board of Directors (the “OB Compensation Committee”) amended the exercise price to $27.97 as a result of the $2.03 per share special dividend paid in the first quarter of 2008. On November 16, 2010, the OB Compensation Committee adjusted the exercise price to $25.47 as a result of the $2.50 per share special dividend paid in the third quarter of 2010. The compensation expense associated with the options and the incremental fair value of the award modification is being recognized ratably over the remaining period. As of December 31, 2011 the OneBeacon Non-Qualified Options were fully amortized. Restricted Stock Units The Non-Qualified Options granted by OneBeacon Ltd., in connection with its initial public offering, did not include a mechanism in the options to reflect the contribution to total return from the regular quarterly dividend. As a result, during the first quarter of 2008, OneBeacon granted 116,270 Restricted Stock Units (“RSUs”) to actively employed option holders that were scheduled to vest one-third on each of November 9, 2009, 2010 and 2011 subject to, for each vesting tranche of units, the attainment of 4% growth in OneBeacon’s book value per share from January 1, 2008 through the end of the calendar year immediately following the applicable vesting date. Consistent with the terms of the RSU plan, all three tranches of RSUs vested and were deferred into a OneBeacon non-qualified deferred compensation plan that will be paid out in May 2012 in cash or shares at the discretion of the OB Compensation Committee. The expense associated with the RSUs was recognized over the vesting period.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher AICPA -Name Statement of Position (SOP) -Number 93-6 -Paragraph 53 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 123R -Paragraph 64, 65, A240 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 + Details
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