The Company believes that stock-based compensation better aligns the interests of its employees and directors with those of its shareholders versus exclusively providing cash-based compensation. Stock-based compensation provides incentives to retain and motivate executive officers and key employees responsible for driving Company performance and maintaining important relationships that contribute to the growth of the Company.

Compensation expense charged to operations related to stock-based compensation was $6.9 million, $7.7 million, and $5.0 million for each of the years ended December 31, 2011, 2010 and 2009, respectively, and is included in the Consolidated Statements of Operations and Comprehensive Income (Loss) in selling, general and administrative expenses. The Company has recognized an income tax benefit of $2.5 million, $2.9 million, and $1.9 million for the years ended December 31, 2011, 2010 and 2009, respectively in the consolidated statements of operations for stock-based compensation arrangements.

Effective June 3, 2010, the shareholders approved the adoption of the On Assignment, Inc. 2010 Incentive Award Plan (the 2010 Plan), which replaced the Company's Restated 1987 Stock Option Plan. The 2010 Plan permits the grant of stock options, including incentive stock options, nonqualified stock options, restricted stock awards (RSAs), dividend equivalent rights, stock payments, deferred stock, restricted stock units (RSUs), performance shares and other incentive awards, stock appreciation rights and cash awards to its employees, directors and consultants for up to 2,184,983 shares of common stock, which included the 884,983 shares that remained available for issuance under the 1987 Plan as of June 3, 2010. The 2010 Plan allows for stock option awards to be granted with an exercise price equal to the closing market price of the Company's stock at the date of grant. Stock option awards generally vest over four years of continuous service with the Company and generally have ten-year contractual terms. RSUs and RSAs generally vest over a three year continuous service period, though individual award vesting terms vary within these parameters. Certain stock option awards and RSUs and RSAs provide for accelerated vesting in the event of a change in control (see Note 6). Options or awards that are cancelled or forfeited are added back to the pool of shares available for issuance under the 2010 Plan. As of December 31, 2011, there were 1,606,921 shares available for issuance under the 2010 Plan.

The fair value of each option award is estimated on the date of grant using a Black-Scholes option valuation model that incorporates assumptions disclosed in the table below. Expected volatility is based on historical volatility of the underlying stock for a period consistent with the expected lives of the stock options as the Company believes this is a reasonable representation of future volatility. Additionally, the Company analyzes historical stock option exercise behavior and vesting patterns for RSUs and RSAs in order to estimate employee turnover rates (i.e. forfeiture rates). The forfeiture rate, set by management, is used to estimate the number of options and awards that will eventually vest and the associated impact on stock-based compensation expense. The expected life, or term, of options granted is derived from historical exercise behavior and represents the period of time that stock option awards are expected to be outstanding. The Company has selected a risk-free rate based on the implied yield available on U.S. Treasury Securities with a maturity equivalent to the options' expected term. For RSUs and RSAs, the Company records compensation expense based on the fair market value of the awards on the grant date.

The preceding paragraphs describe the general terms of most stock-based incentive awards granted by the Company. However, the Company has granted a discrete set of stock-based awards to its Chief Executive Officer (CEO) and other corporate officers that differ from those generally stated terms. The grant-date fair-value of these awards, which was determined by applying certain provisions of the stock compensation guidance relative to performance-based and market-based awards, is generally being expensed over the vesting term. The impact of these awards is reflected in the detailed RSU and RSA disclosures below. All awards are subject to the officer's continued employment through such vesting dates, however, the vesting of certain awards will accelerate upon the occurrence of a change in control of the Company and/or upon certain qualifying terminations of employment.

In March 2011, the CEO was awarded the following incentive equity grants: (i) On March 8, 2011, the CEO was awarded a number of RSUs that will be determined by dividing $0.5 million by the closing price of the Company's stock on each of February 1, 2013 and February 1, 2014 contingent upon the Company meeting certain financial performance objectives measured over the twelve month period between January 1, 2011 and December 31, 2011, which were met. Certain provisions of ASC Topic 480, Distinguishing Liabilities from Equity, require the Company to classify and account for this award as a liability award until the number of shares is determined. The associated liability related to this award included in the Consolidated Balance Sheets in other long-term liabilities was $1.0 million as of December 31, 2011; and (ii) 58,754 RSUs granted on March 8, 2011 with a grant date fair market value of $0.6 million, which will vest in two equal components of $0.3 million on January 1, 2012 and January 1, 2013, contingent upon the Company achieving certain performance objectives based on adjusted EBITDA approved by the Compensation Committee over the twelve-month period ending December 31, 2011, which were met and approved. The grant-date fair value of the RSUs described in this paragraph is being expensed over the vesting term, based on an estimate of the percentage achievement of the applicable performance targets. All awards were subject to the CEO's continued employment through applicable vesting dates. All awards may vest on an accelerated basis in part or in full upon the occurrence of certain events.

In the first quarter of 2011, the Company granted RSUs to certain other executive officers with an aggregate grant-date fair value of $1.6 million. Of the $1.6 million, $0.9 million will vest in three annual increments subject to continued employment on each succeeding grant-date anniversary. The remaining $0.7 million vested on January 3, 2012, as certain performance objectives approved by the Compensation Committee were attained. The Company records stock-based compensation expense over the vesting period of the awards based on the probability that the performance objectives will be met and that the executives will maintain their employment through the respective vesting dates.

On June 3, 2010, the CEO was awarded a number of RSUs that will be determined by dividing $0.5 million by the closing price of the Company's stock on February 1, 2013 contingent upon the Company meeting certain stock price performance objectives measured over the thirty-six month period between January 1, 2010 and December 31, 2012. As of December 31, 2011, the fair value of the award was $0.5 million and is being expensed over a derived service period of 2.6 years, determined by applying certain provisions relative to market-based awards in ASC Topic 718, Stock Compensation. Furthermore, certain provisions of ASC Topic 480, Distinguishing Liabilities from Equity, require the Company to classify and account for this award as a liability award until the number of shares is determined and the fair value of the award is remeasured at each reporting period until the award is settled. Fluctuations in the fair value of the liability award and its derived service period are recorded as increases or decreases to stock-based compensation cost. The associated liability related to this award included in the Consolidated Balance Sheets in other long-term liabilities was $0.3 million as of December 31, 2011.

On March 17, 2010, the CEO was granted 67,568 RSUs, with a grant-date fair value of $0.5 million, of which 33,784 RSUs vested on February 1, 2011 and the remaining 33,784 RSUs vested on February 1, 2012. As of December 31, 2011, the performance targets had been fully achieved and the grant-date fair value was expensed over the respective vesting periods for each of the two components. All awards were subject to the CEO's continued employment through applicable vesting dates and may have vested on an accelerated basis in part or in full upon the occurrence of certain qualifying terminations of employment and/or corporate events.

In the first quarter of 2010, the Company granted RSUs to certain other executive officers with an aggregate grant-date fair value of $1.2 million. Sixty percent of the total RSU award will vest in three annual increments subject to continued employment on each succeeding grant-date anniversary. Forty percent of the awards will vest in three consecutive annual installments contingent upon the officer attaining certain performance objectives approved by the Compensation Committee. Accordingly, the Company records stock-based compensation expense over the vesting period of these awards based on the probability that the performance objectives will be met and that the executives will maintain their employment through the respective vesting dates.

On November 4, 2009, we entered into an employment agreement with our Chief Executive Officer that provides for three annual stock award grants with grant-date values of $0.8 million each, based on performance objectives for 2010 through 2012 that vest and become payable, subject to continued employment, on February 1, 2011, January 1, 2012, and January 1, 2013, respectively, contingent upon achieving positive adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) during the thirteen month period ending on February 1 the year following the grant for the 2010 award, and the twelve month period ending January 1 the year following the grant for the 2011 and 2012 awards.

On January 2, 2009, the Chief Executive Officer was granted (1) 90,252 RSUs valued at $0.5 million which vest on the third anniversary of the date of the grant, (2) 90,252 RSAs valued at $0.5 million, which were to vest on December 31, 2009, but did not vest because the performance objectives approved by the Compensation Committee (based on adjusted EBITDA) were not met, and (3) 90,252 RSUs valued at $0.5 million, which vested December 30, 2011.

On January 2, 2008, the Chief Executive Officer was granted (1) 78,369 RSUs valued at $0.5 million which vest on the third anniversary of the date of the grant, (2) 78,369 RSAs valued at $0.5 million, which vested December 31, 2009 when the Company met the performance objectives approved by the Compensation Committee (based on adjusted EBITDA), and (3) 78,369 RSUs valued at $0.5 million, which were to vest on December 31, 2010, subject to the Company meeting certain stock price performance objectives relative to its peers, however, only 75,615 shares, or 96.5 percent of the original award, vested on December 31, 2010.

					Options Outstanding				Options Exercisable
Range of Exercise Prices					Number Outstanding at December 31, 2011	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price		Number Exercisable at December 31, 2011	Weighted Average Exercise Price

$	2.82	-	$	5.11	588,429	3.2 years	$	4.87	553,712	$	4.91
	5.13	-		7.31	478,524	5.2 years		6.21	380,031		6.00
	7.39	-		10.46	453,241	9.0 years		9.36	37,503		8.88
	10.69	-		13.31	714,561	5.1 years		12.41	710,361		12.42
	18.63	-		19.86	28,450	0.4 years		19.75	28,450		19.75

$	2.82	-	$	19.86	2,263,205	5.3 years	$	8.62	1,710,057	$	8.60

	Incentive Stock Options			Non- Qualified Stock Options			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value

Outstanding at January 1, 2011		341,836			1,904,767		$	8.32		5.3	$	3,655,000
Granted		-			424,854		$	9.42
Exercised		(110,310	)		(183,583	)	$	5.87
Canceled		(10,060	)		(104,300	)	$	12.75
Outstanding at December 31, 2011		221,466			2,041,738		$	8.62		5.3	$	6,928,000

Vested and Expected to Vest at December 31, 2011		221,334			1,893,333		$	8.59		5.1	$	6,620,000

Exercisable at December 31, 2011		221,235			1,488,822		$	8.60		4.2	$	5,539,000

In January 2009, the Company implemented a stock option exchange program that gave eligible employees the opportunity to exchange options with an exercise price greater than $8.00 per share that were granted on or after December 31, 2000, for a reduced number of restricted stock units at an exchange price with a fair value approximately equivalent to the fair value of the cancelled options. Certain executive officers and the Board of Directors were not eligible to participate in the stock option exchange program. As a result of this stock option exchange program, 603,700 stock options were cancelled and exchanged for 87,375 RSUs which vested 50.0 percent on January 22, 2011, and 25.0 percent on January 22, 2012 and will vest 25.0 percent on January 22, 2013 subject to the employee's continued employment through such vesting dates. Incremental compensation cost related to the option exchange was not significant to the Company's financial statements.

	Restricted Stock Units / Awards			Weighted Average Grant-Date Fair Value Per Unit / Award

Unvested RSUs and RSAs outstanding at January 1, 2011		1,205,851			$ 7.15
Granted		776,922			9.51
Market value share count adjustment for liability awards		(25,564	)		11.02
Vested		(699,421	)		6.41
Forfeited		(49,622	)		7.76
Unvested RSUs and RSAs outstanding at December 31, 2011		1,208,166			$ 8.99
Unvested and expected to vest RSUs and RSAs outstanding at December 31, 2011		1,117,839			$ 9.12

Additionally, the table above includes 27,272 RSUs that were awarded to non-employee directors on August 9, 2011, of which 13,636 shares vested immediately upon issuance and the remaining shares will vest on August 9, 2012. The weighted average grant-date fair value of these awards was $8.80. There was unrecognized compensation expense of $73,000 as of December 31, 2011 related to these RSUs that will be recorded over the remaining term of approximately seven months.

Effective June 3, 2010 when the shareholders approved the On Assignment 2010 Employee Stock Purchase Plan (the ESPP), the Company reinstated the employee stock purchase program for issuance of up to 3,500,000 shares of common stock with the first offering periods. The ESPP allows eligible employees to purchase common stock of the Company, through payroll deductions, at 85.0 percent of the lower of the market price on the first day or the last day of semi-annual purchase periods. The ESPP is intended to qualify as an "employee stock purchase plan" under IRS Code Section 423. Eligible employees may contribute up to a certain percentage set by the plan administrator of their eligible earnings toward the purchase of the stock (subject to certain IRS limitations). Previously, the Company maintained a shareholder-approved Employee Stock Purchase Plan which was originally adopted by the Board of Directors on March 1, 1993 (the Prior ESPP). The pool of shares available for issuance under the Prior ESPP was fully depleted on February 27, 2009. As a result, the Prior ESPP was terminated and no additional shares will be issued under the Prior ESPP.

In accordance with the ESPP, shares of common stock are transferred to participating employees at the conclusion of each six month enrollment period, which now end on the last business day of the month in March and September each year. The Company issued 187,036 shares of common stock in 2011 under the ESPP. In 2010, no shares were issued under the ESPP or the Prior ESPP. In 2009, the Company issued 227,784 shares of common stock under the Prior ESPP plan.

Compensation expense of shares purchased under the ESPP is measured based on a Black-Scholes option-pricing model. The model accounts for the discount from market value and applies an expected life in line with each six month purchase period. The weighted average fair value of stock purchased under the ESPP was $2.10 for the year ended December 31, 2011. The weighted average fair value of stock purchased under the Prior ESPP was $2.67 per share for the year ended December 31, 2009. The amount of stock-based compensation expensed related to the ESPP was $0.4 million for the year ended December 31, 2011 and less than $0.1 million for the years ended December 31, 2010 and 2009.