ALLSTATE CORP | 2013 | FY |

19.  Equity Incentive Plans

       The Company currently has equity incentive plans under which the Company grants nonqualified stock options, restricted stock units and performance stock awards to certain employees and directors of the Company. The total compensation expense related to equity awards was $93 million, $86 million and $64 million and the total income tax benefits were $32 million, $30 million and $21 million for 2013, 2012 and 2011, respectively. Total cash received from the exercise of options was $212 million, $99 million and $19 million for 2013, 2012 and 2011, respectively. Total tax benefit realized on options exercised and stock unrestricted was $65 million, $28 million and $10 million for 2013, 2012 and 2011, respectively.

       The Company records compensation expense related to awards under these plans over the shorter of the period in which the requisite service is rendered or retirement eligibility is attained. Compensation expense for performance share awards is based on the probable number of awards expected to vest using the performance level most likely to be achieved at the end of the performance period. As of December 31, 2013, total unrecognized compensation cost related to all nonvested awards was $88 million, of which $35 million related to nonqualified stock options which are expected to be recognized over the weighted average vesting period of 2.17 years, $40 million related to restricted stock units which are expected to be recognized over the weighted average vesting period of 2.22 years and $13 million related to performance stock awards which are expected to be recognized over the weighted average vesting period of 1.59 years.

       Options are granted to employees with exercise prices equal to the closing share price of the Company's common stock on the applicable grant date. Options granted to employees generally vest 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date. Options granted prior to 2010 vest ratably over a four year period. Options may be exercised once vested and will expire ten years after the date of grant. Upon normal retirement, which is defined as either age 60 with five years of service or age 55 with ten years of service, all options granted more than 12 months before retirement, and a pro-rata portion of options granted within 12 months of retirement, continue to vest as scheduled. When the options become vested, they may be exercised on or before the earlier of the option expiration date or the fifth anniversary of the employee's retirement. If termination of employment is a result of death or disability, then all options vest immediately and may be exercised on or before the earlier of the option expiration date or the second anniversary of the date of termination of employment. Vested options may be exercised within three months and unvested options are forfeited following any other type of termination of employment except termination after a change in control.

       Restricted stock units generally vest and unrestrict 50% on the second anniversary of the grant date and 25% on each of the third and fourth anniversaries of the grant date, except for directors whose awards vest immediately and unrestrict after leaving the board. Restricted stock units granted to employees prior to 2010 vest and unrestrict in full on the fourth anniversary of the grant date. Upon normal retirement, all restricted stock units granted more than 12 months before retirement, and a pro-rata portion of restricted stock units granted within 12 months of retirement, continue to unrestrict as provided for in the original grant. Upon termination of employment as a result of death or disability, all restricted stock units vest. Unvested restricted stock units are forfeited following any other type of termination of employment except termination after a change in control.

       Performance stock awards vest and are converted into shares of stock on the third anniversary of the grant date. Upon normal retirement occurring 12 months or more from the grant date, the number of performance stock awards earned based on the attainment of performance goals for each of the performance periods continue to vest as scheduled. Upon normal retirement occurring within 12 months of the grant date, a pro-rata portion of the performance stock awards earned based on the attainment of the performance goals for each of the performance periods continue to vest as scheduled. Upon termination of employment as a result of death or disability, the number of performance stock awards that have been earned based on attainment of the performance goals for completed performance periods plus the target number of performance stock awards granted for any incomplete performance periods vest immediately. Unvested performance stock awards are forfeited following any other type of termination of employment except termination after a change in control.

       A total of 97.6 million shares of common stock were authorized to be used for awards under the plans, subject to adjustment in accordance with the plans' terms. As of December 31, 2013, 33.5 million shares were reserved and remained available for future issuance under these plans. The Company uses its treasury shares for these issuances.

       The fair value of each option grant is estimated on the date of grant using a binomial lattice model. The Company uses historical data to estimate option exercise and employee termination within the valuation model. In addition, separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. The expected term of options granted is derived from the output of the binominal lattice model and represents the period of time that options granted are expected to be outstanding. The expected volatility of the price of the underlying shares is implied based on traded options and historical volatility of the Company's common stock. The expected dividends were based on the current dividend yield of the Company's stock as of the date of the grant. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The assumptions used are shown in the following table.

       A summary of option activity for the year ended December 31, 2013 is shown in the following table.

       The weighted average grant date fair value of options granted was $11.99, $8.69 and $9.49 during 2013, 2012 and 2011, respectively. The intrinsic value, which is the difference between the fair value and the exercise price, of options exercised was $92 million, $52 million and $15 million during 2013, 2012 and 2011, respectively.

       The changes in restricted stock units are shown in the following table for the year ended December 31, 2013.

       The fair value of restricted stock units is based on the market value of the Company's stock as of the date of the grant. The market value in part reflects the payment of future dividends expected. The weighted average grant date fair value of restricted stock units granted was $45.78, $31.89 and $31.38 during 2013, 2012 and 2011, respectively. The total fair value of restricted stock units vested was $104 million, $30 million and $13 million during 2013, 2012 and 2011, respectively.

       The changes in performance stock awards are shown in the following table for the year ended December 31, 2013.

       The fair value of performance stock awards is based on the market value of the Company's stock as of the date of the grant. The market value in part reflects the payment of future dividends expected. The weighted average grant date fair value of performance stock awards granted was $45.61 and $31.41 during 2013 and 2012, respectively. None of the performance stock awards vested during 2013 or 2012.

       The tax benefit realized in 2013, 2012 and 2011 related to tax deductions from stock option exercises and included in shareholders' equity was $12 million, $8 million and $3 million, respectively. The tax benefit (expense) realized in 2013, 2012 and 2011 related to all stock-based compensation and recorded directly to shareholders' equity was $30 million, $6 million and $(0.4) million, respectively.