CenterPoint Energy 2009 Annual Report Download - page 100

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78
Management believes the impact of other recently issued standards, which are not yet effective, will not have a
material impact on CenterPoint Energy’s consolidated financial position, results of operations or cash flows upon
adoption.
(p) Stock-Based Incentive Compensation Plans and Employee Benefit Plans
Stock-Based Incentive Compensation Plans
CenterPoint Energy has long-term incentive plans (LTIPs) that provide for the issuance of stock-based incentives,
including stock options, performance awards, restricted stock unit awards and restricted and unrestricted stock
awards to officers and key employees. Approximately 21 million shares of CenterPoint Energy common stock are
authorized to be issued under these plans.
Equity awards are granted to employees without cost to the participants. The performance awards granted in
2007, 2008 and 2009 are distributed based upon the achievement of certain objectives over a three-year performance
cycle. The stock awards granted in 2007, 2008 and 2009 are subject to the operational condition that total common
dividends declared during the three-year vesting period must be at least $2.04, $2.19 and $2.28 per share,
respectively. The stock awards generally vest at the end of a three-year period. Upon vesting, both the performance
and stock awards are issued to the participants along with the value of dividend equivalents earned over the
performance cycle or vesting period. CenterPoint Energy issues new shares in order to satisfy share-based payments
related to LTIPs.
Stock options are generally granted with an exercise price equal to the average of the high and low sales price of
CenterPoint Energy’s stock at the date of grant. These stock options generally become exercisable in one-third
increments on each of the first through third anniversaries of the grant date and have 10-year contractual terms. No
stock options were granted during 2007, 2008 and 2009.
CenterPoint Energy recorded LTIP compensation expense of $10 million, $10 million and $15 million for the
years ended December 31, 2007, 2008 and 2009, respectively. This expense is included in Operation and
Maintenance Expense in the Statements of Consolidated Income.
The total income tax benefit recognized related to LTIPs was $4 million, $4 million and $6 million in the years
ended December 31, 2007, 2008 and 2009, respectively. No compensation cost related to LTIPs was capitalized as a
part of inventory or fixed assets in 2007, 2008 or 2009.
The actual tax benefit realized for tax deductions related to LTIPs totaled $7 million, $5 million and $6 million,
for 2007, 2008 and 2009, respectively.
Compensation costs for the performance and stock awards granted under LTIPs are measured using fair value and
expected achievement levels on the grant date. The fair value of awards granted to employees after April 2009 are
based on the closing stock price of CenterPoint Energy’s common stock on the grant date. The fair value of awards
granted prior to May 2009 are based on the average of the high and low stock price of CenterPoint Energy’s
common stock on the grant date. The compensation expense is recorded on a straight-line basis over the vesting
period. Forfeitures are estimated on the date of grant based on historical averages. For performance awards with
operational goals, the expected achievement level is revised as goal achievements are evaluated.