Frontier Communications 2011 Annual Report Download - page 87

FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
F-24
annual stipend of $25,000, the chair of the Compensation Committee received an annual stipend of $20,000, the chair
of the Nominating and Corporate Governance Committee received an annual stipend of $7,500 and the chair of the
Retirement Plan Committee received an annual stipend of $7,500.
Beginning October 1, 2010, we revised our non-employee director compensation program in accordance with best
practices. Each non-employee director is now entitled to receive an annual retainer of (1) $75,000 in cash, which he or
she may elect to receive in the form of stock units, and (2) $75,000 in the form of stock units. In addition, the Lead
Director, the chair of the Audit Committee and the chair of the Compensation Committee each receives an annual
stipend of $20,000, the chair of the Nominating and Corporate Governance Committee receives an annual stipend of
$10,000 and the chair of the Retirement Plan Committee receives an annual stipend of $7,500. Directors no longer
receive meeting fees.
All fees paid to the non-employee directors in 2011 were paid quarterly. Directors are required to irrevocably elect by
December 31 of the prior year to receive the cash portion of the retainer and/or stipends in stock units in lieu of cash.
Stock units are credited to the director’s account in an amount that is determined as follows: the total cash value of the
fees payable to the director are divided by 85% of the closing prices of Frontier common stock on the grant date of the
units. Units are credited to the director’s account quarterly. Directors must also elect to convert the units to either
common stock (convertible on a one-to-one basis) or cash upon retirement or death.
Dividends are paid on stock units held by directors at the same rate and at the same time as we pay dividends on shares
of our common stock. Dividends on stock units are paid in the form of additional stock units.
The number of shares of common stock authorized for issuance under the Directors’ Equity Plan is 2,540,761, which
includes 540,761 shares that were available for grant under the Deferred Fee Plan on the effective date of the Directors’
Equity Plan. In addition, if and to the extent that any “plan units” outstanding on May 25, 2006 under the Deferred Fee
Plan are forfeited or if any option granted under the Deferred Fee Plan terminates, expires, or is cancelled or forfeited,
without having been fully exercised, shares of common stock subject to such “plan units” or options cancelled shall
become available under the Directors’ Equity Plan. At December 31, 2011, there were 1,762,724 shares available for
grant. There were 12 directors participating in the Directors’ Plans during all or part of 2011. In 2011, the total plan
units earned were 197,600. In 2010, the total options granted and plan units earned were 30,000 and 95,695,
respectively. In 2009, the total plan units earned were 76,326. Options granted prior to the adoption of the Directors’
Equity Plan were granted under the 2000 EIP. At December 31, 2011, 140,616 options were outstanding and
exercisable under the Director Plans at a weighted average exercise price of $11.29.
For purposes of determining compensation expense, the fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model which requires the use of various assumptions including expected life of
the option, expected dividend rate, expected volatility, and risk-free interest rate. The expected life (estimated period of
time outstanding) of stock options granted was estimated using the historical exercise behavior of employees. The risk
free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. Expected volatility is based
on historical volatility for a period equal to the stock option’s expected life, calculated on a monthly basis.
To the extent directors elect to receive the distribution of their stock unit account in cash, they are considered liability-
based awards. To the extent directors elect to receive the distribution of their stock unit accounts in common stock, they
are considered equity-based awards. Compensation expense for stock units that are considered equity-based awards is
based on the market value of our common stock at the date of grant. Compensation expense for stock units that are
considered liability-based awards is based on the market value of our common stock at the end of each period.