Frontier Communications 2012 Annual Report Download - page 85

Non-Employee Directors’ Compensation Plans
Prior to October 1, 2010, non-employee directors received stock options upon joining the Board of
Directors. These options were awarded under the Directors’ Equity Plan commencing May 25, 2006. Prior
thereto, these options were awarded under the 2000 EIP. Options awarded to directors under the 2000 EIP are
included in the above tables.
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 2012 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, 2012, there were 1,422,992 shares available for grant. There were 10 directors participating in
the Directors’ Plans during all or part of 2012. In 2012, the total plan units earned were 306,634. 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. Options granted prior to the adoption of the Directors’ Equity Plan were granted under the
2000 EIP. At December 31, 2012, 137,709 options were outstanding and exercisable under the Director Plans at
a weighted average exercise price of $11.64.
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.
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FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements