Frontier Communications 2014 Annual Report Download - page 84

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based awards. As discussed under the Non-Employee Directors’ Compensation Plans below, prior to
May 25, 2006 non-employee directors received an award of stock options under the 2000 EIP upon
commencement of service.
At December 31, 2014, there were 20,000,000 shares authorized for grant under the 2013 EIP
and 13,442,932 shares available for grant. No awards may be granted more than 10 years after the
effective date (May 8, 2013) of the 2013 EIP plan. The exercise price of stock options and SARs under
the EIPs generally are equal to or greater than the fair market value of the underlying common stock
on the date of grant. Stock options are not ordinarily exercisable on the date of grant but vest over a
period of time (generally four years). Under the terms of the EIPs, subsequent stock dividends and
stock splits have the effect of increasing the option shares outstanding, which correspondingly
decrease the average exercise price of outstanding options.
Performance Shares
On February 15, 2012, the Company’s Compensation Committee, in consultation with the other
non-management directors of the Company’s Board of Directors and the Committee’s independent
executive compensation consultant, adopted the Frontier Long-Term Incentive Plan (the LTIP). LTIP
awards are granted in the form of performance shares. The LTIP is currently offered under the
Company’s 2009 EIP and 2013 EIP, and participants consist of senior vice presidents and above. The
LTIP awards have performance, market and time-vesting conditions.
Beginning in 2012, during the first 90 days of a three-year performance period (a Measurement
Period), a target number of performance shares are awarded to each LTIP participant with respect to
the Measurement Period. The performance metrics under the LTIP are (1) annual targets for operating
cash flow based on a goal set during the first 90 days of each year in the three-year Measurement
Period and (2) an overall performance “modifier” set during the first 90 days of the Measurement
Period, based on the Company’s total return to stockholders (i.e., Total Shareholder Return or TSR)
relative to the Integrated Telecommunications Services Group (GICS Code 50101020) for the three-
year Measurement Period. Operating cash flow performance is determined at the end of each year and
the annual results will be averaged at the end of the three-year Measurement Period to determine the
preliminary number of shares earned under the LTIP award. The TSR performance measure is then
applied to decrease or increase payouts based on the Company’s three year relative TSR
performance. LTIP awards, to the extent earned, will be paid out in the form of common stock shortly
following the end of the three-year Measurement Period.
In 2012, the Compensation Committee granted approximately 979,000 performance shares under
the LTIP and set the operating cash flow performance goal for the first year in the 2012-2014
Measurement Period and the TSR modifier for the three-year Measurement Period. In 2013, the
Compensation Committee granted approximately 1,124,000 performance shares under the LTIP and
set the operating cash flow performance goal for 2013, which applies to the first year of the 2013-2015
Measurement Period and the second year of the 2012-2014 Measurement Period. On February 17,
2014, the Compensation Committee granted approximately 1,028,000 performance shares under the
LTIP and set the operating cash flow performance goal for 2014, which applies to the first year in the
2014-2016 Measurement Period, the second year of the 2013-2015 Measurement Period and the third
year of the 2012-2014 Measurement Period. The number of shares of common stock earned at the
end of each three-year Measurement Period may be more or less than the number of target
performance shares granted as a result of operating cash flow and TSR performance. An executive
must maintain a satisfactory performance rating during the Measurement Period and must be
employed by the Company at the end of the three-year Measurement Period in order for the award to
vest. The Compensation Committee will determine the number of shares earned for each three year
Measurement Period in February of the year following the end of the Measurement Period.
F-23
FRONTIER COMMUNICATIONS CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements