OG&E 2009 Annual Report Download - page 76

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respectively, to certain employees of OGE Energy and its subsidiaries, of which 84,698, 43,508 and 27,322, respectively, related to
the Company’s employees.
Performance Units – Total Shareholder Return
The Company recorded compensation expense of approximately $1.1 million pre-tax ($0.6 million after tax), $0.7 million
pre-tax ($0.4 million after tax) and $0.6 million pre-tax ($0.4 million after tax) in 2009, 2008 and 2007, respectively, related to the
performance units based on TSR. The fair value of the performance units based on TSR was estimated on the grant date using a
lattice-based valuation model that factors in information, including the expected dividend yield, expected price volatility, risk-free
interest rate and the probable outcome of the market condition, over the expected life of the performance units. Compensation
expense for the performance units is a fixed amount determined at the grant date fair value and is recognized over the award cycle
(typically, three years) regardless of whether performance units are awarded at the end of the award cycle. Dividends are not accrued
or paid during the performance period and, therefore, are not included in the fair value calculation. Expected price volatility is based
on the historical volatility of OGE Energy’s common stock for the past three years and was simulated using the Geometric Brownian
Motion process. The risk-free interest rate for the performance unit grants is based on the three-year U.S. Treasury yield curve in
effect at the time of the grant. The expected life of the units is based on the non-vested period since inception of the award
cycle. There are no post-vesting restrictions related to OGE Energy’s performance units based on TSR. The fair value of the
performance units based on TSR was calculated based on the following assumptions at the grant date.
2009 2008 2007
Expected dividend yield 4.5 % 3.8 % 3.6 %
Expected price volatility 31.0 % 18.7 % 15.9 %
Risk-free interest rate 1.25 % 2.21 % 4.47 %
Expected life of units (in years) 2.88 2.84 2.95
Fair value of units granted $ 25.55 $ 33.62 $ 24.18
A summary of the activity for OGE Energy’s performance units applicable to the Company’s employees based on TSR at
December 31, 2009 and changes during 2009 are summarized in the following table. Following the end of the performance period,
payout of the performance units based on TSR is determined by OGE Energy’s TSR for such period compared to a peer group and
payout requires the approval of the Compensation Committee of OGE Energy’s Board of Directors. Payouts, if any, are all made in
common stock and are considered made when the payout is approved by the Compensation Committee.
Stock Aggregate
Number Conversion Intrinsic
(dollars in millions) of Units Ratio (A) Value
Units Outstanding at 12/31/08 85,030 1:1
Granted (B) 61,718 1:1
Converted (29,662) 1:1 $ 0.6
Forfeited (2,708) 1:1
Employee migration (C) 2,688 1:1
Units Outstanding at 12/31/09 117,066 1:1 $ 7.7
Units Fully Vested at 12/31/09 19,686 1:1 $ 1.0
(A) One performance unit = one share of OGE Energy’s common stock.
(B) Represents target number of units granted. Actual number of units earned, if any, is dependent upon performance and may range
from 0 percent to 200 percent of the target.
(C) Due to certain employees transferring between OGE Energy and its subsidiaries.
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