OG&E 2011 Annual Report Download - page 68

8. Stock-Based Compensation
In 2008, the Company adopted, and its shareowners approved, the 2008
Stock Incentive Plan. Under the 2008 Stock Incentive Plan, restricted
stock, stock options, stock appreciation rights and performance units
may be granted to officers, directors and other key employees of the
Company and its subsidiaries. The Company has authorized the issuance
of up to 2,750,000 shares under the 2008 Stock Incentive Plan.
The following table summarizes the Company’s pre-tax compensation
expense and related income tax benefit for the years ended December 31,
2011, 2010 and 2009 related to the Company’s performance units and
restricted stock.
(In millions, year ended December 31) 2011 2010 2009
Performance units
Total shareholder return $÷8.2 $÷6.8 $4.4
Earnings per share 5.5 2.5 1.4
Total performance units 13.7 9.3 5.8
Restricted stock 1.0 0.9 0.9
Total compensation expense $14.7 $10.2 $6.7
Income tax benefit $÷5.7 $÷3.9 $2.7
The Company has issued new shares to satisfy stock option exercises,
restricted stock grants and payouts of earned performance units. In
2011, 2010 and 2009, there were 311,623 shares, 230,233 shares and
324,651 shares, respectively, of new common stock issued pursuant to
the Company’s stock incentive plans related to exercised stock options,
restricted stock grants and payouts of earned performance units. In 2011,
there were 9,258 shares of restricted stock returned to the Company to
satisfy tax liabilities.
In November 2011, the Company purchased 120,000 shares of its
common stock at an average cost of $51.33 per share on the open market.
These shares will be used to satisfy Enogex’s portion of the Company’s
obligation to deliver shares of common stock related to long-term
incentive payouts of earned performance units in 2012. The Company
expects to purchase shares in the future to satisfy a portion of its obli-
gation under its incentive plan. The Company records treasury stock
purchases at cost. Treasury stock is presented as a reduction of stock-
holders’ equity in the Company’s Consolidated Balance Sheet.
Performance Units
Under the 2008 Stock Incentive Plan, the Company has issued
performance units which represent the value of one share of the
Company’s common stock. The performance units provide for accel -
erated vesting if there is a change in control (as defined in the 2008
Stock Incentive Plan). Each performance unit is subject to forfeiture if
the recipient terminates employment with the Company or a subsidiary
prior to the end of the three-year award cycle for any reason other than
death, disability or retirement. In the event of death, disability or retire-
ment, a participant will receive a prorated payment based on such
participant’s number of full months of service during the award cycle,
further adjusted based on the achievement of the performance goals
during the award cycle.
The performance units granted based on total shareholder return are
contingently awarded and will be payable in shares of the Company’s
common stock subject to the condition that the number of performance
units, if any, earned by the employees upon the expiration of a three-
year award cycle (i.e., three-year cliff vesting period) is dependent on
the Company’s total shareholder return ranking relative to a peer group of
companies. The performance units granted based on earnings per share
are contingently awarded and will be payable in shares of the Company’s
common stock based on the Company’s earnings per share growth over
a three-year award cycle (i.e., three-year cliff vesting period) compared
to a target set at the time of the grant by the Compensation Committee
of the Company’s Board of Directors. All of the Company’s performance
units are classified as equity in the Consolidated Balance Sheet. If there
is no or only a partial payout for the performance units at the end of the
award cycle, the unearned performance units are cancelled. Payout
requires approval of the Compensation Committee of the Company’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.
Performance Units – Total Shareholder Return
The fair value of the performance units based on total shareholder
return 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 three-
year award cycle 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 the Company’s common stock for the past three years and was sim-
ulated 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 the
Company’s performance units based on total shareholder return.
66 OGE Energy Corp.