STOCK-BASED COMPENSATION PLANS

FirstEnergy has four stock-based compensation programs - LTIP, EDCP, ESOP and DCPD, as described further below. Allegheny's stock-based awards were converted into FirstEnergy stock-based awards as of the date of the merger. These awards, referred to below as converted Allegheny awards, were adjusted in terms of the number of awards and, where applicable, the exercise price thereof, to reflect the merger's common stock exchange ratio of 0.667 of a share of FE common stock for each share of AE common stock.

LTIP

The LTIP includes four forms of stock-based compensation — restricted stock, restricted stock units, stock options and performance shares.

Under the LTIP, total awards cannot exceed 29.1 million shares of common stock or their equivalent. Only stock options, restricted stock and restricted stock units have currently been designated to pay out in common stock, with vesting periods ranging from two months to ten years. Performance share awards are currently designated to be paid in cash rather than common stock and therefore do not count against the limit on stock-based awards. As of December 31, 2011, 5.6 million shares were available for future awards.

FirstEnergy records the actual tax benefit realized from tax deductions when awards are exercised or distributed. Realized tax benefits during the years ended December 31, 2011, 2010 and 2009 were $14 million, $11 million and $9 million, respectively. The excess of the deductible amount over the recognized compensation cost is recorded as a component of stockholders’ equity and reported as an other financing activity on the Consolidated Statements of Cash Flows.

Restricted Stock and Restricted Stock Units

Restricted common stock (restricted stock) and restricted stock units (stock units) activity for the year ended December 31, 2011, was as follows:



Restricted stock and stock units outstanding as of January 1, 2011	1,878,022
Granted	915,054
Converted AE restricted stock	645,197
Exercised	(984,543	)
Forfeited	(100,596	)
Restricted stock and stock units outstanding as of December 31, 2011	2,353,134

The 915,054 shares of restricted stock granted during the year ended December 31, 2011, had a grant-date fair value of $34 million and a weighted-average vesting period of 2.76 years.

Eligible employees receive awards of FE restricted stock or stock units subject to restrictions that lapse over a defined period of time or upon achieving performance results. Dividends are received on the restricted stock and are reinvested in additional shares. Restricted stock grants under the LTIP were as follows:



	2011		2010		2009
Restricted stock granted	297,859		71,752		73,255
Weighted average market price	$	38.44	$	38.43	$	43.68
Weighted average vesting period (years)	2.27		4.74		4.42
Dividends restricted	Yes		Yes		Yes

Vesting activity for restricted stock during 2011 was as follows (forfeitures were not material):



Restricted Stock	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2011	475,914	$	51.26
Nonvested as of December 31, 2011	654,696	$	45.26
Granted in 2011	297,859	$	38.44
Vested in 2011	121,573	$	41.10

FirstEnergy grants two types of stock unit awards: discretionary-based and performance-based. The discretionary-based awards grant the right to receive, at the end of the period of restriction, a number of shares of common stock equal to the number of stock units set forth in each agreement. Performance-based awards grant the right to receive, at the end of the period of restriction, a number of shares of common stock equal to the number of stock units set forth in the agreement subject to adjustment based on FirstEnergy's performance relative to financial and operational performance targets.



	2011	2010	2009
Restricted stock units granted	617,195	511,418	533,399
Weighted average vesting period (years)	3.00	3.00	3.00

Vesting activity for stock units during 2011 was as follows (forfeitures were not material):



Restricted Stock Units	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2011	1,402,108	$	48.40
Nonvested as of December 31, 2011	1,566,679	$	40.20
Granted in 2011	617,195	$	36.80
Vested in 2011	444,818	$	37.37

Compensation expense recognized in 2011, 2010 and 2009 for restricted stock and restricted stock units, net of amounts capitalized, was approximately $65 million, $22 million and $25 million, respectively.

Stock Options

Stock options were granted to eligible employees allowing them to purchase a specified number of common shares at a fixed grant price over a defined period of time. Stock option activity during 2011 was as follows:



Stock Option Activity	Number of Shares			Weighted Average Grant-Date Fair Value
Balance, January 1, 2011 (2,889,066 options exercisable)	2,889,066			$	35.18
Options granted	662,122			37.75
Converted Allegheny options	1,805,811			41.75
Options exercised	(973,817	)		31.48
Options forfeited	(127,197	)		70.19
Balance, December 31, 2011 (3,593,863 options exercisable)	4,255,985		—	$	38.17

The options granted during the year ended December 31, 2011, had a grant-date fair value of $3 million and an expected weighted-average vesting period of 3.79 years.

Options outstanding and range of exercise prices as of December 31, 2011, were as follows:



	Options Outstanding and Exercisable
Range of Exercise Prices	Shares	Weighted Average Exercise Price		Remaining Contractual Life
$20.02-$30.74	959,752	$	26.88	1.50
$30.74-$40.93	2,962,802	$	37.42	3.79
$42.72-$51.82	415	$	44.35	2.16
$53.06-$62.97	33,215	$	54.11	3.34
$64.52-$71.82	6,670	$	68.44	4.99
$73.38-$80.47	291,797	$	80.22	3.44
$81.19-$89.59	1,334	$	81.19	5.33
Total	4,255,985	$	38.17	$	3.25

Compensation expense recognized for stock options during 2011 was $0.8 million. No compensation expense was recognized for stock options during 2010 and 2009. Cash received from the exercise of stock options in 2011, 2010 and 2009 was $32 million, $6 million and $7 million, respectively.

Performance Shares

Performance shares are share equivalents and do not have voting rights. The shares track the performance of FE's common stock over a three-year vesting period. During that time, dividend equivalents are converted into additional shares. The final account value may be adjusted based on the ranking of FE stock performance to a composite of peer companies. Compensation expense (credits) recognized for performance shares during 2011, 2010 and 2009, net of amounts capitalized, totaled approximately $2 million, ($4) million and $3 million, respectively. During 2011 and 2010, no cash was paid to settle performance shares due to certain criteria not being met for the previous three-year vesting period. Cash used to settle performance shares in 2009 was $15 million.

ESOP

An ESOP Trust funded most of the matching contribution for FirstEnergy’s 401(k) savings plan through December 31, 2007. All employees eligible for participation in the 401(k) savings plan are covered by the ESOP.

In 2011, 2010 and 2009, shares of FE common stock were purchased on the market and contributed to participants’ accounts. Total ESOP-related compensation expenses in 2011, 2010 and 2009, net of amounts capitalized and dividends on common stock, were $55 million, $30 million and $36 million, respectively.

EDCP

Under the EDCP, covered employees can direct a portion of their compensation, including annual incentive awards and/or long-term incentive awards, into an unfunded FE stock account to receive vested stock units or into an unfunded retirement cash account. Through December 31, 2010, covered employees received an additional 20% premium in the form of stock units based on the amount allocated to the FirstEnergy stock account. During 2010, the EDCP was amended to cease the 20% stock premium with respect to annual and long-term incentive awards earned during any calendar years that commence on or after January 1, 2011. Dividends are calculated quarterly on stock units outstanding and are paid in the form of additional stock units. Upon withdrawal, stock units are converted to FE shares. Payout typically occurs three years from the date of deferral; however, an election can be made in the year prior to payout to further defer shares into a retirement stock account that will pay out in cash upon retirement (see Note 3, Pension and Other Postemployment Benefit). Interest is calculated on the cash allocated to the cash account and the total balance will pay out in cash upon retirement. Compensation expenses (credits) recognized on EDCP stock units, net of amounts capitalized, in 2011, 2010 and 2009 were $4 million, ($3) million and ($0.2) million, respectively.

DCPD

Under the DCPD, members of the Board of Directors can elect to allocate all or a portion of their cash retainers, meeting fees and chair fees to deferred stock or deferred cash accounts. Funds deferred into the stock account through December 31, 2010, received a 20% match to the funds allocated. The 20% match and any appreciation on it are forfeited if the director leaves the Board within three years from the date of deferral for any reason other than retirement, disability, death, upon a change in control or when a director is ineligible to stand for re-election. Compensation expense is recognized for the 20% match over the three-year vesting period. Directors may also elect to defer their equity retainers into the deferred stock account; however, they do not receive a 20% match on that deferral. During 2010, the DCPD was amended to cease the 20% match feature with respect to director’s fees earned for service performed during any calendar years that commence on or after January 1, 2011. DCPD expenses recognized in 2011, 2010 and 2009 were $4 million, $4 million and $3 million, respectively. The net liability recognized for DCPD of approximately $6 million as of December 31, 2011, and $5 million as of December 31, 2010 and 2009, is included in the caption “Retirement benefits” on the Consolidated Balance Sheets.

Of the 1.7 million stock units authorized under the EDCP and DCPD, 1,075,080 stock units were available for future awards as of December 31, 2011.