STOCK-BASED COMPENSATION PLANS

FirstEnergy has four stock-based compensation plans - ICP, 401(k) Savings Plan, EDCP and DCPD, as described further below.

ICP

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

Under the ICP, total issuances cannot exceed 29 million shares of common stock or their equivalent. Stock options, restricted stock and restricted stock units have currently been designated to pay out in common stock, with vesting periods ranging from eight months to ten years. Performance share awards are currently designated to be paid in cash unless the recipient elects to defer the award, in which case, the award may be paid in stock depending upon the duration of the deferral. Shares available under the ICP are also used for bonuses earned under FirstEnergy’s Short-Term Incentive Program that are, at the election of the participant, deferred through the EDCP and paid in shares under the ICP. As of December 31, 2013, approximately 3.0 million shares were available for future issuance plus any shares that become available again under the ICP due to cancellations, forfeitures, cash settlements or other similar circumstances with respect to outstanding awards.

FirstEnergy records the compensation costs for stock-based compensation awards over the vesting period based on the fair value on the grant date, less estimated forfeitures. 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, 2013, 2012 and 2011 were $13 million, $22 million and $14 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, 2013, was as follows:



Outstanding as of January 1, 2013	2,180,422
Granted	952,137
Vested	(815,851	)
Forfeited	(100,099	)
Outstanding as of December 31, 2013	2,216,609

The 952,137 shares of restricted stock and stock units granted during the year ended December 31, 2013, includes 212,211 stock units related to previous grants due to over-achievement of performance metrics, and had a grant-date fair value of $39.97 and a weighted-average vesting period of 3.02 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 ICP were as follows:



	2013		2012		2011
Restricted stock granted	27,561		263,771		297,859
Weighted average market price	$	42.53	$	44.82	$	38.44
Weighted average vesting period (years)	3.68		3.09		2.27
Dividends restricted	Yes		Yes		Yes

Vesting activity for restricted stock during 2013 was as follows (forfeitures were not material):



Restricted Stock	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2013	551,678	$	46.73
Nonvested as of December 31, 2013	417,464	$	45.46
Granted in 2013	27,561	$	42.53
Vested in 2013⁽¹⁾	167,751	$	37.10

⁽¹⁾ Includes 23,446 shares for dividends earned during vesting period

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.



	2013	2012	2011
Restricted stock units granted	924,576	652,120	617,195
Weighted average vesting period (years)	3.00	3.00	3.00

Vesting activity for stock units during 2013 was as follows:



Restricted Stock Units	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2013	1,628,744	$	41.10
Nonvested as of December 31, 2013	1,799,145	$	40.86
Granted in 2013	924,576	$	39.90
Forfeited in 2013	82,629	$	41.38
Vested in 2013 ⁽¹⁾	792,113	$	40.74

⁽¹⁾ Includes dividend equivalents of 120,567 earned during vesting period

As of December 31, 2013, there was $35 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted for restricted stock and restricted stock units; that cost is expected to be recognized over a period of approximately 2 years.

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 2013 was as follows:



Stock Option Activity	Number of Shares		Weighted Average Exercise Price
Balance, January 1, 2013 (2,348,469 options exercisable)	2,910,269		$	40.33
Options exercised	(546,408	)	30.37
Options forfeited	(4,735	)	71.21
Balance, December 31, 2013 (1,997,969 options exercisable)	2,359,126		$	42.59

Options outstanding and range of exercise prices as of December 31, 2013, were as follows:



	Options Outstanding
Range of Exercise Prices	Shares	Weighted Average Exercise Price		Remaining Contractual Life (in years)
$20.02-$35.44	66,125	$	22.83	0.47
$35.45-$38.75	1,143,389	$	36.78	6.28
$38.76-$53.04	835,039	$	38.81	0.19
$53.05-$81.19	314,573	$	77.85	3.56
Total	2,359,126	$	42.59	3.60

Cash received from the exercise of stock options in 2013, 2012 and 2011 was $19 million, $50 million and $32 million, respectively. The total intrinsic value of options exercised during 2013 was $6 million.

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 accrue and at vesting are converted into additional performance shares. The final account value may be adjusted based on the ranking of FE stock performance to a composite of peer companies. During 2013, 2012 and 2011, no cash was paid to settle performance shares due to the criteria not being met for the previous three-year vesting period.

401(k) Savings Plan

In 2013, 2012 and 2011, shares of FE common stock were purchased on the market and contributed to participants’ accounts.

EDCP

Under the EDCP, covered employees can direct a portion of their compensation, including annual incentive awards and/or long-term incentive awards, into unfunded FE stock accounts to receive vested stock units or into an unfunded retirement cash account. Dividends are calculated quarterly on stock units outstanding and are credited in the form of additional stock units. Upon withdrawal, stock units are converted to FE shares. Payout of the stock accounts 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. Interest is calculated on the cash allocated to the cash account and the total balance will pay out in cash upon retirement.

DCPD

Under the DCPD, members of the Board of Directors can elect to allocate all or a portion of their equity retainers to deferred stock and their cash retainers, meeting fees and chair fees to deferred stock or deferred cash accounts. The net liability recognized for DCPD of approximately $7 million and $6 million as of December 31, 2013 and December 31, 2012, respectively, is included in the caption “Retirement benefits” on the Consolidated Balance Sheets.

Of the approximately 1.7 million shares authorized under the EDCP and DCPD, approximately 845,000 shares were available for future issuance as of December 31, 2013. The shareholder approved pools for the EDCP and DCPD terminate in May 2014.

Stock-based Compensation Expense

Pre-tax stock-based compensation costs, tax benefit associated with stock-based compensation expense, and the amount of stock-based compensation expense capitalized related to FirstEnergy and FES plans are included in the following tables:



FirstEnergy	Years ended December 31,
Stock-based Compensation Plan	2013			2012		2011
	(In millions)
Restricted Stock and Restricted Stock Units	$	42		$	42	$	29
Stock Options	—			1		1
Performance Shares	(10		)	5		3
401(k) Savings Plan	25			37		31
EDCP	(2		)	—		6
DCPD	5			4		4
Total	$	60		$	89	$	74
Stock-based compensation costs capitalized	$	20		$	29	$	21



FES	Years ended December 31,
Stock-based Compensation Plan	2013			2012		2011
	(In millions)
Restricted Stock and Restricted Stock Units	$	6		$	6	$	4
Performance Shares	(1		)	1		1
401(k) Savings Plan	4			6		5
EDCP	—			—		1
Total	$	9		$	13	$	11
Stock-based compensation costs capitalized	$	1		$	1	$	—

Tax benefits associated with stock based compensation plan expense was $23 million, $11 million and $10 million (FES - $1 million, $2 million and $2 million) for the years ended 2013, 2012 and 2011, respectively.