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 are typically designated to pay out in common stock and performance shares are typically designated to pay out in cash, although the form of payout for restricted stock units and for performance shares granted prior to 2013 can vary if the recipient elects to defer the award. Vesting periods range from one to ten years with majority of awards having a vesting period of three years. As of December 31, 2014, approximately 1.3 million shares were available for future grants assuming maximum performance metrics are achieved for the 2013-2015 and 2014-2016 cycles of restricted stock units (or approximately 2.6 million shares available assuming performance at target) 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. Beginning in December 2013, shares used under the ICP are issued from authorized but unissued common stock.

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, 2014, 2013 and 2012 were $13 million, $13 million and $22 million, respectively. The excess of the deductible amount over the recognized compensation cost is recorded as a component of stockholders’ equity and reported as a 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, 2014, was as follows:



Outstanding as of January 1, 2014	2,216,609
Granted	1,171,318
Vested⁽¹⁾	(872,574	)
Forfeited	(103,549	)
Outstanding as of December 31, 2014	2,411,804

⁽¹⁾ Excludes dividend equivalents of 148,982 earned during vesting period

The 1,171,318 shares of restricted stock and stock units granted during the year ended December 31, 2014, includes 259,812 stock units related to previous grants due to above target performance.

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:



	2014		2013		2012
Restricted stock granted	20,000		27,561		263,771
Weighted average market price	$	32.71	$	42.53	$	44.82
Weighted average vesting period (years)	2.29		3.68		3.09
Dividends restricted	Yes		Yes		Yes

Vesting activity for restricted stock during 2014 was as follows:



Restricted Stock	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2014	417,464	$	45.46
Nonvested as of December 31, 2014	342,286	$	45.29
Granted in 2014	20,000	$	32.71
Forfeited in 2014	1,743	$	33.56
Vested in 2014⁽¹⁾	93,435	$	37.30

⁽¹⁾ Excludes 16,480 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.



	2014	2013	2012
Restricted stock units granted	1,151,318	924,576	652,120
Weighted average vesting period (years)	3.00	3.00	3.00

Vesting activity for stock units during 2014 was as follows:



Restricted Stock Units	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2014	1,799,145	$	40.86
Nonvested as of December 31, 2014	2,069,518	$	37.65
Granted in 2014	1,151,318	$	32.17
Forfeited in 2014	101,806	$	38.70
Vested in 2014 ⁽¹⁾	779,139	$	30.67

⁽¹⁾ Excludes dividend equivalents of 132,502 earned during vesting period

As of December 31, 2014, there was $31 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 2014 was as follows:



Stock Option Activity	Number of Shares		Weighted Average Exercise Price
Balance, January 1, 2014 (1,997,969 options exercisable)	2,359,126		$	42.59
Options exercised	(50,007	)	21.58
Options forfeited	(869,974	)	40.07
Balance, December 31, 2014 (1,077,988 options exercisable)	1,439,145		$	44.83

Cash received from the exercise of stock options in 2014, 2013 and 2012 was $1 million, $19 million and $50 million, respectively. The total intrinsic value of options exercised during 2014 was $1 million.

Options outstanding and range of exercise prices as of December 31, 2014, were as follows:



	Options Outstanding
Range of Exercise Prices	Shares	Weighted Average Exercise Price		Remaining Contractual Life (in years)
$28.42-$37.74	491,245	$	35.23	3.98
$37.75-$53.08	667,458	$	37.87	5.79
$53.09-$81.19	280,442	$	78.23	2.90
Total	1,439,145	$	44.83	4.61

The aggregate intrinsic value of stock options outstanding as of December 31, 2014 was $3 million.

Performance Shares

Performance shares are share equivalents and do not have voting rights. The performance 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. In 2014, $3 million cash was paid to settle performance share obligations. During 2013 and 2012, 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 2014, 756,412 shares of FE common stock were issued and contributed to participants' accounts. In 2013 and 2012, approximately 708,000 and 543,600 shares of FE common stock, respectively, 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. The form of payout can vary depending upon the form of the award, the duration of the deferral and other factors. However, as a result of amendments to the EDCP that were implemented in January 2014 and January 2015 respectively, payments made with respect to any dividend equivalent units that accrue after January 21, 2014 and any Short-Term Incentive Awards that are deferred after January 21, 2014 are paid in cash, and effective February 23, 2015, all future contributions to stock accounts directed from performance share awards will be paid in cash upon the end of the three-year deferral period. Payout of the stock accounts typically occurs three years from the date of deferral; however, participants may elect to defer their 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 $8 million and $7 million as of December 31, 2014 and December 31, 2013, respectively, is included in the caption “Retirement benefits” on the Consolidated Balance Sheets.

The shareholder approved pools for the EDCP and DCPD expired in May 2014, after this date shares for the EDCP and DCPD have been issued from the ICP shareholder approved pool.

Stock-based Compensation Expense

Pre-tax stock-based compensation costs 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	2014		2013			2012
	(In millions)
Restricted Stock and Restricted Stock Units	$	31	$	42		$	42
Stock Options	—		—			1
Performance Shares	5		(10		)	5
401(k) Savings Plan	25		25			37
EDCP	3		(2		)	—
DCPD	5		5			4
Total	$	69	$	60		$	89
Stock-based compensation costs capitalized	$	23	$	20		$	29



FES	Years ended December 31,
Stock-based Compensation Plan	2014		2013			2012
	(In millions)
Restricted Stock and Restricted Stock Units	$	4	$	6		$	6
Performance Shares	1		(1		)	1
401(k) Savings Plan	4		4			6
Total	$	9	$	9		$	13
Stock-based compensation costs capitalized	$	1	$	1		$	1

Tax benefits associated with stock based compensation plan expense were $14 million, $23 million and $11 million (FES - $2 million, $1 million and $2 million) for the years ended 2014, 2013 and 2012, respectively.