STOCK-BASED COMPENSATION PLANS

FirstEnergy grants stock-based awards through the ICP 2015, primarily in the form of restricted stock and performance-based restricted stock units. Under FirstEnergy's previous incentive compensation plan, the ICP 2007, FirstEnergy also granted stock options and performance shares. The ICP 2007 and ICP 2015 include shareholder authorization to issue 29 million shares and 10 million shares, respectively, of common stock or their equivalent. As of December 31, 2016, approximately 8.0 million shares were available for future grants under the ICP 2015 assuming maximum performance metrics are achieved for the outstanding cycles of restricted stock units. No shares are available for future grants under the ICP 2007. Any shares not issued due to forfeitures or cancellations are added back to the ICP 2015. Shares used under the ICP 2007 and ICP 2015 are issued from authorized but unissued common stock. Vesting periods range from one to ten years, with the majority of awards having a vesting period of three years. FirstEnergy also issues stock through its 401(k) Savings Plan, EDCP, and DCPD. Currently, FirstEnergy records the compensation costs for stock-based compensation awards that will be paid in stock over the vesting period based on the fair value on the grant date, less estimated forfeitures. Beginning in 2017, based upon the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting", FE has elected to account for forfeitures as they occur. FirstEnergy adjusts the compensation costs for stock-based compensation awards that will be paid in cash based on changes in the fair value of the award as of each reporting date. FirstEnergy records the actual tax benefit realized from tax deductions when awards are exercised or settled. Actual income tax benefits realized during the years ended December 31, 2016, 2015 and 2014 were $13 million, $10 million and $13 million, respectively. Currently, 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. Beginning in 2017, based upon the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting", the income tax effects of awards will be recognized in the income statement when the awards vest or are settled.

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	2016			2015		2014
	(In millions)
Restricted Stock Units	$	62		$	46	$	26
Restricted Stock	2			2		5
Performance Shares	(3		)	—		5
401(k) Savings Plan	39			38		25
EDCP & DCPD	5			3		8
Total	$	105		$	89	$	69
Stock-based compensation costs capitalized	$	38		$	32	$	23



FES	Years ended December 31
Stock-based Compensation Plan	2016		2015		2014
	(In millions)
Restricted Stock Units	$	11	$	6	$	4
Performance Shares	—		—		1
401(k) Savings Plan	5		5		4
Total	$	16	$	11	$	9
Stock-based compensation costs capitalized	$	2	$	1	$	1

Stock option expense was not material for FirstEnergy or FES for the years December 31, 2016, 2015 or 2014. Income tax benefits associated with stock based compensation plan expense were $14 million, $12 million and $14 million (FES - $2 million, $2 million and $2 million) for the years ended 2016, 2015 and 2014, respectively.

Restricted Stock Units

Beginning with the performance-based restricted stock units granted in 2015, two-thirds will be paid in stock and one-third will be paid in cash. Prior to 2015, all performance-based restricted stock units were paid in stock. Restricted stock units paid in stock provide the participant 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. The grant date fair value of the stock portion of the restricted stock unit award is measured based on the average of the high and low prices of FE common stock on the date of grant. Restricted stock units paid in cash provide the participant the right to receive cash based on the numbers of stock units set forth in the agreement and value of the equivalent number of shares of FE common stock as of the vesting date. The cash portion of the restricted stock unit award is considered a liability award, which is remeasured each period based on FE's stock price and projected performance adjustments. The liability recorded for cash performance based restricted stock units as of December 31, 2016 was $14 million. No cash was paid to settle the restricted stock unit obligations in 2016. The vesting period for each of the awards was three years. Dividend equivalents are received on the restricted stock units and are reinvested in additional restricted stock units and subject to the same performance conditions.

Restricted stock unit activity for the year ended December 31, 2016, was as follows:



Restricted Stock Unit Activity	Shares		Weighted-Average Grant Date Fair Value
Nonvested as of January 1, 2016	2,436,888		$	35.26
Granted in 2016	1,581,762		34.77
Forfeited in 2016	(81,618	)	33.85
Vested in 2016⁽¹⁾	(873,303	)	33.54
Nonvested as of December 31, 2016	3,063,729		$	32.98

⁽¹⁾ Excludes dividend equivalents of 132,360 earned during vesting period

The weighted average fair value of awards granted in 2016, 2015 and 2014 were $34.77, $35.27 and $32.17 respectively. For the years ended December 31, 2016, 2015, and 2014, the fair value of restricted stock units vested was $36 million, $22 million, and $28 million, respectively. As of December 31, 2016, there was $47 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted for restricted stock units; that cost is expected to be recognized over a period of approximately two years.

Restricted Stock

Certain employees receive awards of FE restricted stock (as opposed to "units" with the right to receive shares at the end of the restriction period) subject to restrictions that lapse over a defined period of time or upon achieving performance results. The fair value of restricted stock is measured based on the average of the high and low prices of FirstEnergy common stock on the date of grant. Dividends are received on the restricted stock and are reinvested in additional shares of restricted stock.

Restricted common stock (restricted stock) activity for the year ended December 31, 2016, was as follows:



Restricted Stock	Number of Shares		Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2016	190,656		$	40.65
Granted in 2016	28,756		32.69
Vested in 2016⁽¹⁾	(82,252	)	46.83
Nonvested as of December 31, 2016	137,160		$	35.27

⁽¹⁾ Excludes 23,402 shares for dividends earned during vesting period

The weighted average vesting period for restricted stock granted in 2016 was 3.49 years. The weighted average fair value of awards granted in 2016, 2015, and 2014 were $32.69, $32.98 and $32.71 respectively. For the years ended December 31, 2016, 2015, and 2014, the fair value of restricted stock vested was $5 million, $8 million, and $4 million, respectively. As of December 31, 2016, there was $2 million of total unrecognized compensation cost related to non-vested restricted stock, which is expected to be recognized over a period of approximately three years.

Stock Options

Stock options have been granted to certain employees allowing them to purchase a specified number of common shares at a fixed exercise price over a defined period of time. Stock options generally expire ten years from the date of grant. There were no stock options granted in 2016. Stock option activity during 2016 was as follows:



Stock Option Activity	Number of Shares		Weighted Average Exercise Price
Balance, January 1, 2016 (1,211,358 options exercisable)	1,411,971		$	44.89
Options forfeited	(35,150	)	56.40
Balance, December 31, 2016 (1,376,821 options exercisable)	1,376,821		$	44.60

There was no cash received from the exercise of stock options in 2016. Cash received from the exercise of stock options in 2015 and 2014 was not material. The weighted-average remaining contractual term of options outstanding as of December 31, 2016 was 3.60 years.

Performance Shares

Prior to the 2015 grant of performance-based restricted stock units discussed above, the Company granted performance shares. Performance shares are share equivalents and do not have voting rights. The performance shares outstanding track the performance of FE's common stock over a three-year vesting period. Dividend equivalents accrue on performance shares and are reinvested into additional performance shares with the same performance conditions. The final account value may be adjusted based on the ranking of FE stock performance to a composite of peer companies. In 2016, $2 million cash was paid to settle performance shares that vested over the 2013-2015 performance cycle. During 2015, no cash was paid to settle performance shares because the performance criteria was not met for the 2012-2014 cycle.

401(k) Savings Plan

In 2016 and 2015, 1,159,215 and 1,072,494 shares of FE common stock, respectively, were issued and contributed to participants' accounts.

EDCP

Under the EDCP, covered employees can defer a portion of their compensation, including base salary, annual incentive awards and/or long-term incentive awards, into unfunded accounts. Annual incentive and long-term incentive awards may be deferred in FE stock accounts. Base salary and annual incentive awards may be deferred into a retirement cash account which earns interest. Dividends are calculated quarterly on stock units outstanding and are credited in the form of additional stock units. The form of payout as stock or cash can vary depending upon the form of the award, the duration of the deferral and other factors. Certain types of deferrals such as dividend equivalent units, Short-Term Incentive Awards, and performance share awards are required to be paid in cash. Until 2015, payouts of the stock accounts typically occurred three years from the date of deferral, although participants could have elected to defer their shares into a retirement stock account that would pay out in cash upon retirement. In 2015, FirstEnergy amended the EDCP to eliminate the right to receive deferred shares after three years, effective for deferrals made on or after November 1, 2015. Awards deferred into a retirement stock account will pay out in cash upon separation from service, death or disability. Interest accrues on the cash allocated to the retirement cash account and the balance will pay out in cash over a time period as elected by the participant.

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 $9 million as of December 31, 2016 and December 31, 2015, respectively, is included in the caption “Retirement benefits” on the Consolidated Balance Sheets.