NOTE G. Incentive Plans

Retirement Plans

Deferred compensation retirement plan. In August 1997, the Compensation Committee of the Company's board of directors (the "Board") approved a deferred compensation retirement plan for the officers and certain key employees of the Company.

Each officer and key employee is allowed to contribute up to 25 percent of their base salary and 100 percent of their annual bonus. The Company will provide a matching contribution of 100 percent of the officer's and key employee's contribution limited to the first ten percent of the officer's base salary and eight percent of the key employee's base salary. The Company's matching contribution vests immediately. A trust fund has been established by the Company to accumulate the contributions made under this retirement plan. The Company's matching contributions were $2.2 million, $1.9 million and $1.7 million for the years ended December 31, 2011, 2010 and 2009, respectively.

401(k) plan. The Pioneer USA 401(k) and Matching Plan (the "401(k) Plan") is a defined contribution plan established under the Internal Revenue Code Section 401. All regular full-time and part-time employees of Pioneer USA are eligible to participate in the 401(k) Plan on the first day of the month following their date of hire. Participants may contribute an amount up to 80 percent of their annual salary into the 401(k) Plan. Matching contributions are made to the 401(k) Plan in cash by Pioneer USA in amounts equal to 200 percent of a participant's contributions to the 401(k) Plan that are not in excess of five percent of the participant's base compensation (the "Matching Contribution"). Each participant's account is credited with the participant's contributions, Matching Contributions and allocations of the 401(k) Plan's earnings. Participants are fully vested in their account balances except for Matching Contributions and their proportionate share of 401(k) Plan earnings attributable to Matching Contributions, which proportionately vest over a four-year period that begins with the participant's date of hire. During the years ended December 31, 2011, 2010 and 2009, the Company recognized compensation expense of $18.3 million, $13.4 million and $11.8 million, respectively, as a result of Matching Contributions.

Compensation costs. In accordance with GAAP, the Company records compensation expense, equal to the fair value of share-based payments, ratably over the vesting periods of the Long-Term Incentive Plan ("LTIP") awards, the Series B unit awards issued by Sendero, the Pioneer Southwest Long-Term Incentive Plan ("Pioneer Southwest LTIP") awards and for payments associated with the Company's Employee Stock Purchase Plan ("ESPP").

The following table reflects compensation expense recorded for each type of incentive award and the associated income tax benefit for the years ended December 31, 2011, 2010 and 2009:


	Year Ended December 31,
	2011		2010		2009
	(in thousands)
Restricted stock-equity awards (a)	$	32,861	$	31,712	$	31,929
Restricted stock-liability awards		10,882		4,900		—
Stock options (b)		2,936		1,522		629
Performance unit awards		4,500		4,635		4,868
Pioneer Southwest LTIP		761		475		217
Sendero Series B units		1,020		1,020		—
ESPP		125		1,034		907

Total	$	53,085	$	45,298	$	38,550

Income tax benefit	$	22,084	$	14,019	$	11,675

(a)

For the year ended December 31, 2010, compensation expense included a charge of $1.3 million for the modification of equity awards associated with termination agreements made with 12 employees affected by the divestiture of the Company's Tunisian subsidiaries. The modification accelerated vesting of all unvested equity awards for the 12 participants to the closing date of the transaction. The $1.3 million charge, net of the associated tax benefit, is included in income from discontinued operations, net of tax, in the accompanying consolidated statement of operations for the year ended December 31, 2010.

(b)	Cash proceeds received from stock option exercises during 2011, 2010 and 2009 amounted to $619 thousand, $4.8 million and $6.6 million, respectively.

As of December 31, 2011, there was $69.5 million of unrecognized share-based compensation expense related to unvested share and unit based compensation plans, including $19.7 million attributable to Liability Awards. The compensation expense will be recognized on a straight-line basis over the remaining vesting periods of the awards, which is a period of less than three years on a weighted average basis.

Pioneer Long-Term Incentive Plan

In May 2006, the Company's stockholders approved the LTIP, which provides for the granting of various forms of awards including stock options, stock appreciation rights, performance units, restricted stock and restricted stock units to directors, officers and employees of the Company. The LTIP provides for the issuance of 9.1 million shares pursuant to awards under the plan. The shares to be delivered under the LTIP shall be made available from (i) authorized but unissued shares, (ii) shares held as treasury stock or (iii) previously issued shares reacquired by the Company, including shares purchased on the open market.

The following table shows the number of shares available for issuance pursuant to awards under the Company's LTIP at December 31, 2011:


Approved and authorized awards	9,100,000
Awards issued after May 3, 2006	(5,705,600	)

Awards available for future grant	3,394,400

Restricted stock awards. During 2011, the Company awarded 645,471 restricted shares or units of the Company's common stock as compensation to directors, officers and employees of the Company (including 202,411 shares or units representing Liability Awards). The Company's issued shares, as reflected in the consolidated balance sheets as of December 31, 2011 do not include 533,125 of issued but unvested shares awarded under stock-based compensation plans that have voting rights.

The following table reflects the restricted stock award activity for the year ended December 31, 2011:


	Equity Awards					Liability Awards
	Number of Shares			Weighted Average Grant- Date Fair Value		Number of Shares
Outstanding at beginning of year		2,559,779		$	28.85		215,134
Shares granted		443,060		$	97.52		202,411
Shares forfeited		(63,105	)	$	54.51		(23,953	)
Shares vested		(1,082,122	)	$	36.41		(70,667	)

Outstanding at end of year		1,857,612		$	39.95		322,925

The weighted average grant-date fair value of restricted stock Equity Awards awarded during 2011, 2010 and 2009 was $97.52, $48.32 and $15.47, respectively. The fair value of shares for which restrictions lapsed during 2011, 2010 and 2009 was $98.6 million, $42.9 million and $11.7 million, respectively, based on the market price on the vesting date.

As of December 31, 2011 and 2010, accounts payable – due to affiliates in the accompanying consolidated balance sheet includes $9.2 million and $4.9 million of liabilities attributable to the Liability Awards, representing the fair value of employee services rendered in consideration for the awards as of that date. There were no Liability Awards issued or outstanding as of December 31, 2009. The fair value of shares for which restrictions lapsed during 2011 was $6.7 million, based on the market price on the vesting date.

Stock option awards. Certain employees may be granted options to purchase shares of the Company's common stock with an exercise price equal to the fair market value of Pioneer common stock on the date of grant.

The fair value of stock option awards is determined using the Black-Sholes option-pricing model. Option awards have a 10 year contract life. The expected life of an option is estimated based on historical and expected exercise behavior. The volatility assumption was estimated based upon expectations of volatility over the life of the option as measured by historical volatility. The risk-free interest rate was based on the U.S. treasury rate for a term commensurate with the expected life of the option. The dividend yield was based upon a seven-year average dividend yield. The Company used the following weighted-average assumptions to estimate the fair value of stock options granted during 2011, 2010 and 2009:


	2011			2010			2009
Expected option life - years		7			7			7
Volatility		47.6	%		46.8	%		43.0	%
Risk-free interest rate		2.9	%		3.4	%		3.3	%
Dividend yield		0.4	%		0.4	%		1.9	%

A summary of the Company's stock option awards activity for the year ended December 31, 2011 is presented below:


	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Life		Aggregate Intrinsic Value
						(in years)		(in thousands)
Nonstatutory stock options:
Outstanding at beginning of year		507,539		$	23.11
Options awarded		86,903		$	98.69
Options expired and forfeited		—		$	—
Options exercised		(30,398	)	$	20.36

Outstanding and expected to vest at end of year		564,044		$	34.90		8.10	$	30,786

Exercisable at end of year		26,905		$	22.64		7.63	$	1,798

The weighted average grant-date fair value of options awarded during 2011, 2010 and 2009 was $49.61, $23.79 and $6.27, respectively, using the Black-Sholes option-pricing model. The intrinsic value of options exercised during 2011, 2010 and 2009 was $1.5 million, $6.9 million and $3.1 million, respectively, based on the difference between the market price at the exercise date and the option exercise price.

Performance unit awards. During 2011, 2010 and 2009, the Company awarded performance units to certain of the Company's officers under the LTIP. The number of shares of common stock to be issued is determined by comparing the Company's total shareholder return to the total shareholder return of a predetermined group of peer companies over the performance period. The performance unit awards vest over a 34-month service period. The grant-date fair values per unit of the 2011, 2010, and 2009 performance unit awards are $134.68, $63.52 and $15.29, respectively, which amounts were determined using the Monte Carlo simulation method and are being recognized as compensation expense ratably over the performance period. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the remaining performance period of approximately three years. The risk-free interest rate was based on the U.S. treasury rate for a term commensurate with the expected life of the grant. The Company used the following assumptions to estimate the fair value of performance unit awards granted during 2011, 2010 and 2009:


	2011	2010	2009
Risk-free interest rate	1.32%	1.36%	1.33%
Range of volatilities	50.2% - 84.1%	50.4% - 83.0%	47.1% - 73.0%

The following table summarizes the performance unit activity for the year ended December 31, 2011:


	Number of Units (a)			Weighted Average Grant-Date Fair Value
Beginning performance unit awards		263,729		$	28.91
Units granted		43,495		$	134.68
Units vested (b)		(193,096	)	$	16.25

Ending performance unit awards		114,128		$	90.64

(a)	These amounts reflect the number of performance units granted. The actual payout of shares may be between zero percent and 250 percent of the performance units granted depending upon the total shareholder return ranking of the Company compared to peer companies at the vesting date.

(b)

On December 31, 2011, the service period lapsed on 178,289 of these performance unit awards. The lapsed units earned 2.5 shares for each vested award representing 445,724 aggregate shares of common stock issued in 2012. On May 31, 2011, 14,807 units lapsed as part of the Tunisian divesture and earned 2.5 shares for each vested award, representing 37,018 of aggregate shares of common stock.

The fair value of shares for which restrictions lapsed during 2011, 2010 and 2009 was $44.7 million, $27.4 million and $4.8 million, respectively, based on the market price on the vesting date.

Pioneer Southwest Long-Term Incentive Plan

In May 2008, the Board of Directors of the general partner (the "General Partner") of Pioneer Southwest adopted the Pioneer Southwest LTIP, which provides for the granting of various forms of awards, including options, unit appreciation rights, phantom units, restricted units, unit awards and other unit-based awards, to directors, employees and consultants of the General Partner and its affiliates who perform services for Pioneer Southwest. The Pioneer Southwest LTIP limits the number of units that may be delivered pursuant to awards granted under the plan to 3.0 million common units.

The following table shows the number of awards available under the Pioneer Southwest LTIP at December 31, 2011:


Approved and authorized awards	3,000,000
Awards issued after May 6, 2008	(106,252	)

Awards available for future grant	2,893,748

During 2011, the General Partner awarded 6,812 restricted common units as compensation to directors of the General Partner under the Pioneer Southwest LTIP, which vest in May 2012. During 2010, the General Partner awarded 8,744 restricted common units to directors of the General Partner under the Pioneer Southwest LTIP, which vested in May 2011. During 2009, the General Partner awarded 12,909 restricted common units to directors of the General Partner under the Pioneer Southwest LTIP, of which 2,038 units vest ratably over three years and 10,871 units vested in May 2010.


	Restricted Unit Awards					Phantom Unit Awards
	Number of Units			Weighted Average Grant-Date Fair Value		Number of Units		Weighted Average Grant-Date Fair Value
Outstanding at beginning of year		12,212		$	21.84		35,118	$	22.74
Units granted		6,812		$	29.35		30,039	$	32.16
Lapse of restrictions		(11,532	)	$	21.97		—	$	—

Outstanding at end of year		7,492		$	28.47		65,157	$	27.08

The weighted average grant-date fair value of restricted common units awarded during 2011, 2010 and 2009 was $29.35, $22.87 and $18.26, respectively. The fair value of common units for which restrictions lapsed on the restricted common units during 2011, 2010 and 2009 was $342 thousand, $324 thousand and $145 thousand, respectively, based on the market price at the vesting date.

During 2011 and 2010, the General Partner awarded phantom units to certain members of management of the General Partner under Pioneer Southwest's LTIP. The phantom units entitle the recipients to common units of Pioneer Southwest after a three-year vesting period. The weighted average grant-date fair value of phantom common units awarded during 2011 and 2010 was $32.16 and 22.74, respectively. No phantom common units were awarded in 2009. No restrictions have lapsed on the phantom units outstanding.

Subsidiary Issuances of Unit-Based Compensation

During 2010, Sendero entered into restricted unit agreements with two key employees, granting 1,000 Series B units in Sendero. The Series B unit awards had a grant date fair value of $5.1 million, vest ratably over a five year service period and do not earn equity rights unless certain defined performance conditions are achieved by Sendero.

Employee Stock Purchase Plan

The Company has an ESPP that allows eligible employees to annually purchase the Company's common stock at a discounted price. Officers of the Company are not eligible to participate in the ESPP. Contributions to the ESPP are limited to 15 percent of an employee's pay (subject to certain ESPP limits) during the eight-month offering period (January 1 to August 31). Participants in the ESPP purchase the Company's common stock at a price that is 15 percent below the closing sales price of the Company's common stock on either the first day or the last day of each offering period, whichever closing sales price is lower.

The following table shows the number of shares available for issuance under the ESPP at December 31, 2011:


Approved and authorized shares	750,000
Shares issued	(625,003	)

Shares available for future issuance	124,997

Postretirement Benefit Obligations

At December 31, 2011 and 2010, the Company had $7.5 million and $7.4 million, respectively, of unfunded accumulated postretirement benefit obligations, the current and noncurrent portions of which are included in other current liabilities and other liabilities, respectively, in the accompanying consolidated balance sheets. These obligations are comprised of five plans of which four relate to predecessor entities that the Company acquired in prior years. These plans had no assets as of December 31, 2011 or 2010. Other than the Company's retirement plan, the participants of these plans are not current employees of the Company.

At December 31, 2011, the accumulated postretirement benefit obligations related to these plans were determined by independent actuaries for four plans representing $4.6 million of unfunded accumulated postretirement benefit obligations and by the Company for one plan representing $2.9 million of unfunded accumulated postretirement benefit obligations. For the years ended December 31, 2011, 2010 and 2009, the undiscounted accumulated post retirement benefit obligations were discounted at four percent, four percent and five percent to value the benefit obligations. Certain of the aforementioned plans provide for medical cost subsidies for plan participants. Annual medical cost escalation trends were employed to estimate the accumulated postretirement benefit obligations associated with the medical cost subsidies. The Company forecasted a cost escalation trend of eight percent for 2012, declining annually to seven percent in 2016 and five percent in 2025 and thereafter.

The following table reconciles changes in the Company's unfunded accumulated postretirement benefit obligations during the years ended December 31, 2011, 2010 and 2009:


	Year Ended December 31,
	2011			2010			2009
	(in thousands)
Beginning accumulated postretirement benefit obligations	$	7,408		$	9,075		$	9,612
Net benefit payments		(1,323	)		(1,491	)		(1,430	)
Service costs		243			321			228
Net actuarial losses (gains)		813			(930	)		8
Accretion of interest		315			433			657

Ending accumulated postretirement benefit obligations	$	7,456		$	7,408		$	9,075

Estimated benefit payments and service/interest costs associated with the plans for the year ending December 31, 2012 are $854 thousand and $596 thousand, respectively.

Future postretirement benefits the Company expects to pay at December 31, 2011 are as follows (in thousands):


2012	$	854
2013	$	902
2014	$	953
2015	$	1,006
2016	$	995
Thereafter	$	2,746