SHARE-BASED PAYMENTS

The ONEOK, Inc. Equity Compensation Plan (ECP) and the ONEOK, Inc. Long-Term Incentive Plan (LTIP) historically provided for the granting of stock-based compensation, including incentive stock options, nonstatutory stock options, stock bonus awards, restricted stock awards, restricted stock unit awards, performance stock awards and performance unit awards to eligible employees and the granting of stock awards to nonemployee directors. The ECP was terminated immediately following the issuance of new awards in February 2018. The awards issued prior to the termination remain subject to the terms of the ECP and the applicable award agreement. Similarly, the LTIP was terminated in May 2018, and the awards issued under the LTIP prior to the termination date remain subject to the terms of the LTIP and the applicable award agreement. In May 2018, our shareholders approved a new Equity Incentive Plan (EIP), which has been used for all new equity awards since such date. We have reserved 8.5 million shares of common stock for issuance under the EIP and at December 31, 2018, we had 8.5 million shares available for issuance under the plan. This calculation of available shares reflects shares issued and estimated shares expected to be issued upon vesting of outstanding awards granted under the EIP, excluding estimated forfeitures expected to be returned to the plan.

Restricted Stock Units - We have granted restricted stock units to key employees that vest at the end of a three-year period and entitle the grantee to receive shares of our common stock. Restricted stock unit awards are measured at fair value as if they were vested and issued on the grant date and adjusted for estimated forfeitures. Restricted stock unit awards granted accrue dividend equivalents in the form of additional restricted stock units prior to vesting. Compensation expense is recognized on a straight-line basis over the vesting period of the award.

Performance Unit Awards - We have granted performance unit awards to key employees that vest at the end of a three-year period. Upon vesting, a holder of outstanding performance units is entitled to receive a number of shares of our common stock equal to a percentage (0 percent to 200 percent) of the performance units granted, based on our total shareholder return over the vesting period, compared with the total shareholder return of a peer group of other energy companies over the same period. Performance unit awards are measured at fair value on the grant date based on a Monte Carlo model and adjusted for estimated forfeitures. Performance stock unit awards granted accrue dividend equivalents in the form of additional performance units prior to vesting. Compensation expense is recognized on a straight-line basis over the vesting period of the award.

Stock Compensation for Non-Employee Directors

The ONEOK, Inc. Stock Compensation Plan for Non-Employee Directors (the DSCP) historically provided for the granting of nonstatutory stock options, stock bonus awards, including performance unit awards and restricted stock awards. The DSCP was terminated in May 2018 and replaced by the EIP. Under the EIP, awards may be granted by the Executive Compensation Committee at any time, until grants have been made for all shares authorized under the EIP. The maximum number of shares of common stock and cash-based awards that can be issued to a participant under the EIP during any year is limited to $0.8 million in value as of the grant date. No performance unit awards or restricted stock awards have been made to nonemployee directors under the EIP or DSCP. There are no options outstanding under the EIP or DSCP.

General

For all awards outstanding, we used a 3 percent forfeiture rate based on historical forfeitures under our share-based payment plans. We currently use treasury stock to satisfy our share-based payment obligations.

Compensation expense for our share-based payment plans was $25.6 million, $16.6 million and $30.7 million during 2018, 2017 and 2016, respectively, which is net of tax benefits of $7.6 million, $11.1 million and $9.8 million, respectively.

Restricted Stock Unit Activity

As of December 31, 2018, we had $13.9 million of total unrecognized compensation cost related to our nonvested restricted stock unit awards, which is expected to be recognized over a weighted-average period of 1.9 years. The following tables set forth activity and various statistics for our restricted stock unit awards:



	Number of Units		Weighted Average Price
Nonvested December 31, 2017	1,001,805		$	32.30
Granted	296,277		$	46.94
Released to participants	(243,289	)	$	39.26
Forfeited	(29,600	)	$	39.34
Nonvested December 31, 2018	1,025,193		$	34.68



	2018		2017		2016
Weighted-average grant date fair value (per share)	$	46.94	$	45.11	$	20.04
Fair value of units granted (thousands of dollars)	$	13,907	$	12,685	$	11,081
Fair value of units vested (thousands of dollars)	$	9,552	$	7,258	$	4,429

Performance Unit Activity

As of December 31, 2018, we had $21.1 million of total unrecognized compensation cost related to the nonvested performance unit awards, which is expected to be recognized over a weighted-average period of 1.9 years. The following tables set forth activity and various statistics related to the performance unit awards and the assumptions used in the valuations at the respective grant dates:



	Number of Units		Weighted Average Price
Nonvested December 31, 2017	1,136,133		$	40.08
Granted	370,677		$	59.57
Released to participants	(257,807	)	$	48.66
Forfeited	(5,360	)	$	46.97
Nonvested December 31, 2018	1,243,643		$	44.08



	2018	2017	2016
Volatility (a)	39.20%	40.59%	39.94%
Dividend yield	5.49%	4.68%	11.32%
Risk-free interest rate	2.44%	1.49%	0.93%

(a) - Volatility was based on historical volatility over three years using daily stock price observations.



	2018		2017		2016
Weighted-average grant date fair value (per share)	$	59.57	$	56.65	$	25.54
Fair value of units granted (thousands of dollars)	$	22,081	$	17,621	$	15,229
Fair value of units vested (thousands of dollars)	$	12,545	$	8,704	$	—

Employee Stock Purchase Plan

We have reserved a total of 11.6 million shares of common stock for issuance under our ONEOK, Inc. Employee Stock Purchase Plan (the ESPP). Subject to certain exclusions, all employees are eligible to participate in the ESPP. Employees can choose to have up to 10 percent of their annual base pay withheld to purchase our common stock, subject to terms and limitations of the plan. The purchase price of the stock is 85 percent of the lower of its grant date or exercise date market price. Approximately 60 percent, 58 percent and 57 percent of employees participated in the plan in 2018, 2017 and 2016, respectively. Under the plan, we sold 165,877 shares at $45.53 per share in 2018, 151,803 shares at $44.20 per share in 2017 and 232,553 shares at $27.21 per share in 2016.

Employee Stock Award Program

Under our Employee Stock Award Program, we issued, for no monetary consideration, to all eligible employees one share of our common stock when the per-share closing price of our common stock on the NYSE was for the first time at or above $13 per share, and one additional share of common stock when the per-share closing price of our common stock on the NYSE was at or above each one dollar increment above $13. The total number of shares of our common stock available for issuance under this program is 900,000. Shares issued to employees under this program during 2018 totaled 2,553 and compensation expense related to the Employee Stock Award Program was $0.2 million. No shares were issued to employees under this program during 2017 or 2016. The next award will be issued when our common stock closes at or above $72.

Deferred Compensation Plan for Non-Employee Directors

The ONEOK, Inc. Deferred Compensation Plan for Non-Employee Directors provides our nonemployee directors the option to defer all or a portion of their compensation for their service on our Board of Directors. Under the plan, directors may elect either a cash deferral option or a phantom stock option. Under the cash deferral option, directors may elect to defer the receipt of all or a portion of their annual retainer fees, which will be credited with interest during the deferral period. Under the phantom stock option, directors may defer all or a portion of their annual retainer fees and receive such fees on a deferred basis in the form of shares of common stock under our EIP, which earn the equivalent of dividends declared on our common stock. Shares are distributed to nonemployee directors at the fair market value of our common stock at the date of distribution.