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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2014
Stock-Based Compensation

13:STOCK-BASED COMPENSATION

CMS Energy and Consumers provide a PISP to officers, employees, and non‑employee directors based on their contributions to the successful management of the company.  The PISP has a ten-year term, expiring in May 2024.

All grants under the PISP for 2014 were in the form of performance-based, market-based, and time-lapse restricted stock.  Prior to 2014, all grants were in the form of market-based and time-lapse restricted stock.  Of the restricted stock awards granted to officers in 2014,  37.5 percent were performance-based restricted stock, 37.5 percent were market-based restricted stock, and 25 percent were time-lapse restricted stock.  In 2013 and 2012, the awards granted to officers were 75 percent market-based restricted stock and 25 percent time-lapse restricted stock.  Award recipients receive shares of CMS Energy common stock that have dividend and voting rights.  In lieu of cash dividend payments, however, the dividends on performance-based and market-based restricted stock are paid in restricted shares equal to the value of the dividends.  These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.

Market-based restricted stock vesting is generally contingent on meeting a three-year service requirement and on a market condition.  The market condition is based on a comparison of CMS Energy’s total shareholder return with the median total shareholder return of a peer group over the same three-year period.  Performance-based restricted stock vesting is contingent on meeting at least a  36‑month service requirement and a performance condition.  The performance condition is based on CMS Energy’s EPS growth relative to a peer group over a three-year period.  The awards granted in 2014 require a 38‑month service period.  Depending on the outcome of the market condition or the performance condition, a recipient may earn a total award ranging from zero to 200 percent of the initial grant.  Time-lapse restricted stock generally vests after a service period of three years.

All restricted stock awards vest fully upon death.  Upon a change of control of CMS Energy or termination under an officer separation agreement, restricted stock awards will vest in accordance with specific officer agreements.  If stated in the award, for restricted stock recipients who terminate employment due to retirement or disability, a pro-rata portion of the award equal to the portion of the service period served between the award grant date and the employee’s termination date will vest upon termination, with any market-based award also contingent upon the outcome of the market condition and any performance-based award contingent upon the outcome of the performance condition.  The remaining portion of the awards will be forfeited.  Restricted shares are forfeited fully if employment terminates for any other reason or if the minimum service requirements are not met, as described in the award document.

The PISP also allows for restricted common stock units, unrestricted common stock, stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2014,  2013, or 2012.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6.5 million shares from June 2014 through May 2024, nor may such awards to any recipient exceed 500,000 shares in any calendar year.  CMS Energy and Consumers may issue awards of up to 6,405,833 shares of common stock under the PISP at December 31, 2014.  Shares for which payment or exercise is in cash, as well as shares that expire, terminate, or are cancelled or forfeited, may be awarded or granted again under the PISP.

Presented in the following tables is restricted stock activity under the 2009 and 2014 PISPs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMS Energy, including Consumers

 

Consumers

 

Year Ended December 31, 2014

Number of Shares 

 

Weighted-Average Grant Date Fair Value per Share 

 

Number of Shares 

 

Weighted-Average Grant Date Fair Value per Share 

 

Nonvested at beginning of period
1,625,856 

 

 

$
22.42 

 
1,562,202 

 

 

$
22.31 

 

Granted
863,742 

 

 

 
26.15 

 
831,069 

 

 

 
26.18 

 

Vested
(756,310)

 

 

 
21.51 

 
(727,737)

 

 

 
21.26 

 

Forfeited
(53,693)

 

 

 
24.41 

 
(50,850)

 

 

 
24.45 

 

Nonvested at end of period
1,679,595 

 

 

$
24.69 

 
1,614,684 

 

 

$
24.71 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2014

 

CMS Energy, including 

Consumers 

 

Consumers 

 

Shares Granted

 

 

 

 

 

Time-lapse awards

 
289,510 

 
282,990 

 

Market-based awards

 
169,409 

 
162,264 

 

Performance-based awards

 
169,409 

 
162,264 

 

Dividends on market-based awards

 
29,579 

 
28,199 

 

Dividends on performance-based awards

 
6,146 

 
5,888 

 

Additional market-based shares based on achievement of condition

 
199,689 

 
189,464 

 

Total shares granted

 
863,742 

 
831,069 

 

 

CMS Energy and Consumers charge the fair value of the awards to expense over the required service period.  For performance-based awards, CMS Energy and Consumers estimate the number of shares expected to vest at the end of the performance period based on the probable achievement of the performance objective.  Performance-based and market-based restricted stock awards have graded vesting features for retirement-eligible employees, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period.  Expense for performance-based and market-based restricted stock awards for non‑retirement-eligible employees and time-lapse awards is recognized on a straight-line basis over the required service period.

The fair value of performance-based and time-lapse restricted stock is based on the price of CMS Energy’s common stock on the grant date.  The fair value of market-based restricted stock awards is calculated on the grant date using a Monte Carlo simulation.  CMS Energy and Consumers base expected volatilities on the historical volatility of the price of CMS Energy common stock.  The risk-free rate for valuation of the market-based restricted stock awards was based on the three-year U.S. Treasury yield at the award grant date.

Presented in the following table are the significant assumptions used to estimate the fair value of the market-based restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31
2014 

 
2013 

 
2012 

 

 

Expected volatility

 
15.6 

%

 
17.4 

%

 
20.3 

%

 

Expected dividend yield

 
3.7 

 

 
3.9 

 

 
4.1 

 

 

Risk-free rate

 
0.8 

 

 
0.4 

 

 
0.3 

 

 

 

Presented in the following table is the weighted-average grant-date fair value of all awards under the PISP:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31
2014 
2013 
2012 

 

CMS Energy, including Consumers

 

 

 

 

 

 

 

 

 

 

Weighted-average grant-date fair value per share

 

 

 

 

 

 

 

 

 

 

Restricted stock granted

 

$
26.15 

 

$
16.65 

 

$
12.32 

 

Consumers

 

 

 

 

 

 

 

 

 

 

Weighted-average grant-date fair value per share

 

 

 

 

 

 

 

 

 

 

Restricted stock granted

 

$
26.18 

 

$
16.76 

 

$
12.28 

 

 

Presented in the following table are amounts related to all restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In Millions  

Years Ended December 31
2014 
2013 
2012 

 

CMS Energy, including Consumers

 

 

 

 

 

 

 

 

 

 

Fair value of shares that vested during the year

 

$
16 

 

$
10 

 

$
10 

 

Compensation expense recognized

 

 
14 

 

 
14 

 

 
12 

 

Income tax benefit recognized

 

 
5 

 

 
5 

 

 
5 

 

Consumers

 

 

 

 

 

 

 

 

 

 

Fair value of shares that vested during the year

 

$
15 

 

$
9 

 

$
8 

 

Compensation expense recognized

 

 
13 

 

 
14 

 

 
11 

 

Income tax benefit recognized

 

 
5 

 

 
5 

 

 
4 

 

 

At December 31, 2014, $13 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $13 million of total unrecognized compensation cost was related to restricted stock for Consumers.  CMS Energy and Consumers expect to recognize this cost over a weighted-average period of 1.9 years.

Since CMS Energy has utilized tax loss carryforwards, CMS Energy was unable to realize excess federal tax benefits upon vesting of restricted stock.  Therefore, CMS Energy did not recognize the related excess federal tax benefits in equity.  Since CMS Energy is not in a loss position for state tax purposes, CMS Energy recognized the related state tax benefits of $1 million in equity.  As of December 31, 2014, CMS Energy has $76 million of unrealized excess federal tax benefits.

Consumers Energy Company [Member]  
Stock-Based Compensation

13:STOCK-BASED COMPENSATION

CMS Energy and Consumers provide a PISP to officers, employees, and non‑employee directors based on their contributions to the successful management of the company.  The PISP has a ten-year term, expiring in May 2024.

All grants under the PISP for 2014 were in the form of performance-based, market-based, and time-lapse restricted stock.  Prior to 2014, all grants were in the form of market-based and time-lapse restricted stock.  Of the restricted stock awards granted to officers in 2014,  37.5 percent were performance-based restricted stock, 37.5 percent were market-based restricted stock, and 25 percent were time-lapse restricted stock.  In 2013 and 2012, the awards granted to officers were 75 percent market-based restricted stock and 25 percent time-lapse restricted stock.  Award recipients receive shares of CMS Energy common stock that have dividend and voting rights.  In lieu of cash dividend payments, however, the dividends on performance-based and market-based restricted stock are paid in restricted shares equal to the value of the dividends.  These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.

Market-based restricted stock vesting is generally contingent on meeting a three-year service requirement and on a market condition.  The market condition is based on a comparison of CMS Energy’s total shareholder return with the median total shareholder return of a peer group over the same three-year period.  Performance-based restricted stock vesting is contingent on meeting at least a  36‑month service requirement and a performance condition.  The performance condition is based on CMS Energy’s EPS growth relative to a peer group over a three-year period.  The awards granted in 2014 require a 38‑month service period.  Depending on the outcome of the market condition or the performance condition, a recipient may earn a total award ranging from zero to 200 percent of the initial grant.  Time-lapse restricted stock generally vests after a service period of three years.

All restricted stock awards vest fully upon death.  Upon a change of control of CMS Energy or termination under an officer separation agreement, restricted stock awards will vest in accordance with specific officer agreements.  If stated in the award, for restricted stock recipients who terminate employment due to retirement or disability, a pro-rata portion of the award equal to the portion of the service period served between the award grant date and the employee’s termination date will vest upon termination, with any market-based award also contingent upon the outcome of the market condition and any performance-based award contingent upon the outcome of the performance condition.  The remaining portion of the awards will be forfeited.  Restricted shares are forfeited fully if employment terminates for any other reason or if the minimum service requirements are not met, as described in the award document.

The PISP also allows for restricted common stock units, unrestricted common stock, stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2014,  2013, or 2012.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6.5 million shares from June 2014 through May 2024, nor may such awards to any recipient exceed 500,000 shares in any calendar year.  CMS Energy and Consumers may issue awards of up to 6,405,833 shares of common stock under the PISP at December 31, 2014.  Shares for which payment or exercise is in cash, as well as shares that expire, terminate, or are cancelled or forfeited, may be awarded or granted again under the PISP.

Presented in the following tables is restricted stock activity under the 2009 and 2014 PISPs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CMS Energy, including Consumers

 

Consumers

 

Year Ended December 31, 2014

Number of Shares 

 

Weighted-Average Grant Date Fair Value per Share 

 

Number of Shares 

 

Weighted-Average Grant Date Fair Value per Share 

 

Nonvested at beginning of period
1,625,856 

 

 

$
22.42 

 
1,562,202 

 

 

$
22.31 

 

Granted
863,742 

 

 

 
26.15 

 
831,069 

 

 

 
26.18 

 

Vested
(756,310)

 

 

 
21.51 

 
(727,737)

 

 

 
21.26 

 

Forfeited
(53,693)

 

 

 
24.41 

 
(50,850)

 

 

 
24.45 

 

Nonvested at end of period
1,679,595 

 

 

$
24.69 

 
1,614,684 

 

 

$
24.71 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31, 2014

 

CMS Energy, including 

Consumers 

 

Consumers 

 

Shares Granted

 

 

 

 

 

Time-lapse awards

 
289,510 

 
282,990 

 

Market-based awards

 
169,409 

 
162,264 

 

Performance-based awards

 
169,409 

 
162,264 

 

Dividends on market-based awards

 
29,579 

 
28,199 

 

Dividends on performance-based awards

 
6,146 

 
5,888 

 

Additional market-based shares based on achievement of condition

 
199,689 

 
189,464 

 

Total shares granted

 
863,742 

 
831,069 

 

 

CMS Energy and Consumers charge the fair value of the awards to expense over the required service period.  For performance-based awards, CMS Energy and Consumers estimate the number of shares expected to vest at the end of the performance period based on the probable achievement of the performance objective.  Performance-based and market-based restricted stock awards have graded vesting features for retirement-eligible employees, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period.  Expense for performance-based and market-based restricted stock awards for non‑retirement-eligible employees and time-lapse awards is recognized on a straight-line basis over the required service period.

The fair value of performance-based and time-lapse restricted stock is based on the price of CMS Energy’s common stock on the grant date.  The fair value of market-based restricted stock awards is calculated on the grant date using a Monte Carlo simulation.  CMS Energy and Consumers base expected volatilities on the historical volatility of the price of CMS Energy common stock.  The risk-free rate for valuation of the market-based restricted stock awards was based on the three-year U.S. Treasury yield at the award grant date.

Presented in the following table are the significant assumptions used to estimate the fair value of the market-based restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31
2014 

 
2013 

 
2012 

 

 

Expected volatility

 
15.6 

%

 
17.4 

%

 
20.3 

%

 

Expected dividend yield

 
3.7 

 

 
3.9 

 

 
4.1 

 

 

Risk-free rate

 
0.8 

 

 
0.4 

 

 
0.3 

 

 

 

Presented in the following table is the weighted-average grant-date fair value of all awards under the PISP:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Years Ended December 31
2014 
2013 
2012 

 

CMS Energy, including Consumers

 

 

 

 

 

 

 

 

 

 

Weighted-average grant-date fair value per share

 

 

 

 

 

 

 

 

 

 

Restricted stock granted

 

$
26.15 

 

$
16.65 

 

$
12.32 

 

Consumers

 

 

 

 

 

 

 

 

 

 

Weighted-average grant-date fair value per share

 

 

 

 

 

 

 

 

 

 

Restricted stock granted

 

$
26.18 

 

$
16.76 

 

$
12.28 

 

 

Presented in the following table are amounts related to all restricted stock awards:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In Millions  

Years Ended December 31
2014 
2013 
2012 

 

CMS Energy, including Consumers

 

 

 

 

 

 

 

 

 

 

Fair value of shares that vested during the year

 

$
16 

 

$
10 

 

$
10 

 

Compensation expense recognized

 

 
14 

 

 
14 

 

 
12 

 

Income tax benefit recognized

 

 
5 

 

 
5 

 

 
5 

 

Consumers

 

 

 

 

 

 

 

 

 

 

Fair value of shares that vested during the year

 

$
15 

 

$
9 

 

$
8 

 

Compensation expense recognized

 

 
13 

 

 
14 

 

 
11 

 

Income tax benefit recognized

 

 
5 

 

 
5 

 

 
4 

 

 

At December 31, 2014, $13 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $13 million of total unrecognized compensation cost was related to restricted stock for Consumers.  CMS Energy and Consumers expect to recognize this cost over a weighted-average period of 1.9 years.

Since CMS Energy has utilized tax loss carryforwards, CMS Energy was unable to realize excess federal tax benefits upon vesting of restricted stock.  Therefore, CMS Energy did not recognize the related excess federal tax benefits in equity.  Since CMS Energy is not in a loss position for state tax purposes, CMS Energy recognized the related state tax benefits of $1 million in equity.  As of December 31, 2014, CMS Energy has $76 million of unrealized excess federal tax benefits.