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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2011
Stock-Based Compensation

14:   STOCK-BASED COMPENSATION

CMS Energy and Consumers provide a PISP to key employees and non-employee directors based on their contributions to the successful management of the company. The PISP has a five-year term, expiring in May 2014.

All grants under the PISP for 2011, 2010, and 2009 were in the form of TSR restricted stock and time-lapse restricted stock. Restricted stock recipients receive shares of CMS Energy common stock. Restricted stock shares granted prior to August 1, 2010 have full dividend and voting rights. The TSR restricted stock shares granted after August 1, 2010 continue to have full voting rights. In lieu of cash dividend payments, however, the TSR restricted stock shares granted after August 1, 2010 receive additional restricted shares equal to the value of the dividend. These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.

TSR restricted stock vesting is contingent on meeting a three-year service requirement and a specific market condition. The market condition is based entirely on a comparison of CMS Energy's TSR with the median TSR of a peer group over the same three-year period. Depending on the outcome of the market condition, a recipient may earn a total award ranging from zero to 200 percent of the initial grant. Time-lapse restricted stock vests after a service period of three years.

Restricted stock awards granted to officers in 2011 were 75 percent TSR restricted stock and 25 percent time-lapsed restricted stock. Awards granted to officers in 2010 and 2009 were 67 percent TSR restricted stock and 33 percent time-lapse restricted stock.

For awards granted prior to August 1, 2010, restricted shares may vest fully upon retirement, disability, or change of control of CMS Energy if certain minimum service requirements are met or are waived by action of the C&HR Committees. If employment terminates for any other reason (other than death) or the minimum service requirements are not met or waived, the restricted shares will be fully forfeited. For awards granted after August 1, 2010, 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 of an employee due to retirement, disability, or change of control of CMS Energy. For TSR awards, this vesting is contingent upon the outcome of the market condition. The remaining portion of the award will be forfeited. All awards vest fully upon death.

 

The PISP also allows for stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2011, 2010, or 2009.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6 million shares from June 2009 through May 2014, nor may such awards to any recipient exceed 500,000 shares in any fiscal year. CMS Energy and Consumers may issue awards of up to 3,884,919 shares of common stock under the PISP at December 31, 2011. Shares for which payment or exercise is in cash, as well as shares or stock options forfeited for any reason other than failure to meet a market condition, may be awarded or granted again under the PISP.

Presented in the following table is restricted stock activity under the PISP:

 

Year Ended December 31, 2011

    Number of
Shares		     Weighted-
Average
Grant
Date Fair
Value per
Share		  

CMS ENERGY, INCLUDING CONSUMERS

    

Nonvested at beginning of period

      1,993,465      $ 13.26   

Granted1

     787,149        13.89   

Vested

      (917,190 )      7.64   

Forfeited

      (15,356 )      16.94   
  

 

 

    

 

 

  

Nonvested at end of period

      1,848,068      $ 16.29   
  

 

 

    

 

 

  

CONSUMERS

    

Nonvested at beginning of period

      1,805,023      $ 13.28   

Granted1

     737,504        14.17   

Vested

      (837,174 )      7.77   

Forfeited

      (15,356 )      16.94   
  

 

 

    

 

 

  

Nonvested at end of period

      1,689,997      $ 16.36   
  

 

 

    

 

 

  

1 

During 2011, CMS Energy granted 310,100 TSR shares, 215,400 time-lapse shares, 25,329 shares from dividends paid on TSR shares, and 236,320 shares granted as a result of the outcome of the TSR awards' market condition. During 2011, Consumers granted 295,035 TSR shares, 207,613 time-lapse shares, 23,328 shares from dividends paid on TSR shares, and 211,528 shares granted as a result of the outcome of the TSR awards' market condition.

CMS Energy and Consumers charge the fair value of the awards to expense over the required service period. As a result, for awards granted prior to August 1, 2010, CMS Energy and Consumers recognize all compensation expense for share-based awards that have accelerated service provisions upon retirement by the period in which the employee becomes eligible to retire. TSR restricted stock awards granted after August 1, 2010 have graded vesting features, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period. Expense for time-lapse awards is recognized on a straight-line basis over the required service period. CMS Energy and Consumers calculate the fair value of time-lapse restricted stock based on the price of CMS Energy's common stock on the grant date. CMS Energy and Consumers calculate the fair value of TSR restricted stock awards 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 each valuation 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 TSR restricted stock awards:

 

      2011     2010     2009  

Expected volatility

      29.6 %      30.1 %      29.8 % 

Expected dividend yield

      4.6 %      2.4 %      2.0 % 

Risk-free rate

      1.0 %      0.9 %      1.8 % 

 

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

 

In Millions  
Years Ended December 31    2011      2010      2009  

CMS ENERGY, INCLUDING CONSUMERS

         

Fair value of shares that vested during the year

    $ 7       $ 7       $ 4   

Compensation expense recognized

      10         9         9   

Income tax benefit recognized

      4         4         3   

CONSUMERS

         

Fair value of shares that vested during the year

    $ 7       $ 6       $ 4   

Compensation expense recognized

      10         9         8   

Income tax benefit recognized

      4         3         3   

At December 31, 2011, $10 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $10 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 2.0 years.

Presented in the following table is stock option activity under the PISP:

 

Year Ended December 31, 2011

    Options
Outstanding,
Fully  Vested,
and
Exercisable		     Weighted-
Average
Exercise
Price per
Share		      Weighted-
Average
Remaining
Contractual
Term		      Aggregate
Intrinsic
Value		  
     (In Millions)  

CMS ENERGY, INCLUDING CONSUMERS

          

Outstanding at beginning of period

      437,080      $ 22.34         1.1 years       $ (2 ) 

Granted

      —        —         

Exercised

      (127,500 )      11.87         

Cancelled or expired

      (244,000 )      27.85         
  

 

 

    

 

 

        

Outstanding at end of period

      65,580      $ 22.20         0.2 years       $ —   
  

 

 

    

 

 

     

 

 

     

 

 

  

CONSUMERS

          

Outstanding at beginning of period

      267,468      $ 20.64         1.2 years       $ (1 ) 

Granted

      —        —         

Exercised

      (92,968 )      10.25         

Cancelled or expired

      (113,000 )      28.34         
  

 

 

    

 

 

        

Outstanding at end of period

      61,500      $ 22.20         0.2 years       $ —   
  

 

 

    

 

 

     

 

 

     

 

 

  

Stock options give the holder the right to purchase common stock at the market price on the grant date. Stock options are exercisable upon grant, and expire up to ten years and one month from the grant date. CMS Energy and Consumers issue new shares when recipients exercise stock options. The total intrinsic value of stock options exercised for CMS Energy was $1 million for each of the years ended December 31, 2011 and 2010 and less than $1 million for the year ended December 31, 2009. The total intrinsic value of stock options exercised for Consumers was $1 million for each of the years ended December 31, 2011 and 2010 and less than $1 million for the year ended December 31, 2009. Cash received from exercise of these stock options in 2011 was $2 million for CMS Energy and $1 million for Consumers.

Since CMS Energy has utilized tax loss carryforwards, CMS Energy was unable to realize excess tax benefits upon exercise of stock options and vesting of restricted stock. Therefore, CMS Energy did not recognize the related excess tax benefits in equity. As of December 31, 2011, CMS Energy has $31 million of unrealized excess tax benefits.

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

 

Years Ended December 31

    2011      2010      2009  

CMS ENERGY, INCLUDING CONSUMERS

        

Weighted-average grant-date fair value per share

         

Restricted stock granted

    $ 13.89       $ 16.22       $ 13.49   
  

 

 

     

 

 

     

 

 

  

CONSUMERS

        

Weighted-average grant-date fair value per share

         

Restricted stock granted

    $ 14.17       $ 16.27       $ 13.44   
  

 

 

     

 

 

     

 

 

  
Consumers Energy Company [Member]
  
Stock-Based Compensation

14:   STOCK-BASED COMPENSATION

CMS Energy and Consumers provide a PISP to key employees and non-employee directors based on their contributions to the successful management of the company. The PISP has a five-year term, expiring in May 2014.

All grants under the PISP for 2011, 2010, and 2009 were in the form of TSR restricted stock and time-lapse restricted stock. Restricted stock recipients receive shares of CMS Energy common stock. Restricted stock shares granted prior to August 1, 2010 have full dividend and voting rights. The TSR restricted stock shares granted after August 1, 2010 continue to have full voting rights. In lieu of cash dividend payments, however, the TSR restricted stock shares granted after August 1, 2010 receive additional restricted shares equal to the value of the dividend. These additional restricted shares are subject to the same vesting conditions as the underlying restricted stock shares.

TSR restricted stock vesting is contingent on meeting a three-year service requirement and a specific market condition. The market condition is based entirely on a comparison of CMS Energy's TSR with the median TSR of a peer group over the same three-year period. Depending on the outcome of the market condition, a recipient may earn a total award ranging from zero to 200 percent of the initial grant. Time-lapse restricted stock vests after a service period of three years.

Restricted stock awards granted to officers in 2011 were 75 percent TSR restricted stock and 25 percent time-lapsed restricted stock. Awards granted to officers in 2010 and 2009 were 67 percent TSR restricted stock and 33 percent time-lapse restricted stock.

For awards granted prior to August 1, 2010, restricted shares may vest fully upon retirement, disability, or change of control of CMS Energy if certain minimum service requirements are met or are waived by action of the C&HR Committees. If employment terminates for any other reason (other than death) or the minimum service requirements are not met or waived, the restricted shares will be fully forfeited. For awards granted after August 1, 2010, 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 of an employee due to retirement, disability, or change of control of CMS Energy. For TSR awards, this vesting is contingent upon the outcome of the market condition. The remaining portion of the award will be forfeited. All awards vest fully upon death.

 

The PISP also allows for stock options, stock appreciation rights, phantom shares, performance units, and incentive options, none of which was granted in 2011, 2010, or 2009.

Shares awarded or subject to stock options, phantom shares, or performance units may not exceed 6 million shares from June 2009 through May 2014, nor may such awards to any recipient exceed 500,000 shares in any fiscal year. CMS Energy and Consumers may issue awards of up to 3,884,919 shares of common stock under the PISP at December 31, 2011. Shares for which payment or exercise is in cash, as well as shares or stock options forfeited for any reason other than failure to meet a market condition, may be awarded or granted again under the PISP.

Presented in the following table is restricted stock activity under the PISP:

 

Year Ended December 31, 2011

    Number of
Shares		     Weighted-
Average
Grant
Date Fair
Value per
Share		  

CMS ENERGY, INCLUDING CONSUMERS

    

Nonvested at beginning of period

      1,993,465      $ 13.26   

Granted1

     787,149        13.89   

Vested

      (917,190 )      7.64   

Forfeited

      (15,356 )      16.94   
  

 

 

    

 

 

  

Nonvested at end of period

      1,848,068      $ 16.29   
  

 

 

    

 

 

  

CONSUMERS

    

Nonvested at beginning of period

      1,805,023      $ 13.28   

Granted1

     737,504        14.17   

Vested

      (837,174 )      7.77   

Forfeited

      (15,356 )      16.94   
  

 

 

    

 

 

  

Nonvested at end of period

      1,689,997      $ 16.36   
  

 

 

    

 

 

  

1 

During 2011, CMS Energy granted 310,100 TSR shares, 215,400 time-lapse shares, 25,329 shares from dividends paid on TSR shares, and 236,320 shares granted as a result of the outcome of the TSR awards' market condition. During 2011, Consumers granted 295,035 TSR shares, 207,613 time-lapse shares, 23,328 shares from dividends paid on TSR shares, and 211,528 shares granted as a result of the outcome of the TSR awards' market condition.

CMS Energy and Consumers charge the fair value of the awards to expense over the required service period. As a result, for awards granted prior to August 1, 2010, CMS Energy and Consumers recognize all compensation expense for share-based awards that have accelerated service provisions upon retirement by the period in which the employee becomes eligible to retire. TSR restricted stock awards granted after August 1, 2010 have graded vesting features, and CMS Energy and Consumers recognize expense for those awards on a graded vesting schedule over the required service period. Expense for time-lapse awards is recognized on a straight-line basis over the required service period. CMS Energy and Consumers calculate the fair value of time-lapse restricted stock based on the price of CMS Energy's common stock on the grant date. CMS Energy and Consumers calculate the fair value of TSR restricted stock awards 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 each valuation 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 TSR restricted stock awards:

 

      2011     2010     2009  

Expected volatility

      29.6 %      30.1 %      29.8 % 

Expected dividend yield

      4.6 %      2.4 %      2.0 % 

Risk-free rate

      1.0 %      0.9 %      1.8 % 

 

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

 

In Millions  
Years Ended December 31    2011      2010      2009  

CMS ENERGY, INCLUDING CONSUMERS

         

Fair value of shares that vested during the year

    $ 7       $ 7       $ 4   

Compensation expense recognized

      10         9         9   

Income tax benefit recognized

      4         4         3   

CONSUMERS

         

Fair value of shares that vested during the year

    $ 7       $ 6       $ 4   

Compensation expense recognized

      10         9         8   

Income tax benefit recognized

      4         3         3   

At December 31, 2011, $10 million of total unrecognized compensation cost was related to restricted stock for CMS Energy, including Consumers, and $10 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 2.0 years.

Presented in the following table is stock option activity under the PISP:

 

 

Year Ended December 31, 2011

    Options
Outstanding,
Fully  Vested,
and
Exercisable		     Weighted-
Average
Exercise
Price per
Share		      Weighted-
Average
Remaining
Contractual
Term		      Aggregate
Intrinsic
Value		  
     (In Millions)  

CMS ENERGY, INCLUDING CONSUMERS

          

Outstanding at beginning of period

      437,080      $ 22.34         1.1 years       $ (2 ) 

Granted

      —        —         

Exercised

      (127,500 )      11.87         

Cancelled or expired

      (244,000 )      27.85         
  

 

 

    

 

 

        

Outstanding at end of period

      65,580      $ 22.20         0.2 years       $ —   
  

 

 

    

 

 

     

 

 

     

 

 

  

CONSUMERS

          

Outstanding at beginning of period

      267,468      $ 20.64         1.2 years       $ (1 ) 

Granted

      —        —         

Exercised

      (92,968 )      10.25         

Cancelled or expired

      (113,000 )      28.34         
  

 

 

    

 

 

        

Outstanding at end of period

      61,500      $ 22.20         0.2 years       $ —   
  

 

 

    

 

 

     

 

 

     

 

 

  

Stock options give the holder the right to purchase common stock at the market price on the grant date. Stock options are exercisable upon grant, and expire up to ten years and one month from the grant date. CMS Energy and Consumers issue new shares when recipients exercise stock options. The total intrinsic value of stock options exercised for CMS Energy was $1 million for each of the years ended December 31, 2011 and 2010 and less than $1 million for the year ended December 31, 2009. The total intrinsic value of stock options exercised for Consumers was $1 million for each of the years ended December 31, 2011 and 2010 and less than $1 million for the year ended December 31, 2009. Cash received from exercise of these stock options in 2011 was $2 million for CMS Energy and $1 million for Consumers.

Since CMS Energy has utilized tax loss carryforwards, CMS Energy was unable to realize excess tax benefits upon exercise of stock options and vesting of restricted stock. Therefore, CMS Energy did not recognize the related excess tax benefits in equity. As of December 31, 2011, CMS Energy has $31 million of unrealized excess tax benefits.

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

 

Years Ended December 31

    2011      2010      2009  

CMS ENERGY, INCLUDING CONSUMERS

        

Weighted-average grant-date fair value per share

         

Restricted stock granted

    $ 13.89       $ 16.22       $ 13.49   
  

 

 

     

 

 

     

 

 

  

CONSUMERS

        

Weighted-average grant-date fair value per share

         

Restricted stock granted

    $ 14.17       $ 16.27       $ 13.44