Stock-Based Compensation

The Companies may compensate employees and directors with, among other things, stock options, stock units, restricted stock units and contributions to the stock purchase plan. The Long Term Incentive Plan, which was approved by Con Edison’s shareholders in 2003 (2003 LTIP), and the Long Term Incentive Plan, which was approved by Con Edison’s shareholders in 2013 (2013 LTIP), are collectively referred to herein as the LTIP. The LTIP provides for, among other things, awards to employees of restricted stock units and stock options and, to Con Edison’s non-employee directors, stock units. Existing awards under the 2003 LTIP continue in effect, however no new awards may be issued under the 2003 LTIP. The 2013 LTIP provides for awards for up to five million shares of common stock.

Shares of Con Edison common stock used to satisfy the Companies’ obligations with respect to stock-based compensation may be new (authorized, but unissued) shares, treasury shares or shares purchased in the open market. The shares used during the year ended December 31, 2016 were new shares. The Companies intend to use new shares to fulfill their stock-based compensation obligations for 2017.

The Companies recognized stock-based compensation expense using a fair value measurement method. The following table summarizes stock-based compensation expense recognized by the Companies in the years ended December 31, 2016, 2015 and 2014:



	Con Edison			CECONY
(Millions of Dollars)	2016	2015	2014	2016	2015	2014
Performance-based restricted stock	$42	$27	$22	$36	$23	$19
Time-based restricted stock	2	1	2	2	1	2
Non-employee director deferred stock compensation	2	2	2	2	2	2
Stock purchase plan	4	4	3	4	3	3
Total	$50	$34	$29	$44	$29	$26
Income tax benefit	$20	$14	$12	$18	$12	$10

Stock Options

The Companies last granted stock options in 2006. The stock options generally vested over a three-year period and had a term of 10 years. Options were granted at an exercise price equal to the fair market value of a common share when the option was granted. The Companies generally recognized compensation expense (based on the fair value of stock option awards) over the vesting period. No outstanding options remain as of December 31, 2016.

A summary of changes in the status of stock options as of December 31, 2016 is as follows:



	Con Edison		CECONY
	Shares	Weighted Average Exercise Price	Shares	Weighted Average Exercise Price
Outstanding at December 31, 2015	79,125	$43.50	65,775	$43.50
Exercised	79,125	43.50	65,775	43.50
Forfeited	—	—	—	—
Outstanding at December 31, 2016	—	$—	—	$—

The following table summarizes information about stock options for the years ended December 31, 2016 and 2015:



	Con Edison			CECONY
(Millions of Dollars)	2016		2015	2016		2015
Aggregate intrinsic value (a)
Options outstanding		$—	$2		$—	$1
Options exercised	2		3	2		3
Cash received by Con Edison for payment of exercise price	3		6	3		5

(a) Aggregate intrinsic value represents the changes in the fair value of all outstanding options from their grant dates to December 31 of the years presented above.

The income tax benefit Con Edison realized from stock options exercised in the years ended December 31, 2016, 2015 and 2014 was $1 million.

Restricted Stock and Stock Units

Restricted stock and stock unit awards under the LTIP have been made as follows: (i) awards that provide for adjustment of the number of units (performance-restricted stock units or Performance RSUs) to certain officers and employees; (ii) time-based awards to certain employees; and (iii) awards to non-employee directors. Restricted stock and stock units awarded represents the right to receive, upon vesting, shares of Con Edison common stock, or, except for units awarded under the directors’ plan, the cash value of shares or a combination thereof.

The number of units in each annual Performance RSU award is subject to adjustment as follows: (i) 50 percent of the units awarded will be multiplied by a factor that may range from 0 to 200 percent, based on Con Edison’s total shareholder return relative to a specified peer group during a specified performance period (the TSR portion); and (ii) 50 percent of the units awarded will be multiplied by factors that may range from 0 to 200 percent, based on determinations made in connection with the Companies’ annual incentive plans or, for certain executive officers, actual performance as compared to certain performance measures during a specified performance period (the non-TSR portion). Performance RSU awards generally vest upon completion of the performance period.

Performance against the established targets is recomputed each reporting period as of the earlier of the reporting date and the vesting date. The TSR portion applies a Monte Carlo simulation model, and the non-TSR portion is the product of the market price at the end of the period and the average non-TSR determination over the vesting period. Performance RSUs are “liability awards” because each Performance RSU represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, changes in the fair value of the Performance RSUs are reflected in net income. The assumptions used to calculate the fair value of the awards were as follows:



	2016	2015	2014
Risk-free interest rate (a)	0.85% - 1.20%	0.64% - 3.28%	0.23% - 3.07%
Expected term (b)	3 years	3 years	3 years
Expected share price volatility (c)	17.72% - 18.22%	15.82%	13.14%


(a)	The risk-free rate is based on the U.S. Treasury zero-coupon yield curve.


(b)	The expected term of the Performance RSUs equals the vesting period. The Companies do not expect significant forfeitures to occur.


(c)	Based on historical experience.

A summary of changes in the status of the Performance RSUs’ TSR and non-TSR portions during the year ended December 31, 2016 is as follows:



	Con Edison			CECONY
		Weighted Average Grant Date Fair Value (a)			Weighted Average Grant Date Fair Value (a)
	Units	TSR Portion (b)	Non-TSR Portion (c)	Units	TSR Portion (b)	Non-TSR Portion (c)
Non-vested at December 31, 2015	1,078,339	$45.26	$58.08	853,257	$45.37	$58.12
Granted	386,400	83.16	72.10	295,300	82.73	72.34
Vested	(351,230)	55.16	57.96	(285,162)	55.21	58.07
Forfeited	(26,372)	48.48	61.03	(15,053)	53.61	63.05
Non-vested at December 31, 2016	1,087,137	$55.45	$63.03	848,342	$54.92	$63.00


(a)	The TSR and non-TSR Portions each account for 50 percent of the awards’ value.


(b)	Fair value is determined using the Monte Carlo simulation described above. Weighted average grant date fair value does not reflect any accrual or payment of dividends prior to vesting.


(c)	Fair value is determined using the market price of one share of Con Edison common stock on the grant date. The market price has not been discounted to reflect that dividends do not accrue and are not payable on Performance RSUs until vesting.

The total expense to be recognized by Con Edison in future periods for unvested Performance RSUs outstanding at December 31, 2016 is $34 million, including $27 million for CECONY, and is expected to be recognized over a weighted average period of one year for both Con Edison and CECONY.

In accordance with the accounting rules for stock compensation, for time-based awards, the Companies are accruing a liability and recognizing compensation expense based on the market value of a common share throughout the vesting period. The vesting period for awards is three years and is based on the employee’s continuous service to Con Edison. Prior to vesting, the awards are subject to forfeiture in whole or in part under certain circumstances. The awards are “liability awards” because each restricted stock unit represents the right to receive, upon vesting, one share of Con Edison common stock, the cash value of a share or a combination thereof. As such, prior to vesting, changes in the fair value of the units are reflected in net income.

A summary of changes in the status of time-based awards during the year ended December 31, 2016 is as follows:



	Con Edison		CECONY
	Units	Weighted Average Grant Date Fair Value	Units	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2015	64,980	$58.56	61,630	$58.55
Granted	23,000	76.62	21,800	76.62
Vested	(20,900)	61.03	(19,800)	61.03
Forfeited	(1,100)	60.13	(1,050)	60.43
Non-vested at December 31, 2016	65,980	$64.04	62,580	$64.03

The total expense to be recognized by Con Edison in future periods for unvested time-based awards outstanding at December 31, 2016 for Con Edison and CECONY was $2 million and is expected to be recognized over a weighted average period of one year.

Under the LTIP, each non-employee director receives stock units, which are deferred until the director’s separation from service or another date specified by the director. Each director may also elect to defer all or a portion of their cash compensation into additional stock units, which are deferred until the director’s termination of service or another date specified by the director. Non-employee directors’ stock units issued under the LTIP are considered “equity awards,” because they may only be settled in shares. Directors immediately vest in units issued to them. The fair value of the units is determined using the closing price of Con Edison’s common stock on the business day immediately preceding the date of issue. In the year ended December 31, 2016, approximately 27,600 units were issued at a weighted average grant date price of $74.37.

Stock Purchase Plan

The Stock Purchase Plan, which was approved by shareholders in 2004 and 2014, provides for the Companies to contribute up to $1 for each $9 invested by their directors, officers or employees to purchase Con Edison common stock under the plan. Eligible participants may invest up to $25,000 during any calendar year (subject to an additional limitation for officers and employees of not more than 20 percent of their pay). Dividends paid on shares held under the plan are reinvested in additional shares unless otherwise directed by the participant.

Participants in the plan immediately vest in shares purchased by them under the plan. The fair value of the shares of Con Edison common stock purchased under the plan was calculated using the average of the high and low composite sale prices at which shares were traded at the New York Stock Exchange on the trading day immediately preceding such purchase dates. During 2016, 2015 and 2014, 720,268, 761,784 and 708,276 shares were purchased under the Stock Purchase Plan at a weighted average price of $72.67, $62.75 and $56.23 per share, respectively.