STOCK-BASED COMPENSATION

DTE Energy’s stock incentive program permits the grant of incentive stock options, non-qualifying stock options, stock awards, performance shares, and performance units to employees and members of its Board of Directors. As a result of a stock award, a settlement of an award of performance shares, or by exercise of a participant’s stock option, DTE Energy may deliver common stock from its authorized but unissued common stock and/or from outstanding common stock acquired by or on behalf of DTE Energy in the name of the participant. Key provisions of the stock incentive program are:


•	Authorized limit is 14,500,000 shares of common stock;


•	Prohibits the grant of a stock option with an exercise price that is less than the fair market value of DTE Energy’s stock on the date of the grant; and

•

Imposes the following award limits to a single participant in a single calendar year, (1) options for more than 500,000 shares of common stock; (2) stock awards for more than 150,000 shares of common stock; (3) performance share awards for more than 300,000 shares of common stock (based on the maximum payout under the award); or (4) more than 1,000,000 performance units, which have a face amount of $1.00 each.

DTE Energy records compensation expense at fair value over the vesting period for all awards it grants.

The following table summarizes the components of stock-based compensation for DTE Energy:



	2017		2016		2015
	(In millions)
Stock-based compensation expense	$	58	$	61	$	34
Tax benefit	$	23	$	24	$	13
Stock-based compensation cost capitalized in Property, plant, and equipment	$	9	$	10	$	5

Stock Options

Options are exercisable according to the terms of the individual stock option award agreements and expire ten years after the date of the grant. The option exercise price equals the fair value of the stock on the date that the option was granted. Stock options vest ratably over a three-year period.

The following table summarizes DTE Energy's stock option activity for the year ended December 31, 2017:



	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (In millions)
Options outstanding and exercisable at December 31, 2016	171,517		$	41.59
Exercised	(65,523	)	$	39.37
Options outstanding and exercisable at December 31, 2017	105,994		$	42.95	$	7

As of December 31, 2017, the weighted average remaining contractual life for the exercisable shares is 2.05 years. As of December 31, 2017, all options were vested. No options vested during 2017.

There were no options granted during 2017, 2016, or 2015. The intrinsic value of options exercised for the years ended December 31, 2017 and 2016 was $4 million. The intrinsic value of options for the year ended December 31, 2015 was $7 million. No option expense was recognized for 2017, 2016, or 2015.

The number, weighted average exercise price, and weighted average remaining contractual life of DTE Energy options outstanding as of December 31, 2017 were as follows:



Range of Exercise Prices					Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
$	27.00	—	$	38.00	6,194	$	27.70	1.16
$	38.01	—	$	42.00	2,300	$	41.79	0.15
$	42.01	—	$	45.00	97,500	$	43.95	2.15
					105,994	$	42.95	2.05

Restricted Stock Awards

Stock awards granted under the plan are restricted for varying periods, generally for three years. Participants have all rights of a shareholder with respect to a stock award, including the right to receive dividends and vote the shares. Prior to vesting in stock awards, the participant: (i) may not sell, transfer, pledge, exchange, or otherwise dispose of shares; (ii) shall not retain custody of the share certificates; and (iii) will deliver to DTE Energy a stock power with respect to each stock award upon request.

The stock awards are recorded at cost that approximates fair value on the date of grant. The cost is amortized to compensation expense over the vesting period.

Stock award activity for DTE Energy for the years ended December 31 was:



	2017		2016		2015
Fair value of awards vested (in millions)	$	10	$	9	$	9
Restricted common shares awarded	136,825		145,240		144,300
Weighted average market price of shares awarded	$	99.53	$	87.28	$	83.43
Compensation cost charged against income (in millions)	$	11	$	11	$	10

The following table summarizes DTE Energy’s restricted stock awards activity for the year ended December 31, 2017:



	Restricted Stock		Weighted Average Grant Date Fair Value
Balance at December 31, 2016	385,285		$	80.10
Grants	136,825		$	99.53
Forfeitures	(11,745	)	$	90.24
Vested and issued	(144,601	)	$	72.08
Balance at December 31, 2017	365,764		$	90.26

Performance Share Awards

Performance shares awarded under the plan are for a specified number of shares of DTE Energy common stock that entitle the holder to receive a cash payment, shares of DTE Energy common stock, or a combination thereof. The final value of the award is determined by the achievement of certain performance objectives and market conditions. The awards vest at the end of a specified period, usually three years. Awards granted in 2017, 2016, and 2015 were primarily deemed to be equity awards. The DTE Energy stock price and number of probable shares attributable to market conditions for such equity awards are fair valued only at the grant date. DTE Energy accounts for performance share awards by accruing compensation expense over the vesting period based on: (i) the number of shares expected to be paid which is based on the probable achievement of performance objectives; and (ii) the closing stock price market value. The settlement of the award is based on the closing price at the settlement date.

DTE Energy recorded compensation expense for performance share awards as follows:



	2017		2016		2015
	(In millions)
Compensation expense	$	47	$	50	$	24
Cash settlements^(a)	$	15	$	7	$	13
Stock settlements^(a)	$	66	$	38	$	71

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(a)	Sum of cash and stock settlements approximates the intrinsic value of the awards.

During the vesting period, the recipient of a performance share award has no shareholder rights. During the period beginning on the date the performance shares are awarded and ending on the certification date of the performance objectives, the number of performance shares awarded will be increased, assuming full dividend reinvestment at the fair market value on the dividend payment date. The cumulative number of performance shares will be adjusted to determine the final payment based on the performance objectives achieved. Performance share awards are nontransferable and are subject to risk of forfeiture.

The following table summarizes DTE Energy’s performance share activity for the period ended December 31, 2017:



	Performance Shares		Weighted Average Grant Date Fair Value
Balance at December 31, 2016	1,392,512		$	79.97
Grants	494,688		$	98.47
Forfeitures	(49,547	)	$	87.12
Payouts	(513,252	)	$	70.60
Balance at December 31, 2017	1,324,401		$	90.31

Unrecognized Compensation Costs

As of December 31, 2017, DTE Energy's total unrecognized compensation cost related to non-vested stock incentive plan arrangements and the weighted average recognition period was as follows:



	Unrecognized Compensation Cost		Weighted Average to be Recognized
	(In millions)		(In years)
Stock awards	$	13	1.12
Performance shares	51		1.11
	$	64	1.11

Allocated Stock-Based Compensation

DTE Electric received an allocation of costs from DTE Energy associated with stock-based compensation. DTE Electric's allocation for 2017, 2016, and 2015 for stock-based compensation expense was approximately $34 million, $38 million, and $21 million, respectively.