20. Stock-Based Compensation

For employee awards, equity classified stock-based compensation cost is measured at the service inception date or the grant date, based on the estimated achievement of certain performance metrics or the fair value of the award, and is recognized as expense or capitalized as a component of property, plant and equipment over the requisite service period.

Duke Energy's 2010 Long-Term Incentive Plan (the 2010 Plan) reserved 75 million shares of common stock for awards to employees and outside directors. The 2010 Plan superseded the 2006 Long-Term Incentive Plan, as amended (the 2006 Plan), and no additional grants will be made from the 2006 Plan. Under the 2010 Plan, the exercise price of each option granted cannot be less than the market price of Duke Energy's common stock on the date of grant and the maximum option term is 10 years. The vesting periods range from immediate to three years. Duke Energy has historically issued new shares upon exercising or vesting of share-based awards. In 2012, Duke Energy may use a combination of new share issuances and open market repurchases for share-based awards which are exercised or become vested; however Duke Energy has not determined with certainty the amount of such new share issuances or open market repurchases.

The 2010 Plan allows for a maximum of 18.75 million shares of common stock to be issued under various stock-based awards other than options and stock appreciation rights.

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense recorded in the Consolidated Statements of Operations is as follows:


	For the Years Ended December 31,
	2011^(a)		2010^(a)		2009^(a)
	(in millions)
Stock Options	$	2	$	2	$	2
Phantom Awards		27		26		17
Performance Awards		23		39		20
Other Stock Awards		—		—		1

Total	$	52	$	67	$	40

(a)	Excludes stock-based compensation cost capitalized as a component of property, plant and equipment of $2 million, $4 million and $4 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The tax benefit associated with the stock-based compensation expense for the years ended December 31, 2011, 2010 and 2009 was $20 million, $26 million and $16 million, respectively.

Stock Option Activity


	Options (in thousands)			Weighted- Average Exercise Price		Weighted- Average Remaining Life (in years)		Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2010		13,881		$	17
Granted		1,074			18
Exercised		(4,734	)		15
Forfeited or expired		(3,954	)		22

Outstanding at December 31, 2011		6,267		$	15		4.6	$	41

Exercisable at December 31, 2011		4,256		$	15		2.7	$	31

Options Expected to Vest		2,011		$	17		8.6	$	10

On December 31, 2010 and 2009, Duke Energy had 12 million and 17 million exercisable options, respectively with a weighted-average exercise price of $17 and $18, respectively. The options granted in 2011 were expensed immediately, therefore, there is no future compensation cost associated with these options. The following table includes information related to Duke Energy's stock options.


	For the Years Ended December 31,
	2011		2010		2009
	(in millions)
Intrinsic value of options exercised	$	26	$	8	$	6
Tax benefit related to options exercised		10		3		2
Cash received from options exercised		74		14		24

	(in thousands of shares)
Stock options granted^(a)		1,074		1,103		603

(a)	The options granted in 2011 were expensed immediately, therefore, there is no future compensation cost associated with these options.

These assumptions were used to determine the grant date fair value of the stock options granted during 2011:

Weighted-Average Assumptions for Option Pricing


Risk-free interest rate^(a)	2.5	%
Expected dividend yield^(b)	5.7	%
Expected life^(c)	6.0 years
Expected volatility^(d)	18.8	%

(a)	The risk free rate is based upon the U.S. Treasury Constant Maturity rates as of the grant date.

(b)	The expected dividend yield is based upon annualized dividends and the 1-year average closing stock price.

(c)	The expected life of options is derived from the simplified method approach.

(d)

Volatility is based upon 50% historical and 50% implied volatility. Historic volatility is based on Duke Energy's historical volatility over the expected life using daily stock prices. Implied volatility is the average for all option contracts with a term greater than six months using the strike price closest to the stock price on the valuation date.

Phantom Stock Awards

Phantom stock awards issued and outstanding under the 2010 Plan and the 2006 Plan generally vest over periods from immediate to three years. The following table includes information related to Duke Energy's phantom stock awards.


	Shares awarded (in thousands)		Fair value^(a) (in millions)
Years ended December 31,
2011		1,907	$	34
2010		1,047		17
2009		1,096		16

(a)	Based on the market price of Duke Energy's common stock at the grant date.

The following table summarizes information about phantom stock awards outstanding at December 31, 2011:


	Shares (in thousands)			Weighted Average Per Share Grant Date Fair Value
Number of Phantom Stock Awards:
Outstanding at December 31, 2010		1,763		$	17
Granted		1,907			18
Vested		(1,057	)		18
Forfeited		(46	)		18

Outstanding at December 31, 2011		2,567		$	17

Phantom Stock Awards Expected to Vest		2,503		$	17

The total grant date fair value of the shares vested during the years ended December 31, 2011, 2010 and 2009 was $19 million, $29 million and $23 million, respectively. At December 31, 2011, Duke Energy had $19 million of unrecognized compensation cost which is expected to be recognized over a weighted-average period of 2.6 years.

Performance Awards

Stock-based awards issued and outstanding under the 2010 Plan and the 2006 Plan generally vest over three years if performance targets are met. Vesting for certain stock-based performance awards can occur in three years, at the earliest, if performance is met. Certain performance awards granted in 2011, 2010 and 2009 contain market conditions based on the total shareholder return (TSR) of Duke Energy stock relative to a pre-defined peer group (relative TSR). These awards are valued using a path-dependent model that incorporates expected relative TSR into the fair value determination of Duke Energy's performance-based share awards. The model uses three year historical volatilities and correlations for all companies in the pre-defined peer group, including Duke Energy, to simulate Duke Energy's relative TSR as of the end of the performance period. For each simulation, Duke Energy's relative TSR associated with the simulated stock price at the end of the performance period plus expected dividends within the period results in a value per share for the award portfolio. The average of these simulations is the expected portfolio value per share. Actual life to date results of Duke Energy's relative TSR for each grant is incorporated within the model. Other performance awards not containing market conditions were awarded in 2011, 2010 and 2009. The performance goal for the 2011 and 2010 award is Duke Energy's Return on Equity (ROE) over a three year period. The performance goal for the 2009 award is Duke Energy's compounded annual growth rate of annual diluted EPS, adjusted for certain items, over a three year period. All of these awards are measured at grant date price. The following table includes information related to Duke Energy's performance awards.


	Shares awarded (in thousands)		Fair value^(a) (in millions)
Years ended December 31,
2011		1,294	$	20
2010		2,734		38
2009		3,426		44

(a)	Based on the market price of Duke Energy's common stock at the grant date.

The following table summarizes information about stock-based performance awards outstanding at the maximum level at December 31, 2011:


	Shares (in thousands)			Weighted Average Per Share Grant Date Fair Value
Number of Stock-based Performance Awards:
Outstanding at December 31, 2010		7,550		$	14
Granted		1,294			16
Vested		(2,111	)		16
Forfeited		(363	)		13

Outstanding at December 31, 2011		6,370		$	14

Stock-based Performance Awards Expected to Vest		6,212		$	14

The total grant date fair value of the shares vested during the years ended December 31, 2011, 2010 and 2009 was $33 million, $15 million and $20 million, respectively. At December 31, 2011, Duke Energy had $17 million of unrecognized compensation cost which is expected to be recognized over a weighted-average period of 1.5 years.

Other Stock Awards

Other stock awards issued and outstanding under the 1998 Plan vest over periods from three to five years. There were no other stock awards issued during the years ended December 31, 2011, 2010 or 2009.

The following table summarizes information about other stock awards outstanding at December 31, 2011:


	Shares (in thousands)			Weighted Average Per Share Grant Date Fair Value

Number of Other Stock Awards:
Outstanding at December 31, 2010		131		$	28
Vested		(131	)		28
Forfeited		—			—

Outstanding at December 31, 2011		—		$	—

The total fair value of the shares vested during the years ended December 31, 2011, 2010 and 2009 was $4 million, $1 million, and $1 million, respectively.