In 2020, MGE Energy shareholders approved the 2021 Long-Term Incentive Plan (the 2021 Incentive Plan). It provides for the issuance of up to 500,000 shares of MGE Energy common stock in connection with awards made under the 2021 Incentive Plan. The 2021 Incentive Plan authorizes awards of restricted stock, restricted stock units, performance units, and dividend equivalents, or any combination of the foregoing for eligible employees and non-employee directors. The 2020 Performance Unit Plan (the 2020 Plan) was adopted in February 2020 for eligible employees. Plan participants may receive awards of performance units, restricted units, or both. Prior to the adoption of the 2020 plan, eligible employees could receive awards of performance units under the 2006 Performance Unit Plan. Under the 2013 Director Incentive Plan, eligible non-employee directors could receive awards of performance units. For the years ended December 31, 2022, 2021, and 2020, MGE recorded $1.3 million, $2.9 million, and $1.3 million, respectively, related to share-based compensation awards under the 2006 Performance Unit Plan, the 2020 Performance Unit Plan, the 2013 Director Incentive Plan, and the 2021 Incentive Plan in "Other operations and maintenance" on the consolidated statements of income.

2013 Director Incentive Plan and 2006 Performance Unit Plan - Liability Awards - Under MGE Energy's 2013 Director Incentive Plan and its 2006 Performance Unit Plan, non-employee directors and eligible employees, respectively, could receive performance units that entitled the holder to receive a cash payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend equivalent payments thereon, at the end of the performance period set in the award. In accordance with the plans' provisions. These awards are subject to prescribed vesting schedules and must be settled in cash. Accordingly, no shares of common stock will be issued in connection with those plans.

On the grant date, the cost of the director or employee services received in exchange for a performance unit award is measured based on the current market value of MGE Energy common stock. The fair value of the awards is remeasured quarterly, including as of December 31, 2022, as required by applicable accounting standards. Changes in fair value as well as the original grant are recognized as compensation cost. Since this amount is remeasured throughout the vesting period, the compensation cost is subject to

variability. For nonretirement eligible employees under the 2006 Performance Unit Plan, stock-based compensation costs are accrued and recognized using the graded vesting method. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon as retirement eligibility accelerates vesting.

Payouts under the 2013 Director Incentive Plan are subject to a three-year vesting schedule. Payouts under the 2006 Performance Unit Plan are subject to a five-year vesting schedule. The following activity occurred:


	2022		2021
	Director Incentive Plan	Performance Unit Plan	Director Incentive Plan	Performance Unit Plan
Nonvested awards January 1,	1,472	5,760	4,286	17,420
Granted	—	—	—	—
Vested	(1,472)	(3,756)	(2,814)	(11,660)
Nonvested awards December 31,	—	2,004	1,472	5,760

No cash settlements have occurred on the awards shown in the table above as cash payments are only made at the end of the period covered by the awards. In January 2022, cash payments of $1.8 million were distributed relating to awards that were granted under the plans in 2019, for the 2013 Director Incentive Plan, and in 2017, for the 2006 Performance Unit Plan.

Restricted Stock Units - Equity Awards - Payouts of restricted stock units under the 2021 Incentive Plan are based on the expiration of a three-year time-vesting period. Restricted stock units granted are to be paid out in shares of MGE Energy common stock and are accounted for as equity awards. The fair value of each restricted stock unit granted is based on the closing market price of one share of MGE Energy common stock on the grant date of the award. Compensation expense is recorded ratably over the performance period based on the fair value of the awards on the grant date. The following activity occurred:


	2022			2021
	Units	Weighted Average Grant Date Fair Value (per share)		Units	Weighted Average Grant Date Fair Value (per share)
Nonvested awards January 1,	13,126	$	65.83	—		N/A
Granted	15,931	$	72.46	16,267	$	65.83
Vested	—			—
Undistributed vested awards(a)	(1,687)	$	72.46	(3,141)	$	65.83
Nonvested awards December 31,	27,370	$	69.28	13,126	$	65.83

(a)

Represents restricted stock units that vested but were not distributed to retirement-eligible employees.

Restricted Stock Units - Liability Awards - Payouts of restricted stock units granted prior to 2021 are based on the expiration of a three-year time-vesting period and will be paid out in cash and accounted for as a liability award. Compensation expense is recorded ratably over the performance period based on the fair value of the awards at each reporting period. The following activity occurred:


	2022	2021
Nonvested awards January 1,	6,064	7,003
Granted	—	—
Vested	(6,064)	—
Undistributed vested awards(b)	—	(939)
Nonvested awards December 31,	—	6,064

(b)

Represents restricted stock units that vested but were not distributed to retirement-eligible employees.

Performance Units - Liability Awards - Performance units under the 2020 Plan entitle the holder to receive a cash payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend-equivalent payments thereon. Performance units under the 2021 Incentive Plan can be paid out in shares of MGE Energy common stock, cash or a combination of cash and stock. MGE assumes it will make future payouts of its performance units granted in cash; therefore, these performance units are accounted

for as liability awards. Compensation expense for these performance units is recorded ratably over the performance period based on the fair value of the awards at each reporting period. The payout is based upon achievement of specified performance goals during a performance period set by the Compensation Committee of MGE Energy's Board of Directors. Awards are subject to vesting provisions providing for 100% vesting at the end of the performance period. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon as retirement eligibility accelerates vesting.

The performance units contain market and performance conditions. The market condition is based on total shareowner return relative to an investor-owned utility peer group. The performance condition is based on achievement of targets specified in the award agreement (such as an earnings growth target). The fair value of each performance unit is based on the fair value of the underlying common stock on the grant date and the probability of satisfying the market and performance conditions contained in the award agreement during the three-year performance period. The actual payments upon vesting depends upon actual performance and may range from zero to 200% of the granted number of performance units. The following activity occurred:


		2022		2021
Nonvested awards January 1,		13,870		7,003
Granted		10,395		10,187
Vested		(6,064)		—
Undistributed vested awards(c)		(1,687)		(3,320)
Nonvested awards December 31,		16,514		13,870

Weighted average fair Value of each nonvested award	$	76.87	$	104.76
Weighted average estimated payout % based on performance criteria		109.2%		127.4%

(c)

Represents performance units that vested but were not distributed to retirement-eligible employees.