STOCK-BASED COMPENSATION PLANS

FirstEnergy has four stock-based compensation programs - LTIP, ESOP, EDCP and DCPD, as described further below.

LTIP

The LTIP includes four forms of stock-based compensation — restricted stock, restricted stock units, stock options and performance shares.

Under the LTIP, total awards cannot exceed 29 million shares of common stock or their equivalent. Only stock options, restricted stock and restricted stock units have currently been designated to pay out in common stock, with vesting periods ranging from two months to ten years. Performance share awards are currently designated to be paid in cash rather than common stock and therefore do not count against the limit on stock-based awards. As of December 31, 2012, five million shares were available for future awards.

FirstEnergy records the actual tax benefit realized from tax deductions when awards are exercised or distributed. Realized tax benefits during the years ended December 31, 2012, 2011 and 2010 were $22 million, $14 million and $11 million, respectively. The excess of the deductible amount over the recognized compensation cost is recorded as a component of stockholders’ equity and reported as an other financing activity on the Consolidated Statements of Cash Flows.

Restricted Stock and Restricted Stock Units

Restricted common stock (restricted stock) and restricted stock units (stock units) activity for the year ended December 31, 2012, was as follows:



Outstanding as of January 1, 2012	2,353,134
Granted	915,891
Exercised	(907,285	)
Forfeited	(181,318	)
Outstanding as of December 31, 2012	2,180,422

The 915,891 shares of restricted stock granted during the year ended December 31, 2012, had a grant-date fair value of $41 million and a weighted-average vesting period of 3.03 years.

Eligible employees receive awards of FE restricted stock or stock units subject to restrictions that lapse over a defined period of time or upon achieving performance results. Dividends are received on the restricted stock and are reinvested in additional shares. Restricted stock grants under the LTIP were as follows:



	2012		2011		2010
Restricted stock granted	263,771		297,859		71,752
Weighted average market price	$	44.82	$	38.44	$	38.43
Weighted average vesting period (years)	3.09		2.27		4.74
Dividends restricted	Yes		Yes		Yes

Vesting activity for restricted stock during 2012 was as follows (forfeitures were not material):



Restricted Stock	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2012	654,696	$	45.26
Nonvested as of December 31, 2012	551,678	$	47.21
Granted in 2012	263,771	$	44.82
Vested in 2012	380,970	$	42.75

FirstEnergy grants two types of stock unit awards: discretionary-based and performance-based. The discretionary-based awards grant the right to receive, at the end of the period of restriction, a number of shares of common stock equal to the number of stock units set forth in each agreement. Performance-based awards grant the right to receive, at the end of the period of restriction, a number of shares of common stock equal to the number of stock units set forth in the agreement subject to adjustment based on FirstEnergy's performance relative to financial and operational performance targets.



	2012	2011	2010
Restricted stock units granted	652,120	617,195	511,418
Weighted average vesting period (years)	3.00	3.00	3.00

Vesting activity for stock units during 2012 was as follows:



Restricted Stock Units	Number of Shares	Weighted Average Grant-Date Fair Value
Nonvested as of January 1, 2012	1,698,439	$	39.74
Nonvested as of December 31, 2012	1,628,744	$	41.10
Granted in 2012	652,120	$	44.58
Forfeited in 2012	141,499	$	40.39
Vested in 2012	663,954	$	43.93

Compensation expense recognized in 2012, 2011 and 2010 for restricted stock and restricted stock units, net of amounts capitalized, was approximately $30 million, $35 million and $22 million, respectively. As of December 31, 2012, there was $39 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted for restricted stock and restricted stock units; that cost is expected to be recognized over a period of approximately 2 years.

Stock Options

Stock options were granted to eligible employees allowing them to purchase a specified number of common shares at a fixed grant price over a defined period of time. Stock option activity during 2012 was as follows:



Stock Option Activity	Number of Shares		Weighted Average Exercise Price
Balance, January 1, 2012 (3,593,863 options exercisable)	4,255,985		$	38.17
Options exercised	(1,327,008	)	33.11
Options forfeited	(18,708	)	59.58
Balance, December 31, 2012 (2,348,469 options exercisable)	2,910,269		$	40.33

Options outstanding and range of exercise prices as of December 31, 2012, were as follows:



	Options Outstanding
Range of Exercise Prices	Shares	Weighted Average Exercise Price		Remaining Contractual Life
$20.02-$28.42	136,202	$	21.49	1.29
$28.43-$35.45	851,948	$	33.04	3.56
$35.46-$79.11	1,657,150	$	39.23	4.04
$79.12-$81.19	264,969	$	80.47	4.80
Total	2,910,269	$	40.33	3.84

Compensation expense recognized for stock options during 2012 and 2011 was $0.9 million and $0.8 million, respectively. No compensation expense was recognized for stock options during 2010. Cash received from the exercise of stock options in 2012, 2011 and 2010 was $50 million, $32 million and $6 million, respectively. The total intrinsic value of options exercised during 2012 was $18 million.

Performance Shares

Performance shares are share equivalents and do not have voting rights. The shares track the performance of FE's common stock over a three-year vesting period. During that time, dividend equivalents are converted into additional shares. The final account value may be adjusted based on the ranking of FE stock performance to a composite of peer companies. Compensation expense (credits) recognized for performance shares during 2012, 2011 and 2010, net of amounts capitalized, totaled approximately $3 million, $2 million and $(4) million, respectively. During 2012, 2011 and 2010, no cash was paid to settle performance shares due to the criteria not being met for the previous three-year vesting period.

ESOP

An ESOP Trust funded most of the matching contribution for FirstEnergy’s 401(k) savings plan through December 31, 2007. All employees eligible for participation in the 401(k) savings plan are covered by the ESOP.

In 2012, 2011 and 2010, shares of FE common stock were purchased on the market and contributed to participants’ accounts. Total ESOP-related compensation expenses in 2012, 2011 and 2010, net of amounts capitalized and dividends on common stock, were $23 million, $21 million and $30 million, respectively.

EDCP

Under the EDCP, covered employees can direct a portion of their compensation, including annual incentive awards and/or long-term incentive awards, into an unfunded FE stock account to receive vested stock units or into an unfunded retirement cash account. Dividends are calculated quarterly on stock units outstanding and are paid in the form of additional stock units. Upon withdrawal, stock units are converted to FE shares. Payout typically occurs three years from the date of deferral; however, an election can be made in the year prior to payout to further defer shares into a retirement stock account that will pay out in cash upon retirement. Interest is calculated on the cash allocated to the cash account and the total balance will pay out in cash upon retirement. Compensation expenses (credits) recognized on EDCP stock units, net of amounts capitalized, in 2011 and 2010 were $4 million and $(3) million, respectively. In 2012, compensation expense was insignificant.

DCPD

Under the DCPD, members of the Board of Directors can elect to allocate all or a portion of their cash retainers, meeting fees and chair fees to deferred stock or deferred cash accounts. DCPD expenses of $4 million were recognized in each of the years 2012, 2011 and 2010. The net liability recognized for DCPD of approximately $6 million as of December 31, 2012 and December 31, 2011, respectively, is included in the caption “Retirement benefits” on the Consolidated Balance Sheets.

Of the 1.7 million stock units authorized under the EDCP and DCPD, 988,713 stock units were available for future awards as of December 31, 2012.