Stock-Based Compensation Plans (All Registrants)

Stock-Based Compensation Plans

Exelon grants stock-based awards through its LTIP, which primarily includes stock options, restricted stock units and performance share awards. At December 31, 2016, there were approximately 14 million shares authorized for issuance under the LTIP. For the years ended December 31, 2016, 2015 and 2014, exercised and distributed stock-based awards were primarily issued from authorized but unissued common stock shares.

Beginning in 2014, ComEd, PECO and BGE grant cash awards. The following tables do not include expense related to these plans as they are not considered stock-based compensation plans under the applicable accounting guidance.

In connection with the acquisition of PHI in March 2016, PHI’s unvested time-based restricted stock units and performance-based restricted stock units issued prior to April 29, 2014 were immediately vested and paid in cash upon the close of the merger. PHI’s remaining unvested time-based restricted stock units as of the close of the merger were cancelled. There were no remaining unvested performance-based restricted stock units as of the close of the merger.

The following tables present the stock-based compensation expense included in Exelon's and PHI’s Consolidated Statements of Operations and Comprehensive Income for the years ended December 31, 2016, 2015 and 2014, as well as for the PHI predecessor period January 1, 2016 to March 23, 2016:



Exelon	Year Ended December 31,
Components of Stock-Based Compensation Expense	2016(a)			2015			2014
Performance share awards	$	93		$	41		$	59
Restricted stock units	75			71			61
Stock options	—			1			2
Other stock-based awards	7			6			5
Total stock-based compensation expense included in operating and maintenance expense	175			119			127
Income tax benefit	(68		)	(46		)	(47		)
Total after-tax stock-based compensation expense	$	107		$	73		$	80

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(a)	2016 amounts include expense related to stock-based compensation granted to eligible PHI employees since the merger date of March 23, 2016.

PHI



	Predecessor
	January 1 to March 23,			Years Ended December 31,
Components of Stock-Based Compensation Expense	2016			2015			2014
Time-based restricted stock units	$	2		$	7		$	5
Performance-based restricted stock units	1			5			8
Time-based restricted stock awards	—			1			5
Total stock-based compensation expense included in operating and maintenance expense	3			13			18
Income tax benefit	(1		)	(5		)	(7		)
Total after-tax stock-based compensation expense	$	2		$	8		$	11

The following tables present the Registrants' stock-based compensation expense (pre-tax) for the years ended December 31, 2016, 2015 and 2014, as well as for the PHI predecessor period January 1, 2016 to March 23, 2016:



	Years Ended December 31,
Subsidiaries	2016		2015		2014
Exelon	$	175	$	119	$	127
Generation	78		64		52
ComEd	8		6		7
PECO	3		3		3
BGE	1		3		5
BSC ^(a)	81		43		60
PHI ^(a)(b)	7		13		18



	Successor		Predecessor
	March 24 to December 31,		January 1 to March 23,		Years Ended December 31,
	2016		2016		2015		2014
PHI	$	4	$	3	$	13	$	18

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(a)	These amounts primarily represent amounts billed to Exelon’s subsidiaries through intercompany allocations. These amounts are not included in the Generation, ComEd, PECO, BGE or PHI amounts above.


(b)	Pepco's, DPL's and ACE's stock-based compensation expense for the year ended December 31, 2016 and for the period January 1, 2016 through March 23, 2016 was not material. PHI's stock-based compensation expense for the year ended December 31, 2016 includes $3 million of costs incurred prior to the closing of Exelon’s merger with PHI on March 23, 2016.

There were no significant stock-based compensation costs capitalized during the years ended December 31, 2016, 2015 and 2014 for Exelon or PHI, or for PHI during the predecessor period January 1, 2016 to March 23, 2016.

Exelon and PHI receive a tax deduction based on the intrinsic value of the award on the exercise date for stock options and the distribution date for performance share awards and restricted stock units. For each award, throughout the requisite service period, Exelon and PHI recognize the tax benefit related to compensation costs. The following tables present information regarding Exelon’s and PHI's tax benefits for the years ended December 31, 2016, 2015 and 2014 and PHI's predecessor period January 1, 2016 to March 23, 2016:



Exelon	Years Ended December 31,
	2016		2015		2014
Realized tax benefit when exercised/distributed:
Restricted stock units	$	27	$	30	$	17
Performance share awards	18		18		11

PHI



	Predecessor
	January 1 to March 23,		Years Ended December 31,
	2016		2015		2014
Realized tax benefit when exercised/distributed:
Time-based restricted stock units	$	—	$	2	$	3
Performance-based restricted stock units	—		5		4
Time-based restricted stock awards	—		—		1

Stock Options

Non-qualified stock options to purchase shares of Exelon’s common stock were granted under the LTIP through 2012. Due to changes in the LTIP, there were no stock options granted in 2014, 2015 or 2016. For all stock options granted through 2012, the exercise price of the stock options is equal to the fair market value of the underlying stock on the date of option grant. The vesting period of stock options is generally four years. As of December 31, 2016 all stock options are fully vested. All stock options expire ten years from the date of grant.

The value of stock options at the date of grant is expensed over the requisite service period using the straight-line method. The requisite service period for stock options is generally four years. However, certain stock options become fully vested upon the employee reaching retirement-eligibility. The value of the stock options granted to retirement-eligible employees is either recognized immediately upon the date of grant or through the date at which the employee reaches retirement eligibility.

The following table presents information with respect to stock option activity for the year ended December 31, 2016:



	Shares		Weighted Average Exercise Price (per share)		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Balance of shares outstanding at December 31, 2015	15,572,757		$	46.68
Options exercised	(840,672	)	22.12
Options forfeited	—		—
Options expired	(2,200,494	)	58.60
Balance of shares outstanding at December 31, 2016	12,531,591		$	46.23	3.50	$	13
Exercisable at December 31, 2016 (a)	12,531,591		$	46.23	3.50	$	13

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(a)	Includes stock options issued to retirement eligible employees.

The following table summarizes additional information regarding stock options exercised for the years ended December 31, 2016, 2015 and 2014:



	Years Ended December 31,
	2016		2015		2014
Intrinsic value^(a)	$	11	$	—	$	3
Cash received for exercise price	19		—		7

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(a)	The difference between the market value on the date of exercise and the option exercise price.

The following table summarizes Exelon’s nonvested stock option activity for the year ended December 31, 2016:



	Shares		Weighted Average Exercise Price (per share)
Nonvested at December 31, 2015 (a)	82,250		$	39.81
Vested	(82,250	)	39.81
Nonvested at December 31, 2016 (a)	—		$	—

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(a)	Excludes 279,000 of stock options issued to retirement-eligible employees as of December 31, 2015 as they are fully vested. As of December 31, 2016, all stock options are fully vested.

At December 31, 2016, there was no unrecognized compensation costs related to nonvested stock options.

Restricted Stock Units

Restricted stock units are granted under the LTIP with the majority being settled in a specific number of shares of common stock after the service condition has been met. The corresponding cost of services is measured based on the grant date fair value of the restricted stock unit issued.

The value of the restricted stock units is expensed over the requisite service period using the straight-line method. The requisite service period for restricted stock units is generally three to five years. However, certain restricted stock unit awards become fully vested upon the employee reaching retirement-eligibility. The value of the restricted stock units granted to retirement-eligible employees is either recognized immediately upon the date of grant or through the date at which the employee reaches retirement eligibility. Exelon uses historical data to estimate employee forfeitures, which are compared to actual forfeitures on a quarterly basis and adjusted as necessary.

The following tables summarize Exelon’s and PHI's nonvested restricted stock unit activity for the year ended December 31, 2016 and PHI's for the predecessor period January 1, 2016 to March 23, 2016:

Exelon



	Shares		Weighted Average Grant Date Fair Value (per share)
Nonvested at December 31, 2015 (a)	3,563,254		$	32.92
Granted	3,042,184		28.14
Vested	(1,797,536	)	32.44
Forfeited	(85,940	)	30.08
Undistributed vested awards^(b)	(897,546	)	28.35
Nonvested at December 31, 2016 (a)(c)	3,824,416		$	30.49

PHI



	Time-based Shares	Weighted Average Grant Date Fair Value (per share)		Performance-based Shares			Weighted Average Grant Date Fair Value (per share)
Nonvested at December 31, 2015	628,514	$	24.71	$	408,638		$	18.56
Granted	152,928	26.01		305,856			25.41
Vested	—	—		(4,950		)	26.08
Forfeited	—	—		(1,238		)	26.08
Nonvested at March 23, 2016	781,442	$	24.96	$	708,306		$	21.45

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(a)	Excludes 1,319,372 and 975,116 of restricted stock units issued to retirement-eligible employees as of December 31, 2016 and 2015, respectively, as they are fully vested.


(b)	Represents restricted stock units that vested but were not distributed to retirement-eligible employees during 2016.


(c)	2016 amounts include activity related to stock-based compensation granted to eligible PHI employees since the merger date of March 23, 2016.

For Exelon, the weighted average grant date fair value (per share) of restricted stock units granted for the years ended December 31, 2016, 2015 and 2014 was $28.14, $36.55 and $28.71, respectively. At December 31, 2016 and 2015, Exelon had obligations related to outstanding restricted stock units not yet settled of $101 million and $97 million, respectively, which are included in common stock in Exelon’s Consolidated Balance Sheets. For the years ended December 31, 2016, 2015 and 2014, Exelon settled restricted stock units with fair value totaling $68 million, $75 million and $43 million, respectively. At December 31, 2016, $58 million of total unrecognized compensation costs related to nonvested restricted stock units are expected to be recognized over the remaining weighted-average period of 2 years.

For PHI, the weighted average grant date fair value (per share) of time-based restricted stock units granted for the years ended December 31, 2015 and 2014 was $27.40 and $19.77, respectively, and for performance-based restricted stock units was $26.08 and $18.53 for the same periods, respectively. At December 31, 2015 PHI had obligations related to outstanding time-based and performance-based restricted stock units not yet settled of $1 million each, which are included in common stock in PHI’s Consolidated Balance Sheet. For the years ended December 31, 2015 and 2014, PHI settled time-based restricted stock units with fair value totaling $6 million and $8 million, respectively, and settled performance-based restricted stock units with fair value totaling $15 million and $9 million, for the same periods, respectively. There were no settled restricted stock units for the predecessor period January 1, 2016 to March 23, 2016.

Performance Share Awards

Performance share awards are granted under the LTIP. The performance share awards are being settled 50% in common stock and 50% in cash at the end of the three-year performance period, except for awards granted to vice presidents and higher officers that may be settled 100% in common stock, 100% in cash or 50%in common stock and 50% in cash if certain ownership requirements are satisfied.

The common stock portion of the performance share is considered an equity award and is valued based on Exelon's stock price on the grant date. The cash portion of the awards is considered a liability award which is remeasured each reporting period based on Exelon’s current stock price. As the value of the common stock and cash portions of the awards are based on Exelon’s stock price during the performance period, coupled with changes in the total shareholder return modifier and expected payout of the award, the compensation costs are subject to volatility until payout is established.

For nonretirement-eligible employees, stock-based compensation costs are recognized over the vesting period of three years using the graded-vesting method. For performance share awards granted to retirement-eligible employees, the value of the performance shares is recognized ratably over the vesting period, which is the year of grant.

The following tables summarize Exelon’s and PHI's nonvested performance share awards activity for the year ended December 31, 2016 and PHI's for the predecessor period January 1, 2016 to March 23, 2016:

Exelon



	Shares (c)		Weighted Average Grant Date Fair Value (per share)
Nonvested at December 31, 2015 (a)	2,557,159		$	31.88
Granted	2,319,407		28.85
Change in performance	627,303		30.04
Vested	(949,315	)	31.31
Forfeited	(70,876	)	30.90
Undistributed vested awards ^(b)	(1,367,417	)	28.33
Nonvested at December 31, 2016 (a)	3,116,261		$	30.77

PHI



	Time-based Shares	Weighted Average Grant Date Fair Value (per share)		Performance-based Shares		Weighted Average Grant Date Fair Value (per share)
Nonvested at December 31, 2015	54,165	$	26.80	24,717		$	26.10
Vested	—	—		(24,717	)	26.10
Nonvested at March 23, 2016	54,165	$	26.80	—		$	—

________________


(a)	Excludes 2,443,409 and 1,817,883 of performance share awards issued to retirement-eligible employees as of December 31, 2016 and 2015, respectively, as they are fully vested.


(b)	Represents performance share awards that vested but were not distributed to retirement-eligible employees during 2016.


(c)	2016 amounts include PHI for the period of March 24, 2016 through December 31, 2016.

For Exelon, the weighted average grant date fair value (per share) of performance share awards granted during the years ended December 31, 2016, 2015 and 2014 was $28.85, $35.88, and $28.75, respectively. During the years ended December 31, 2016, 2015 and 2014, Exelon settled performance shares with a fair value totaling $45 million, $46 million and $27 million, respectively, of which $28 million, $29 million and $13 million was paid in cash, respectively. As of December 31, 2016, $51 million of total unrecognized compensation costs related to nonvested performance shares are expected to be recognized over the remaining weighted-average period of 2 years.

For PHI, the weighted average grant date fair value (per share) of time-based restricted stock awards granted for the year ended December 31, 2014 was $26.80 and for performance-based restricted stock awards was $26.10 and $27.01 for the years ended December 31, 2015 and 2014, respectively. There were no time-based restricted stock awards granted for the year ended December 31, 2015. At December 31, 2015 PHI had no obligations related to vested time-based and performance-based restricted stock awards not yet settled. For the year ended December 31, 2014 PHI settled time-based shares with a fair value totaling $3 million. There were no time-based share settlements for the year-ended December 31, 2015 or the predecessor period January 1, 2016 to March 23, 2016 or performance-based share settlements for the predecessor period January 1, 2016 to March 23, 2016 and the years ended December 31, 2015 and 2014.

The following table presents the balance sheet classification of obligations related to outstanding performance share awards not yet settled:



	December 31,
	2016		2015^(c)
Current liabilities^(a)	$	49	$	28
Deferred credits and other liabilities ^(b)	52		32
Common stock	40		35
Total	$	141	$	95

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(a)	Represents the current liability related to performance share awards expected to be settled in cash.


(b)	Represents the long-term liability related to performance share awards expected to be settled in cash.


(c)	Excludes $8 million of common stock for PHI at December 31, 2015.