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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2013
Stock-Based Compensation [Line Items]  
Stock-Based Compensation

12. Stock-Based Compensation

 

(All Registrants except LG&E and KU)

 

In 2012, shareowners approved the PPL SIP. This new equity plan replaces the PPL ICP and incorporates the following changes:

 

       Eliminates the potential to pay dividend equivalents on stock options.

 

       Eliminates the automatic lapse of restrictions on all equity awards in the event of a "potential" change in control and requires that a termination of employment occur in the event of a change in control before restrictions lapse.

 

       Changes the treatment of outstanding stock options upon retirement to limit the exercise period to the earlier of the end of the term (ten years from grant) or five years after retirement.

 

To further align the executives' interests with those of PPL shareowners, this plan provides that each restricted stock unit entitles the executive to accrue additional restricted stock units equal to the amount of quarterly dividends paid on PPL stock. These additional restricted stock units would be deferred and payable in shares of PPL common stock at the end of the restriction period. Dividend equivalents on restricted stock unit awards granted under the ICP and ICPKE are currently paid in cash when dividends are declared by PPL.

 

Under the ICP, SIP and the ICPKE (together, the Plans), restricted shares of PPL common stock, restricted stock units, performance units and stock options may be granted to officers and other key employees of PPL, PPL Energy Supply, PPL Electric, LKE and other affiliated companies. Awards under the Plans are made by the Compensation, Governance and Nominating Committee (CGNC) of the PPL Board of Directors, in the case of the ICP and SIP, and by the PPL Corporate Leadership Council (CLC), in the case of the ICPKE.

 

The following table details the award limits under each of the plans.

    Annual Grant Limit   Annual Grant Limit
    Total As % of   For Individual Participants -
  Total Plan  Outstanding Annual Grant Performance Based Awards
  Award PPL Common Stock Limit For awards For awards
  Limit On First Day of Options denominated in denominated in
Plan (Shares) Each Calendar Year (Shares) shares (Shares) cash (in dollars)
            
ICP (a) 15,769,431 2% 3,000,000     
SIP 10,000,000   2,000,000 750,000 $15,000,000
ICPKE 14,199,796 2% 3,000,000     

(a)       Applicable to outstanding awards granted from January 27, 2006 to January 26, 2012. During 2012, the total plan award limit was reached and the ICP was replaced by the SIP.

 

Any portion of these awards that has not been granted may be carried over and used in any subsequent year. If any award lapses, is forfeited or the rights of the participant terminate, the shares of PPL common stock underlying such an award are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued PPL common stock, common stock held in treasury by PPL or PPL common stock purchased on the open market (including private purchases) in accordance with applicable securities laws.

 

Restricted Stock and Restricted Stock Units

 

Restricted shares of PPL common stock are outstanding shares with full voting and dividend rights. Restricted stock awards are granted as a retention award for select key executives and vest when the recipient reaches a certain age or meets service or other criteria set forth in the executive's restricted stock award agreement. The shares are subject to forfeiture or accelerated payout under plan provisions for termination, retirement, disability and death of employees. Restricted shares vest fully, in certain situations, as defined by each of the Plans.

 

The Plans allow for the grant of restricted stock units. Restricted stock units are awards based on the fair value of PPL common stock on the date of grant. Actual PPL common shares will be issued upon completion of a vesting period, generally three years.

 

The fair value of restricted stock and restricted stock units granted is recognized on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of restricted stock and restricted stock units granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. Recipients of restricted stock units may also be granted the right to receive dividend equivalents through the end of the restriction period or until the award is forfeited. Restricted stock and restricted stock units are subject to forfeiture or accelerated payout under the plan provisions for termination, retirement, disability and death of employees. Restricted stock and restricted stock units vest fully, in certain situations, as defined by each of the Plans.

The weighted-average grant date fair value of restricted stock and restricted stock units granted was:

   2013 2012 2011
           
PPL $ 30.30 $ 28.35 $ 25.25
PPL Energy Supply   30.42   28.29   25.14
PPL Electric   30.55   28.51   25.09
LKE   30.00   28.34   

Restricted stock and restricted stock unit activity for 2013 was:

      Weighted-
      Average
    Restricted Grant Date Fair
    Shares/Units Value Per Share
PPL      
Nonvested, beginning of period   2,503,770 $ 27.73
 Granted   1,307,951   30.30
 Vested   (638,421)   29.19
 Forfeited   (32,700)   28.61
Nonvested, end of period   3,140,600   28.50
        
PPL Energy Supply      
Nonvested, beginning of period   1,060,686 $ 27.95
 Transferred   3,820   27.31
 Granted   527,440   30.42
 Vested   (236,382)   29.10
 Forfeited   (12,160)   29.04
Nonvested, end of period   1,343,404   28.71
        
PPL Electric      
Nonvested, beginning of period   261,228 $ 27.30
 Transferred   (5,810)   27.48
 Granted   108,990   30.55
 Vested   (94,008)   28.41
 Forfeited   (4,850)   28.61
Nonvested, end of period   265,550   28.22
        
LKE      
Nonvested, beginning of period   139,640 $ 28.34
 Granted   127,293   30.00
 Vested   (35,380)   28.87
Nonvested, end of period   231,553   29.17

Substantially all restricted stock and restricted stock unit awards are expected to vest.

 

The total fair value of restricted stock and restricted stock units vesting for the years ended December 31 was:

   2013 2012 2011
           
PPL $ 19 $ 27 $ 19
PPL Energy Supply   7   6   6
PPL Electric   3   2   2
LKE   1   4   1

Performance Units

 

Performance units are intended to encourage and reward future corporate performance. Performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable performance goal. Performance is determined based on total shareowner return during a three-year performance period. At the end of the period, payout is determined by comparing PPL's performance to the total shareowner return of the companies included in an index group, in the case of the 2011 awards, the S&P 500 Electric Utilities Index, and in the case of the 2012 and 2013 awards, the Philadelphia Stock Exchange Utility Index. Awards are payable on a graduated basis based on thresholds that measure PPL's performance relative to peers that comprise the applicable index on which each years' awards are measured. Awards can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the determination of the CGNC of whether the performance goals have been achieved. Under the plan provisions, performance units are subject to forfeiture upon termination of employment except for retirement, disability or death of an employee, in which case the total performance units remain outstanding and are eligible for vesting through the conclusion of the performance period. The fair value of performance units granted is recognized as compensation expense on a straight-line basis over the three-year performance period. Performance units vest on a pro rata basis, in certain situations, as defined by each of the Plans.

The fair value of each performance unit granted was estimated using a Monte Carlo pricing model that considers stock beta, a risk-free interest rate, expected stock volatility and expected life. The stock beta was calculated comparing the risk of the individual securities to the average risk of the companies in the index group. The risk-free interest rate reflects the yield on a U.S. Treasury bond commensurate with the expected life of the performance unit. Volatility over the expected term of the performance unit is calculated using daily stock price observations for PPL and all companies in the index group and is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL and the companies in the index group. Beginning in 2011, PPL began using a mix of historic and implied volatility in response to the significant changes in its business model, moving from a primarily unregulated to a primarily regulated business model, as a result of the acquisitions of LKE and WPD Midlands.

 

The weighted-average assumptions used in the model were:

    2013  2012  2011
           
Risk-free interest rate  0.36%  0.30%  1.00%
Expected stock volatility  15.50%  19.30%  23.40%
Expected life  3 years  3 years  3 years

The weighted-average grant date fair value of performance units granted was:

   2013 2012 2011
           
PPL $ 34.15 $ 31.41 $ 29.67
PPL Energy Supply   34.29   31.40   29.68
PPL Electric   33.97   31.37   29.57
LKE   33.84   31.30   29.20

Performance unit activity for 2013 was:

      Weighted-
      Average Grant
   Performance Date Fair Value
   Units Per Share
PPL      
Nonvested, beginning of period   594,203 $ 31.14
 Granted   348,495   34.15
 Forfeited   (149,499)   32.63
Nonvested, end of period   793,199   32.19
        
PPL Energy Supply      
Nonvested, beginning of period   124,189 $ 31.26
 Granted   74,614   34.29
 Forfeited   (28,194)   33.47
Nonvested, end of period   170,609   32.22
        
PPL Electric      
Nonvested, beginning of period   26,083 $ 31.10
 Granted   18,666   33.97
 Forfeited   (6,539)   32.78
Nonvested, end of period   38,210   32.22
        
LKE      
Nonvested, beginning of period   82,750 $ 30.62
 Granted   49,540   33.84
 Forfeited   (2,660)   29.17
Nonvested, end of period   129,630   31.88

Stock Options

 

Under the Plans, stock options may be granted with an option exercise price per share not less than the fair value of PPL's common stock on the date of grant. Options outstanding at December 31, 2013, become exercisable in equal installments over a three-year service period beginning one year after the date of grant, assuming the individual is still employed by PPL or a subsidiary. The CGNC and CLC have discretion to accelerate the exercisability of the options, except that the exercisability of an option issued under the ICP may not be accelerated unless the individual remains employed by PPL or a subsidiary for one year from the date of grant. All options expire no later than ten years from the grant date. The options become exercisable immediately in certain situations, as defined by each of the Plans. The fair value of options granted is recognized as compensation expense on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of options granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant.

The fair value of each option granted is estimated using a Black-Scholes option-pricing model. PPL uses a risk-free interest rate, expected option life, expected volatility and dividend yield to value its stock options. The risk-free interest rate reflects the yield for a U.S. Treasury Strip available on the date of grant with constant rate maturity approximating the option's expected life. Expected life is calculated based on historical exercise behavior. Volatility over the expected term of the options is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL's volatility in those prior periods. Management's expectations for future volatility, considering potential changes to PPL's business model and other economic conditions, are also reviewed in addition to the historical data to determine the final volatility assumption. Beginning in 2011, PPL began using a mix of historic and implied volatility in response to the significant changes in its business model, moving from a primarily unregulated to a primarily regulated business model, as a result of the acquisitions of LKE and WPD Midlands. The dividend yield is based on several factors, including PPL's most recent dividend payment, as of the grant date and the forecasted stock price. The assumptions used in the model were:

   2013 2012 2011
           
Risk-free interest rate  1.15%  1.13%  2.34%
Expected option life  6.48 years  6.17 years  5.71 years
Expected stock volatility  18.50%  20.60%  21.60%
Dividend yield  5.00%  5.00%  5.93%

The weighted-average grant date fair value of options granted was:

   2013 2012 2011
           
PPL $ 2.18 $ 2.48 $ 2.47
PPL Energy Supply   2.19   2.51   2.47
PPL Electric   2.19   2.50   2.47
LKE   2.18   2.51   2.47

Stock option activity for 2013 was:

       Weighted-  
      Weighted Average   
     Average Remaining Aggregate
   Number Exercise Contractual Total Intrinsic
   of Options Price Per Share Term (years) Value
PPL            
Outstanding at beginning of period   9,134,545 $ 30.36      
 Granted   3,383,630   29.56      
 Exercised   (1,136,693)   27.13      
Outstanding at end of period   11,381,482   30.45   6.6 $ 15
Options exercisable at end of period   6,415,615   31.66   5.0   8
              
PPL Energy Supply            
Outstanding at beginning of period   2,265,123 $ 30.45      
 Transferred   88,546   25.67      
 Granted   713,030   29.66      
 Exercised   (221,363)   25.76      
Outstanding at end of period   2,845,336   30.47   6.2 $ 4
Options exercisable at end of period   1,747,842   31.48   4.6   2
              
PPL Electric            
Outstanding at beginning of period   340,530 $ 30.35      
 Granted   191,670   29.49      
Outstanding at end of period   532,200   30.04   7.1 $ 1
Options exercisable at end of period   260,950   31.24   5.5   
              
LKE            
Outstanding at beginning of period   634,847 $ 27.11      
 Granted   501,950   29.51      
 Exercised   (139,641)   26.87      
Outstanding at end of period   997,156   28.35   8.4 $ 2
Options exercisable at end of period   250,682   27.22   7.7   1

PPL received $31 million in cash from stock options exercised in 2013. The related tax savings were not significant for 2013. Substantially all stock option awards are expected to vest.

 

The total intrinsic value of stock options exercised for 2013 was $6 million and was not significant for 2012 and 2011.

Compensation Expense

 

Compensation expense for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards was as follows:

   2013 2012 2011
           
PPL $ 52 $ 49 $ 36
PPL Energy Supply   27   23   16
PPL Electric   10   11   8
LKE   8   8   5

The income tax benefit related to above compensation expense was as follows:

   2013 2012 2011
           
PPL  $ 22 $ 20 $ 15
PPL Energy Supply   11   10   6
PPL Electric    4   4   3
LKE    3   4   2

The income tax benefit PPL realized from stock-based awards vested or exercised for 2013 was not significant.

At December 31, 2013, unrecognized compensation expense related to nonvested restricted stock, restricted stock units, performance units and stock option awards was:

       
     Weighted-
   Unrecognized Average
   Compensation Period for
   Expense Recognition
        
PPL $ 33  1.9 years
PPL Energy Supply   13  2.0 years
PPL Electric   3  2.0 years
LKE   2  1.7 years
PPL Energy Supply LLC [Member]
  
Stock-Based Compensation [Line Items]  
Stock-Based Compensation

12. Stock-Based Compensation

 

(All Registrants except LG&E and KU)

 

In 2012, shareowners approved the PPL SIP. This new equity plan replaces the PPL ICP and incorporates the following changes:

 

       Eliminates the potential to pay dividend equivalents on stock options.

 

       Eliminates the automatic lapse of restrictions on all equity awards in the event of a "potential" change in control and requires that a termination of employment occur in the event of a change in control before restrictions lapse.

 

       Changes the treatment of outstanding stock options upon retirement to limit the exercise period to the earlier of the end of the term (ten years from grant) or five years after retirement.

 

To further align the executives' interests with those of PPL shareowners, this plan provides that each restricted stock unit entitles the executive to accrue additional restricted stock units equal to the amount of quarterly dividends paid on PPL stock. These additional restricted stock units would be deferred and payable in shares of PPL common stock at the end of the restriction period. Dividend equivalents on restricted stock unit awards granted under the ICP and ICPKE are currently paid in cash when dividends are declared by PPL.

 

Under the ICP, SIP and the ICPKE (together, the Plans), restricted shares of PPL common stock, restricted stock units, performance units and stock options may be granted to officers and other key employees of PPL, PPL Energy Supply, PPL Electric, LKE and other affiliated companies. Awards under the Plans are made by the Compensation, Governance and Nominating Committee (CGNC) of the PPL Board of Directors, in the case of the ICP and SIP, and by the PPL Corporate Leadership Council (CLC), in the case of the ICPKE.

 

The following table details the award limits under each of the plans.

    Annual Grant Limit   Annual Grant Limit
    Total As % of   For Individual Participants -
  Total Plan  Outstanding Annual Grant Performance Based Awards
  Award PPL Common Stock Limit For awards For awards
  Limit On First Day of Options denominated in denominated in
Plan (Shares) Each Calendar Year (Shares) shares (Shares) cash (in dollars)
            
ICP (a) 15,769,431 2% 3,000,000     
SIP 10,000,000   2,000,000 750,000 $15,000,000
ICPKE 14,199,796 2% 3,000,000     

(a)       Applicable to outstanding awards granted from January 27, 2006 to January 26, 2012. During 2012, the total plan award limit was reached and the ICP was replaced by the SIP.

 

Any portion of these awards that has not been granted may be carried over and used in any subsequent year. If any award lapses, is forfeited or the rights of the participant terminate, the shares of PPL common stock underlying such an award are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued PPL common stock, common stock held in treasury by PPL or PPL common stock purchased on the open market (including private purchases) in accordance with applicable securities laws.

 

Restricted Stock and Restricted Stock Units

 

Restricted shares of PPL common stock are outstanding shares with full voting and dividend rights. Restricted stock awards are granted as a retention award for select key executives and vest when the recipient reaches a certain age or meets service or other criteria set forth in the executive's restricted stock award agreement. The shares are subject to forfeiture or accelerated payout under plan provisions for termination, retirement, disability and death of employees. Restricted shares vest fully, in certain situations, as defined by each of the Plans.

 

The Plans allow for the grant of restricted stock units. Restricted stock units are awards based on the fair value of PPL common stock on the date of grant. Actual PPL common shares will be issued upon completion of a vesting period, generally three years.

 

The fair value of restricted stock and restricted stock units granted is recognized on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of restricted stock and restricted stock units granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. Recipients of restricted stock units may also be granted the right to receive dividend equivalents through the end of the restriction period or until the award is forfeited. Restricted stock and restricted stock units are subject to forfeiture or accelerated payout under the plan provisions for termination, retirement, disability and death of employees. Restricted stock and restricted stock units vest fully, in certain situations, as defined by each of the Plans.

The weighted-average grant date fair value of restricted stock and restricted stock units granted was:

   2013 2012 2011
           
PPL $ 30.30 $ 28.35 $ 25.25
PPL Energy Supply   30.42   28.29   25.14
PPL Electric   30.55   28.51   25.09
LKE   30.00   28.34   

Restricted stock and restricted stock unit activity for 2013 was:

      Weighted-
      Average
    Restricted Grant Date Fair
    Shares/Units Value Per Share
PPL      
Nonvested, beginning of period   2,503,770 $ 27.73
 Granted   1,307,951   30.30
 Vested   (638,421)   29.19
 Forfeited   (32,700)   28.61
Nonvested, end of period   3,140,600   28.50
        
PPL Energy Supply      
Nonvested, beginning of period   1,060,686 $ 27.95
 Transferred   3,820   27.31
 Granted   527,440   30.42
 Vested   (236,382)   29.10
 Forfeited   (12,160)   29.04
Nonvested, end of period   1,343,404   28.71
        
PPL Electric      
Nonvested, beginning of period   261,228 $ 27.30
 Transferred   (5,810)   27.48
 Granted   108,990   30.55
 Vested   (94,008)   28.41
 Forfeited   (4,850)   28.61
Nonvested, end of period   265,550   28.22
        
LKE      
Nonvested, beginning of period   139,640 $ 28.34
 Granted   127,293   30.00
 Vested   (35,380)   28.87
Nonvested, end of period   231,553   29.17

Substantially all restricted stock and restricted stock unit awards are expected to vest.

 

The total fair value of restricted stock and restricted stock units vesting for the years ended December 31 was:

   2013 2012 2011
           
PPL $ 19 $ 27 $ 19
PPL Energy Supply   7   6   6
PPL Electric   3   2   2
LKE   1   4   1

Performance Units

 

Performance units are intended to encourage and reward future corporate performance. Performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable performance goal. Performance is determined based on total shareowner return during a three-year performance period. At the end of the period, payout is determined by comparing PPL's performance to the total shareowner return of the companies included in an index group, in the case of the 2011 awards, the S&P 500 Electric Utilities Index, and in the case of the 2012 and 2013 awards, the Philadelphia Stock Exchange Utility Index. Awards are payable on a graduated basis based on thresholds that measure PPL's performance relative to peers that comprise the applicable index on which each years' awards are measured. Awards can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the determination of the CGNC of whether the performance goals have been achieved. Under the plan provisions, performance units are subject to forfeiture upon termination of employment except for retirement, disability or death of an employee, in which case the total performance units remain outstanding and are eligible for vesting through the conclusion of the performance period. The fair value of performance units granted is recognized as compensation expense on a straight-line basis over the three-year performance period. Performance units vest on a pro rata basis, in certain situations, as defined by each of the Plans.

The fair value of each performance unit granted was estimated using a Monte Carlo pricing model that considers stock beta, a risk-free interest rate, expected stock volatility and expected life. The stock beta was calculated comparing the risk of the individual securities to the average risk of the companies in the index group. The risk-free interest rate reflects the yield on a U.S. Treasury bond commensurate with the expected life of the performance unit. Volatility over the expected term of the performance unit is calculated using daily stock price observations for PPL and all companies in the index group and is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL and the companies in the index group. Beginning in 2011, PPL began using a mix of historic and implied volatility in response to the significant changes in its business model, moving from a primarily unregulated to a primarily regulated business model, as a result of the acquisitions of LKE and WPD Midlands.

 

The weighted-average assumptions used in the model were:

    2013  2012  2011
           
Risk-free interest rate  0.36%  0.30%  1.00%
Expected stock volatility  15.50%  19.30%  23.40%
Expected life  3 years  3 years  3 years

The weighted-average grant date fair value of performance units granted was:

   2013 2012 2011
           
PPL $ 34.15 $ 31.41 $ 29.67
PPL Energy Supply   34.29   31.40   29.68
PPL Electric   33.97   31.37   29.57
LKE   33.84   31.30   29.20

Performance unit activity for 2013 was:

      Weighted-
      Average Grant
   Performance Date Fair Value
   Units Per Share
PPL      
Nonvested, beginning of period   594,203 $ 31.14
 Granted   348,495   34.15
 Forfeited   (149,499)   32.63
Nonvested, end of period   793,199   32.19
        
PPL Energy Supply      
Nonvested, beginning of period   124,189 $ 31.26
 Granted   74,614   34.29
 Forfeited   (28,194)   33.47
Nonvested, end of period   170,609   32.22
        
PPL Electric      
Nonvested, beginning of period   26,083 $ 31.10
 Granted   18,666   33.97
 Forfeited   (6,539)   32.78
Nonvested, end of period   38,210   32.22
        
LKE      
Nonvested, beginning of period   82,750 $ 30.62
 Granted   49,540   33.84
 Forfeited   (2,660)   29.17
Nonvested, end of period   129,630   31.88

Stock Options

 

Under the Plans, stock options may be granted with an option exercise price per share not less than the fair value of PPL's common stock on the date of grant. Options outstanding at December 31, 2013, become exercisable in equal installments over a three-year service period beginning one year after the date of grant, assuming the individual is still employed by PPL or a subsidiary. The CGNC and CLC have discretion to accelerate the exercisability of the options, except that the exercisability of an option issued under the ICP may not be accelerated unless the individual remains employed by PPL or a subsidiary for one year from the date of grant. All options expire no later than ten years from the grant date. The options become exercisable immediately in certain situations, as defined by each of the Plans. The fair value of options granted is recognized as compensation expense on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of options granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant.

The fair value of each option granted is estimated using a Black-Scholes option-pricing model. PPL uses a risk-free interest rate, expected option life, expected volatility and dividend yield to value its stock options. The risk-free interest rate reflects the yield for a U.S. Treasury Strip available on the date of grant with constant rate maturity approximating the option's expected life. Expected life is calculated based on historical exercise behavior. Volatility over the expected term of the options is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL's volatility in those prior periods. Management's expectations for future volatility, considering potential changes to PPL's business model and other economic conditions, are also reviewed in addition to the historical data to determine the final volatility assumption. Beginning in 2011, PPL began using a mix of historic and implied volatility in response to the significant changes in its business model, moving from a primarily unregulated to a primarily regulated business model, as a result of the acquisitions of LKE and WPD Midlands. The dividend yield is based on several factors, including PPL's most recent dividend payment, as of the grant date and the forecasted stock price. The assumptions used in the model were:

   2013 2012 2011
           
Risk-free interest rate  1.15%  1.13%  2.34%
Expected option life  6.48 years  6.17 years  5.71 years
Expected stock volatility  18.50%  20.60%  21.60%
Dividend yield  5.00%  5.00%  5.93%

The weighted-average grant date fair value of options granted was:

   2013 2012 2011
           
PPL $ 2.18 $ 2.48 $ 2.47
PPL Energy Supply   2.19   2.51   2.47
PPL Electric   2.19   2.50   2.47
LKE   2.18   2.51   2.47

Stock option activity for 2013 was:

       Weighted-  
      Weighted Average   
     Average Remaining Aggregate
   Number Exercise Contractual Total Intrinsic
   of Options Price Per Share Term (years) Value
PPL            
Outstanding at beginning of period   9,134,545 $ 30.36      
 Granted   3,383,630   29.56      
 Exercised   (1,136,693)   27.13      
Outstanding at end of period   11,381,482   30.45   6.6 $ 15
Options exercisable at end of period   6,415,615   31.66   5.0   8
              
PPL Energy Supply            
Outstanding at beginning of period   2,265,123 $ 30.45      
 Transferred   88,546   25.67      
 Granted   713,030   29.66      
 Exercised   (221,363)   25.76      
Outstanding at end of period   2,845,336   30.47   6.2 $ 4
Options exercisable at end of period   1,747,842   31.48   4.6   2
              
PPL Electric            
Outstanding at beginning of period   340,530 $ 30.35      
 Granted   191,670   29.49      
Outstanding at end of period   532,200   30.04   7.1 $ 1
Options exercisable at end of period   260,950   31.24   5.5   
              
LKE            
Outstanding at beginning of period   634,847 $ 27.11      
 Granted   501,950   29.51      
 Exercised   (139,641)   26.87      
Outstanding at end of period   997,156   28.35   8.4 $ 2
Options exercisable at end of period   250,682   27.22   7.7   1

PPL received $31 million in cash from stock options exercised in 2013. The related tax savings were not significant for 2013. Substantially all stock option awards are expected to vest.

 

The total intrinsic value of stock options exercised for 2013 was $6 million and was not significant for 2012 and 2011.

Compensation Expense

 

Compensation expense for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards was as follows:

   2013 2012 2011
           
PPL $ 52 $ 49 $ 36
PPL Energy Supply   27   23   16
PPL Electric   10   11   8
LKE   8   8   5

The income tax benefit related to above compensation expense was as follows:

   2013 2012 2011
           
PPL  $ 22 $ 20 $ 15
PPL Energy Supply   11   10   6
PPL Electric    4   4   3
LKE    3   4   2

The income tax benefit PPL realized from stock-based awards vested or exercised for 2013 was not significant.

At December 31, 2013, unrecognized compensation expense related to nonvested restricted stock, restricted stock units, performance units and stock option awards was:

       
     Weighted-
   Unrecognized Average
   Compensation Period for
   Expense Recognition
        
PPL $ 33  1.9 years
PPL Energy Supply   13  2.0 years
PPL Electric   3  2.0 years
LKE   2  1.7 years
PPL Electric Utilities Corp [Member]
  
Stock-Based Compensation [Line Items]  
Stock-Based Compensation

12. Stock-Based Compensation

 

(All Registrants except LG&E and KU)

 

In 2012, shareowners approved the PPL SIP. This new equity plan replaces the PPL ICP and incorporates the following changes:

 

       Eliminates the potential to pay dividend equivalents on stock options.

 

       Eliminates the automatic lapse of restrictions on all equity awards in the event of a "potential" change in control and requires that a termination of employment occur in the event of a change in control before restrictions lapse.

 

       Changes the treatment of outstanding stock options upon retirement to limit the exercise period to the earlier of the end of the term (ten years from grant) or five years after retirement.

 

To further align the executives' interests with those of PPL shareowners, this plan provides that each restricted stock unit entitles the executive to accrue additional restricted stock units equal to the amount of quarterly dividends paid on PPL stock. These additional restricted stock units would be deferred and payable in shares of PPL common stock at the end of the restriction period. Dividend equivalents on restricted stock unit awards granted under the ICP and ICPKE are currently paid in cash when dividends are declared by PPL.

 

Under the ICP, SIP and the ICPKE (together, the Plans), restricted shares of PPL common stock, restricted stock units, performance units and stock options may be granted to officers and other key employees of PPL, PPL Energy Supply, PPL Electric, LKE and other affiliated companies. Awards under the Plans are made by the Compensation, Governance and Nominating Committee (CGNC) of the PPL Board of Directors, in the case of the ICP and SIP, and by the PPL Corporate Leadership Council (CLC), in the case of the ICPKE.

 

The following table details the award limits under each of the plans.

    Annual Grant Limit   Annual Grant Limit
    Total As % of   For Individual Participants -
  Total Plan  Outstanding Annual Grant Performance Based Awards
  Award PPL Common Stock Limit For awards For awards
  Limit On First Day of Options denominated in denominated in
Plan (Shares) Each Calendar Year (Shares) shares (Shares) cash (in dollars)
            
ICP (a) 15,769,431 2% 3,000,000     
SIP 10,000,000   2,000,000 750,000 $15,000,000
ICPKE 14,199,796 2% 3,000,000     

(a)       Applicable to outstanding awards granted from January 27, 2006 to January 26, 2012. During 2012, the total plan award limit was reached and the ICP was replaced by the SIP.

 

Any portion of these awards that has not been granted may be carried over and used in any subsequent year. If any award lapses, is forfeited or the rights of the participant terminate, the shares of PPL common stock underlying such an award are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued PPL common stock, common stock held in treasury by PPL or PPL common stock purchased on the open market (including private purchases) in accordance with applicable securities laws.

 

Restricted Stock and Restricted Stock Units

 

Restricted shares of PPL common stock are outstanding shares with full voting and dividend rights. Restricted stock awards are granted as a retention award for select key executives and vest when the recipient reaches a certain age or meets service or other criteria set forth in the executive's restricted stock award agreement. The shares are subject to forfeiture or accelerated payout under plan provisions for termination, retirement, disability and death of employees. Restricted shares vest fully, in certain situations, as defined by each of the Plans.

 

The Plans allow for the grant of restricted stock units. Restricted stock units are awards based on the fair value of PPL common stock on the date of grant. Actual PPL common shares will be issued upon completion of a vesting period, generally three years.

 

The fair value of restricted stock and restricted stock units granted is recognized on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of restricted stock and restricted stock units granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. Recipients of restricted stock units may also be granted the right to receive dividend equivalents through the end of the restriction period or until the award is forfeited. Restricted stock and restricted stock units are subject to forfeiture or accelerated payout under the plan provisions for termination, retirement, disability and death of employees. Restricted stock and restricted stock units vest fully, in certain situations, as defined by each of the Plans.

The weighted-average grant date fair value of restricted stock and restricted stock units granted was:

   2013 2012 2011
           
PPL $ 30.30 $ 28.35 $ 25.25
PPL Energy Supply   30.42   28.29   25.14
PPL Electric   30.55   28.51   25.09
LKE   30.00   28.34   

Restricted stock and restricted stock unit activity for 2013 was:

      Weighted-
      Average
    Restricted Grant Date Fair
    Shares/Units Value Per Share
PPL      
Nonvested, beginning of period   2,503,770 $ 27.73
 Granted   1,307,951   30.30
 Vested   (638,421)   29.19
 Forfeited   (32,700)   28.61
Nonvested, end of period   3,140,600   28.50
        
PPL Energy Supply      
Nonvested, beginning of period   1,060,686 $ 27.95
 Transferred   3,820   27.31
 Granted   527,440   30.42
 Vested   (236,382)   29.10
 Forfeited   (12,160)   29.04
Nonvested, end of period   1,343,404   28.71
        
PPL Electric      
Nonvested, beginning of period   261,228 $ 27.30
 Transferred   (5,810)   27.48
 Granted   108,990   30.55
 Vested   (94,008)   28.41
 Forfeited   (4,850)   28.61
Nonvested, end of period   265,550   28.22
        
LKE      
Nonvested, beginning of period   139,640 $ 28.34
 Granted   127,293   30.00
 Vested   (35,380)   28.87
Nonvested, end of period   231,553   29.17

Substantially all restricted stock and restricted stock unit awards are expected to vest.

 

The total fair value of restricted stock and restricted stock units vesting for the years ended December 31 was:

   2013 2012 2011
           
PPL $ 19 $ 27 $ 19
PPL Energy Supply   7   6   6
PPL Electric   3   2   2
LKE   1   4   1

Performance Units

 

Performance units are intended to encourage and reward future corporate performance. Performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable performance goal. Performance is determined based on total shareowner return during a three-year performance period. At the end of the period, payout is determined by comparing PPL's performance to the total shareowner return of the companies included in an index group, in the case of the 2011 awards, the S&P 500 Electric Utilities Index, and in the case of the 2012 and 2013 awards, the Philadelphia Stock Exchange Utility Index. Awards are payable on a graduated basis based on thresholds that measure PPL's performance relative to peers that comprise the applicable index on which each years' awards are measured. Awards can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the determination of the CGNC of whether the performance goals have been achieved. Under the plan provisions, performance units are subject to forfeiture upon termination of employment except for retirement, disability or death of an employee, in which case the total performance units remain outstanding and are eligible for vesting through the conclusion of the performance period. The fair value of performance units granted is recognized as compensation expense on a straight-line basis over the three-year performance period. Performance units vest on a pro rata basis, in certain situations, as defined by each of the Plans.

The fair value of each performance unit granted was estimated using a Monte Carlo pricing model that considers stock beta, a risk-free interest rate, expected stock volatility and expected life. The stock beta was calculated comparing the risk of the individual securities to the average risk of the companies in the index group. The risk-free interest rate reflects the yield on a U.S. Treasury bond commensurate with the expected life of the performance unit. Volatility over the expected term of the performance unit is calculated using daily stock price observations for PPL and all companies in the index group and is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL and the companies in the index group. Beginning in 2011, PPL began using a mix of historic and implied volatility in response to the significant changes in its business model, moving from a primarily unregulated to a primarily regulated business model, as a result of the acquisitions of LKE and WPD Midlands.

 

The weighted-average assumptions used in the model were:

    2013  2012  2011
           
Risk-free interest rate  0.36%  0.30%  1.00%
Expected stock volatility  15.50%  19.30%  23.40%
Expected life  3 years  3 years  3 years

The weighted-average grant date fair value of performance units granted was:

   2013 2012 2011
           
PPL $ 34.15 $ 31.41 $ 29.67
PPL Energy Supply   34.29   31.40   29.68
PPL Electric   33.97   31.37   29.57
LKE   33.84   31.30   29.20

Performance unit activity for 2013 was:

      Weighted-
      Average Grant
   Performance Date Fair Value
   Units Per Share
PPL      
Nonvested, beginning of period   594,203 $ 31.14
 Granted   348,495   34.15
 Forfeited   (149,499)   32.63
Nonvested, end of period   793,199   32.19
        
PPL Energy Supply      
Nonvested, beginning of period   124,189 $ 31.26
 Granted   74,614   34.29
 Forfeited   (28,194)   33.47
Nonvested, end of period   170,609   32.22
        
PPL Electric      
Nonvested, beginning of period   26,083 $ 31.10
 Granted   18,666   33.97
 Forfeited   (6,539)   32.78
Nonvested, end of period   38,210   32.22
        
LKE      
Nonvested, beginning of period   82,750 $ 30.62
 Granted   49,540   33.84
 Forfeited   (2,660)   29.17
Nonvested, end of period   129,630   31.88

Stock Options

 

Under the Plans, stock options may be granted with an option exercise price per share not less than the fair value of PPL's common stock on the date of grant. Options outstanding at December 31, 2013, become exercisable in equal installments over a three-year service period beginning one year after the date of grant, assuming the individual is still employed by PPL or a subsidiary. The CGNC and CLC have discretion to accelerate the exercisability of the options, except that the exercisability of an option issued under the ICP may not be accelerated unless the individual remains employed by PPL or a subsidiary for one year from the date of grant. All options expire no later than ten years from the grant date. The options become exercisable immediately in certain situations, as defined by each of the Plans. The fair value of options granted is recognized as compensation expense on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of options granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant.

The fair value of each option granted is estimated using a Black-Scholes option-pricing model. PPL uses a risk-free interest rate, expected option life, expected volatility and dividend yield to value its stock options. The risk-free interest rate reflects the yield for a U.S. Treasury Strip available on the date of grant with constant rate maturity approximating the option's expected life. Expected life is calculated based on historical exercise behavior. Volatility over the expected term of the options is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL's volatility in those prior periods. Management's expectations for future volatility, considering potential changes to PPL's business model and other economic conditions, are also reviewed in addition to the historical data to determine the final volatility assumption. Beginning in 2011, PPL began using a mix of historic and implied volatility in response to the significant changes in its business model, moving from a primarily unregulated to a primarily regulated business model, as a result of the acquisitions of LKE and WPD Midlands. The dividend yield is based on several factors, including PPL's most recent dividend payment, as of the grant date and the forecasted stock price. The assumptions used in the model were:

   2013 2012 2011
           
Risk-free interest rate  1.15%  1.13%  2.34%
Expected option life  6.48 years  6.17 years  5.71 years
Expected stock volatility  18.50%  20.60%  21.60%
Dividend yield  5.00%  5.00%  5.93%

The weighted-average grant date fair value of options granted was:

   2013 2012 2011
           
PPL $ 2.18 $ 2.48 $ 2.47
PPL Energy Supply   2.19   2.51   2.47
PPL Electric   2.19   2.50   2.47
LKE   2.18   2.51   2.47

Stock option activity for 2013 was:

       Weighted-  
      Weighted Average   
     Average Remaining Aggregate
   Number Exercise Contractual Total Intrinsic
   of Options Price Per Share Term (years) Value
PPL            
Outstanding at beginning of period   9,134,545 $ 30.36      
 Granted   3,383,630   29.56      
 Exercised   (1,136,693)   27.13      
Outstanding at end of period   11,381,482   30.45   6.6 $ 15
Options exercisable at end of period   6,415,615   31.66   5.0   8
              
PPL Energy Supply            
Outstanding at beginning of period   2,265,123 $ 30.45      
 Transferred   88,546   25.67      
 Granted   713,030   29.66      
 Exercised   (221,363)   25.76      
Outstanding at end of period   2,845,336   30.47   6.2 $ 4
Options exercisable at end of period   1,747,842   31.48   4.6   2
              
PPL Electric            
Outstanding at beginning of period   340,530 $ 30.35      
 Granted   191,670   29.49      
Outstanding at end of period   532,200   30.04   7.1 $ 1
Options exercisable at end of period   260,950   31.24   5.5   
              
LKE            
Outstanding at beginning of period   634,847 $ 27.11      
 Granted   501,950   29.51      
 Exercised   (139,641)   26.87      
Outstanding at end of period   997,156   28.35   8.4 $ 2
Options exercisable at end of period   250,682   27.22   7.7   1

PPL received $31 million in cash from stock options exercised in 2013. The related tax savings were not significant for 2013. Substantially all stock option awards are expected to vest.

 

The total intrinsic value of stock options exercised for 2013 was $6 million and was not significant for 2012 and 2011.

Compensation Expense

 

Compensation expense for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards was as follows:

   2013 2012 2011
           
PPL $ 52 $ 49 $ 36
PPL Energy Supply   27   23   16
PPL Electric   10   11   8
LKE   8   8   5

The income tax benefit related to above compensation expense was as follows:

   2013 2012 2011
           
PPL  $ 22 $ 20 $ 15
PPL Energy Supply   11   10   6
PPL Electric    4   4   3
LKE    3   4   2

The income tax benefit PPL realized from stock-based awards vested or exercised for 2013 was not significant.

At December 31, 2013, unrecognized compensation expense related to nonvested restricted stock, restricted stock units, performance units and stock option awards was:

       
     Weighted-
   Unrecognized Average
   Compensation Period for
   Expense Recognition
        
PPL $ 33  1.9 years
PPL Energy Supply   13  2.0 years
PPL Electric   3  2.0 years
LKE   2  1.7 years
LG And E And KU Energy LLC [Member]
  
Stock-Based Compensation [Line Items]  
Stock-Based Compensation

12. Stock-Based Compensation

 

(All Registrants except LG&E and KU)

 

In 2012, shareowners approved the PPL SIP. This new equity plan replaces the PPL ICP and incorporates the following changes:

 

       Eliminates the potential to pay dividend equivalents on stock options.

 

       Eliminates the automatic lapse of restrictions on all equity awards in the event of a "potential" change in control and requires that a termination of employment occur in the event of a change in control before restrictions lapse.

 

       Changes the treatment of outstanding stock options upon retirement to limit the exercise period to the earlier of the end of the term (ten years from grant) or five years after retirement.

 

To further align the executives' interests with those of PPL shareowners, this plan provides that each restricted stock unit entitles the executive to accrue additional restricted stock units equal to the amount of quarterly dividends paid on PPL stock. These additional restricted stock units would be deferred and payable in shares of PPL common stock at the end of the restriction period. Dividend equivalents on restricted stock unit awards granted under the ICP and ICPKE are currently paid in cash when dividends are declared by PPL.

 

Under the ICP, SIP and the ICPKE (together, the Plans), restricted shares of PPL common stock, restricted stock units, performance units and stock options may be granted to officers and other key employees of PPL, PPL Energy Supply, PPL Electric, LKE and other affiliated companies. Awards under the Plans are made by the Compensation, Governance and Nominating Committee (CGNC) of the PPL Board of Directors, in the case of the ICP and SIP, and by the PPL Corporate Leadership Council (CLC), in the case of the ICPKE.

 

The following table details the award limits under each of the plans.

    Annual Grant Limit   Annual Grant Limit
    Total As % of   For Individual Participants -
  Total Plan  Outstanding Annual Grant Performance Based Awards
  Award PPL Common Stock Limit For awards For awards
  Limit On First Day of Options denominated in denominated in
Plan (Shares) Each Calendar Year (Shares) shares (Shares) cash (in dollars)
            
ICP (a) 15,769,431 2% 3,000,000     
SIP 10,000,000   2,000,000 750,000 $15,000,000
ICPKE 14,199,796 2% 3,000,000     

(a)       Applicable to outstanding awards granted from January 27, 2006 to January 26, 2012. During 2012, the total plan award limit was reached and the ICP was replaced by the SIP.

 

Any portion of these awards that has not been granted may be carried over and used in any subsequent year. If any award lapses, is forfeited or the rights of the participant terminate, the shares of PPL common stock underlying such an award are again available for grant. Shares delivered under the Plans may be in the form of authorized and unissued PPL common stock, common stock held in treasury by PPL or PPL common stock purchased on the open market (including private purchases) in accordance with applicable securities laws.

 

Restricted Stock and Restricted Stock Units

 

Restricted shares of PPL common stock are outstanding shares with full voting and dividend rights. Restricted stock awards are granted as a retention award for select key executives and vest when the recipient reaches a certain age or meets service or other criteria set forth in the executive's restricted stock award agreement. The shares are subject to forfeiture or accelerated payout under plan provisions for termination, retirement, disability and death of employees. Restricted shares vest fully, in certain situations, as defined by each of the Plans.

 

The Plans allow for the grant of restricted stock units. Restricted stock units are awards based on the fair value of PPL common stock on the date of grant. Actual PPL common shares will be issued upon completion of a vesting period, generally three years.

 

The fair value of restricted stock and restricted stock units granted is recognized on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of restricted stock and restricted stock units granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant. Recipients of restricted stock units may also be granted the right to receive dividend equivalents through the end of the restriction period or until the award is forfeited. Restricted stock and restricted stock units are subject to forfeiture or accelerated payout under the plan provisions for termination, retirement, disability and death of employees. Restricted stock and restricted stock units vest fully, in certain situations, as defined by each of the Plans.

The weighted-average grant date fair value of restricted stock and restricted stock units granted was:

   2013 2012 2011
           
PPL $ 30.30 $ 28.35 $ 25.25
PPL Energy Supply   30.42   28.29   25.14
PPL Electric   30.55   28.51   25.09
LKE   30.00   28.34   

Restricted stock and restricted stock unit activity for 2013 was:

      Weighted-
      Average
    Restricted Grant Date Fair
    Shares/Units Value Per Share
PPL      
Nonvested, beginning of period   2,503,770 $ 27.73
 Granted   1,307,951   30.30
 Vested   (638,421)   29.19
 Forfeited   (32,700)   28.61
Nonvested, end of period   3,140,600   28.50
        
PPL Energy Supply      
Nonvested, beginning of period   1,060,686 $ 27.95
 Transferred   3,820   27.31
 Granted   527,440   30.42
 Vested   (236,382)   29.10
 Forfeited   (12,160)   29.04
Nonvested, end of period   1,343,404   28.71
        
PPL Electric      
Nonvested, beginning of period   261,228 $ 27.30
 Transferred   (5,810)   27.48
 Granted   108,990   30.55
 Vested   (94,008)   28.41
 Forfeited   (4,850)   28.61
Nonvested, end of period   265,550   28.22
        
LKE      
Nonvested, beginning of period   139,640 $ 28.34
 Granted   127,293   30.00
 Vested   (35,380)   28.87
Nonvested, end of period   231,553   29.17

Substantially all restricted stock and restricted stock unit awards are expected to vest.

 

The total fair value of restricted stock and restricted stock units vesting for the years ended December 31 was:

   2013 2012 2011
           
PPL $ 19 $ 27 $ 19
PPL Energy Supply   7   6   6
PPL Electric   3   2   2
LKE   1   4   1

Performance Units

 

Performance units are intended to encourage and reward future corporate performance. Performance units represent a target number of shares (Target Award) of PPL's common stock that the recipient would receive upon PPL's attainment of the applicable performance goal. Performance is determined based on total shareowner return during a three-year performance period. At the end of the period, payout is determined by comparing PPL's performance to the total shareowner return of the companies included in an index group, in the case of the 2011 awards, the S&P 500 Electric Utilities Index, and in the case of the 2012 and 2013 awards, the Philadelphia Stock Exchange Utility Index. Awards are payable on a graduated basis based on thresholds that measure PPL's performance relative to peers that comprise the applicable index on which each years' awards are measured. Awards can be paid up to 200% of the Target Award or forfeited with no payout if performance is below a minimum established performance threshold. Dividends payable during the performance cycle accumulate and are converted into additional performance units and are payable in shares of PPL common stock upon completion of the performance period based on the determination of the CGNC of whether the performance goals have been achieved. Under the plan provisions, performance units are subject to forfeiture upon termination of employment except for retirement, disability or death of an employee, in which case the total performance units remain outstanding and are eligible for vesting through the conclusion of the performance period. The fair value of performance units granted is recognized as compensation expense on a straight-line basis over the three-year performance period. Performance units vest on a pro rata basis, in certain situations, as defined by each of the Plans.

The fair value of each performance unit granted was estimated using a Monte Carlo pricing model that considers stock beta, a risk-free interest rate, expected stock volatility and expected life. The stock beta was calculated comparing the risk of the individual securities to the average risk of the companies in the index group. The risk-free interest rate reflects the yield on a U.S. Treasury bond commensurate with the expected life of the performance unit. Volatility over the expected term of the performance unit is calculated using daily stock price observations for PPL and all companies in the index group and is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL and the companies in the index group. Beginning in 2011, PPL began using a mix of historic and implied volatility in response to the significant changes in its business model, moving from a primarily unregulated to a primarily regulated business model, as a result of the acquisitions of LKE and WPD Midlands.

 

The weighted-average assumptions used in the model were:

    2013  2012  2011
           
Risk-free interest rate  0.36%  0.30%  1.00%
Expected stock volatility  15.50%  19.30%  23.40%
Expected life  3 years  3 years  3 years

The weighted-average grant date fair value of performance units granted was:

   2013 2012 2011
           
PPL $ 34.15 $ 31.41 $ 29.67
PPL Energy Supply   34.29   31.40   29.68
PPL Electric   33.97   31.37   29.57
LKE   33.84   31.30   29.20

Performance unit activity for 2013 was:

      Weighted-
      Average Grant
   Performance Date Fair Value
   Units Per Share
PPL      
Nonvested, beginning of period   594,203 $ 31.14
 Granted   348,495   34.15
 Forfeited   (149,499)   32.63
Nonvested, end of period   793,199   32.19
        
PPL Energy Supply      
Nonvested, beginning of period   124,189 $ 31.26
 Granted   74,614   34.29
 Forfeited   (28,194)   33.47
Nonvested, end of period   170,609   32.22
        
PPL Electric      
Nonvested, beginning of period   26,083 $ 31.10
 Granted   18,666   33.97
 Forfeited   (6,539)   32.78
Nonvested, end of period   38,210   32.22
        
LKE      
Nonvested, beginning of period   82,750 $ 30.62
 Granted   49,540   33.84
 Forfeited   (2,660)   29.17
Nonvested, end of period   129,630   31.88

Stock Options

 

Under the Plans, stock options may be granted with an option exercise price per share not less than the fair value of PPL's common stock on the date of grant. Options outstanding at December 31, 2013, become exercisable in equal installments over a three-year service period beginning one year after the date of grant, assuming the individual is still employed by PPL or a subsidiary. The CGNC and CLC have discretion to accelerate the exercisability of the options, except that the exercisability of an option issued under the ICP may not be accelerated unless the individual remains employed by PPL or a subsidiary for one year from the date of grant. All options expire no later than ten years from the grant date. The options become exercisable immediately in certain situations, as defined by each of the Plans. The fair value of options granted is recognized as compensation expense on a straight-line basis over the service period or through the date at which the employee reaches retirement eligibility. The fair value of options granted to retirement-eligible employees is recognized as compensation expense immediately upon the date of grant.

The fair value of each option granted is estimated using a Black-Scholes option-pricing model. PPL uses a risk-free interest rate, expected option life, expected volatility and dividend yield to value its stock options. The risk-free interest rate reflects the yield for a U.S. Treasury Strip available on the date of grant with constant rate maturity approximating the option's expected life. Expected life is calculated based on historical exercise behavior. Volatility over the expected term of the options is evaluated with consideration given to prior periods that may need to be excluded based on events not likely to recur that had impacted PPL's volatility in those prior periods. Management's expectations for future volatility, considering potential changes to PPL's business model and other economic conditions, are also reviewed in addition to the historical data to determine the final volatility assumption. Beginning in 2011, PPL began using a mix of historic and implied volatility in response to the significant changes in its business model, moving from a primarily unregulated to a primarily regulated business model, as a result of the acquisitions of LKE and WPD Midlands. The dividend yield is based on several factors, including PPL's most recent dividend payment, as of the grant date and the forecasted stock price. The assumptions used in the model were:

   2013 2012 2011
           
Risk-free interest rate  1.15%  1.13%  2.34%
Expected option life  6.48 years  6.17 years  5.71 years
Expected stock volatility  18.50%  20.60%  21.60%
Dividend yield  5.00%  5.00%  5.93%

The weighted-average grant date fair value of options granted was:

   2013 2012 2011
           
PPL $ 2.18 $ 2.48 $ 2.47
PPL Energy Supply   2.19   2.51   2.47
PPL Electric   2.19   2.50   2.47
LKE   2.18   2.51   2.47

Stock option activity for 2013 was:

       Weighted-  
      Weighted Average   
     Average Remaining Aggregate
   Number Exercise Contractual Total Intrinsic
   of Options Price Per Share Term (years) Value
PPL            
Outstanding at beginning of period   9,134,545 $ 30.36      
 Granted   3,383,630   29.56      
 Exercised   (1,136,693)   27.13      
Outstanding at end of period   11,381,482   30.45   6.6 $ 15
Options exercisable at end of period   6,415,615   31.66   5.0   8
              
PPL Energy Supply            
Outstanding at beginning of period   2,265,123 $ 30.45      
 Transferred   88,546   25.67      
 Granted   713,030   29.66      
 Exercised   (221,363)   25.76      
Outstanding at end of period   2,845,336   30.47   6.2 $ 4
Options exercisable at end of period   1,747,842   31.48   4.6   2
              
PPL Electric            
Outstanding at beginning of period   340,530 $ 30.35      
 Granted   191,670   29.49      
Outstanding at end of period   532,200   30.04   7.1 $ 1
Options exercisable at end of period   260,950   31.24   5.5   
              
LKE            
Outstanding at beginning of period   634,847 $ 27.11      
 Granted   501,950   29.51      
 Exercised   (139,641)   26.87      
Outstanding at end of period   997,156   28.35   8.4 $ 2
Options exercisable at end of period   250,682   27.22   7.7   1

PPL received $31 million in cash from stock options exercised in 2013. The related tax savings were not significant for 2013. Substantially all stock option awards are expected to vest.

 

The total intrinsic value of stock options exercised for 2013 was $6 million and was not significant for 2012 and 2011.

Compensation Expense

 

Compensation expense for restricted stock, restricted stock units, performance units and stock options accounted for as equity awards was as follows:

   2013 2012 2011
           
PPL $ 52 $ 49 $ 36
PPL Energy Supply   27   23   16
PPL Electric   10   11   8
LKE   8   8   5

The income tax benefit related to above compensation expense was as follows:

   2013 2012 2011
           
PPL  $ 22 $ 20 $ 15
PPL Energy Supply   11   10   6
PPL Electric    4   4   3
LKE    3   4   2

The income tax benefit PPL realized from stock-based awards vested or exercised for 2013 was not significant.

At December 31, 2013, unrecognized compensation expense related to nonvested restricted stock, restricted stock units, performance units and stock option awards was:

       
     Weighted-
   Unrecognized Average
   Compensation Period for
   Expense Recognition
        
PPL $ 33  1.9 years
PPL Energy Supply   13  2.0 years
PPL Electric   3  2.0 years
LKE   2  1.7 years