Stock-Based Compensation

In 2013, the Company adopted, and its shareholders approved, the Stock Incentive Plan. The Stock Incentive Plan replaced the 2008 Plan and no further awards will be granted under the 2008 Plan. Under the Stock Incentive Plan, restricted stock, restricted stock units, stock options, stock appreciation rights and performance units may be granted to officers, directors and other key employees of the Company and its subsidiaries. The Company has authorized the issuance of up to 7,400,000 shares under the Stock Incentive Plan.

The following table summarizes the Company's pre-tax compensation expense and related income tax benefit for the years ended December 31, 2015, 2014 and 2013 related to the Company's performance units and restricted stock.



Year ended December 31 (In millions)	2015		2014		2013
Performance units
Total shareholder return	$	7.6	$	8.3	$	8.4
Earnings per share	0.7		3.7		2.3
Total performance units	8.3		12.0		10.7
Restricted stock	0.1		—		0.4
Total compensation expense	8.4		12.0		11.1
Less: Amount paid by unconsolidated affiliates	0.5		3.6		3.1
Net compensation expense	$	7.9	$	8.4	$	8.0
Income tax benefit	$	3.1	$	3.3	$	3.1

The Company has issued new shares to satisfy stock option exercises, restricted stock grants and payouts of earned performance units. In 2015, 2014 and 2013, there were 82,046 shares, 494,637 shares and 548,344 shares, respectively, of new common stock issued pursuant to the Company's Stock Incentive Plan related to exercised stock options, restricted stock grants (net of forfeitures) and payouts of earned performance units. In 2015, there were 1,070 shares of restricted stock returned to the Company to satisfy tax liabilities.

Performance Units

Under the Stock Incentive Plan, the Company has issued performance units which represent the value of one share of the Company's common stock. The performance units provide for accelerated vesting if there is a change in control (as defined in the Stock Incentive Plan). Each performance unit is subject to forfeiture if the recipient terminates employment with the Company or a subsidiary prior to the end of the three-year award cycle for any reason other than death, disability or retirement. In the event of death, disability or retirement, a participant will receive a prorated payment based on such participant's number of full months of service during the award cycle, further adjusted based on the achievement of the performance goals during the award cycle.

The performance units granted based on total shareholder return are contingently awarded and will be payable in shares of the Company's common stock subject to the condition that the number of performance units, if any, earned by the employees upon the expiration of a three-year award cycle (i.e., three-year cliff vesting period) is dependent on the Company's total shareholder return ranking relative to a peer group of companies. The performance units granted based on earnings per share are contingently awarded and will be payable in shares of the Company's common stock based on the Company's earnings per share growth over a three-year award cycle (i.e., three-year cliff vesting period) compared to a target set at the time of the grant by the Compensation Committee of the Company's Board of Directors. All of these performance units are classified as equity in the Consolidated Balance Sheet. If there is no or only a partial payout for the performance units at the end of the award cycle, the unearned performance units are cancelled. Payout requires approval of the Compensation Committee of the Company's Board of Directors. Payouts, if any, are all made in common stock and are considered made when the payout is approved by the Compensation Committee.

As a result of the formation of Enable on May 1, 2013, performance unit grants to OGE Holdings' employees that were previously based on earnings before interest, taxes, depreciation and amortization were converted to performance units based on total shareholder return or earnings per share. Total 2013 performance unit grants converted were 91,390, comprised of 45,596 total shareholder return performance units with a $25.89 grant date fair value and 45,794 earnings per share performance units with a $26.73 grant date fair value. Total 2012 performance unit grants converted were 82,930, comprised of 41,554 total shareholder return performance units with a $47.71 grant date fair value and 41,376 earnings per share performance units with a $34.94 grant date fair value. The amount of these performance units were adjusted for the effects of the stock split. The impact of the modification of the performance unit grants on stock-based compensation expense for 2013 was not material.

Performance Units – Total Shareholder Return

The fair value of the performance units based on total shareholder return was estimated on the grant date using a lattice-based valuation model that factors in information, including the expected dividend yield, expected price volatility, risk-free interest rate and the probable outcome of the market condition, over the expected life of the performance units. Compensation expense for the performance units is a fixed amount determined at the grant date fair value and is recognized over the three-year award cycle regardless of whether performance units are awarded at the end of the award cycle. Dividends were not accrued or paid for awards prior to February 2014, and were therefore not included in the fair value calculation. Beginning with the February 2014 performance unit awards, dividends are accrued on a quarterly basis pending achievement of payout criteria, and were therefore included in the fair value calculations. Expected price volatility is based on the historical volatility of the Company's common stock for the past three years and was simulated using the Geometric Brownian Motion process. The risk-free interest rate for the performance unit grants is based on the three-year U.S. Treasury yield curve in effect at the time of the grant. The expected life of the units is based on the non-vested period since inception of the award cycle. There are no post-vesting restrictions related to the Company's performance units based on total shareholder return. The number of performance units granted based on total shareholder return and the assumptions used to calculate the grant date fair value of the performance units based on total shareholder return are shown in the following table.



	2015			2014			2013
Number of units granted	264,454			219,106			316,162
Fair value of units granted	$	31.02		$	34.80		$	25.89
Expected dividend yield	2.6		%	2.5		%	2.8		%
Expected price volatility	16.9		%	20.0		%	20.0		%
Risk-free interest rate	0.91		%	0.67		%	0.37		%
Expected life of units (in years)	2.85			2.86			2.84

Performance Units – Earnings Per Share

The fair value of the performance units based on earnings per share is based on grant date fair value which is equivalent to the price of one share of the Company's common stock on the date of grant. The fair value of performance units based on earnings per share varies as the number of performance units that will vest is based on the grant date fair value of the units and the probable outcome of the performance condition. The Company reassesses at each reporting date whether achievement of the performance condition is probable and accrues compensation expense if and when achievement of the performance condition is probable. As a result, the compensation expense recognized for these performance units can vary from period to period. There are no post-vesting restrictions related to the Company's performance units based on earnings per share. The number of performance units granted based on earnings per share and the grant date fair value are shown in the following table.



	2015		2014		2013
Number of units granted	88,156		73,037		74,570
Fair value of units granted	$	33.99	$	34.81	$	26.73

Restricted Stock

Under the Stock Incentive Plan and beginning in 2008, the Company issued restricted stock to certain existing non-officer employees as well as other executives upon hire to attract and retain individuals to be competitive in the marketplace. The restricted stock vests in one-third annual increments. Prior to vesting, each share of restricted stock is subject to forfeiture if the recipient ceases to render substantial services to the Company or a subsidiary for any reason other than death, disability or retirement. These shares may not be sold, assigned, transferred or pledged and are subject to a risk of forfeiture.

The fair value of the restricted stock was based on the closing market price of the Company's common stock on the grant date. Compensation expense for the restricted stock is a fixed amount determined at the grant date fair value and is recognized as services are rendered by employees over a three-year vesting period. Also, the Company treats its restricted stock as multiple separate awards by recording compensation expense separately for each tranche whereby a substantial portion of the expense is recognized in the earlier years in the requisite service period. Dividends are accrued and paid during the vesting period on all restricted stock awards prior to July 2014, and therefore included in the fair value calculation. For all awards after July 2014, dividends will only be paid on any restricted stock awards that vest, accordingly dividends are no longer included in the fair value calculations. The expected life of the restricted stock is based on the non-vested period since inception of the three-year award cycle. There are no post-vesting restrictions related to the Company's restricted stock. The number of shares of restricted stock granted and the grant date fair value are shown in the following table.



	2015		2014		2013
Shares of restricted stock granted	958		7,037		5,940
Fair value of restricted stock granted	$	26.11	$	35.71	$	29.71

A summary of the activity for the Company's performance units and restricted stock at December 31, 2015 and changes in 2015 are shown in the following table.



	Performance Units
	Total Shareholder Return					Earnings Per Share					Restricted Stock
(dollars in millions)	Number of Units			Aggregate Intrinsic Value		Number of Units			Aggregate Intrinsic Value		Number of Shares		Aggregate Intrinsic Value
Units/Shares Outstanding at 12/31/14	892,991					297,687					12,501
Granted	264,454		(A)			88,156		(A)			958
Converted	(343,395	)	(B)	$	0.2	(114,366	)	(B)	$	4.9	N/A
Vested	N/A					N/A					(4,772	)	$	0.1
Forfeited	(89,992	)				(30,007	)				(1,064	)
Units/Shares Outstanding at 12/31/15	724,058			$	—	241,470			$	—	7,623		$	0.3
Units/Shares Fully Vested at 12/31/15	327,115			$	—	109,154			$	—


(A)	For performance units, this represents the target number of performance units granted. Actual number of performance units earned, if any, is dependent upon performance and may range from 0 percent to 200 percent of the target.


(B)	These amounts represent performance units that vested at December 31, 2014 which were settled in February 2015.

A summary of the activity for the Company's non-vested performance units and restricted stock at December 31, 2015 and changes in 2015 are shown in the following table.



	Performance Units
	Total Shareholder Return					Earnings Per Share					Restricted Stock
	Number of Units			Weighted-Average Grant Date Fair Value		Number of Units			Weighted-Average Grant Date Fair Value		Number of Shares		Weighted-Average Grant Date Fair Value
Units/Shares Non-Vested at 12/31/14	556,844			$	29.38	185,737			$	29.90	12,501		$	32.65
Granted	264,454		(A)	$	31.02	88,156		(A)	$	33.99	958		$	26.11
Converted	(7,248	)	(B)	$	28.95	(2,416	)	(B)	$	28.95	N/A		N/A
Vested	(327,115	)		$	25.89	(109,154	)		$	26.73	(4,772	)	$	32.33
Forfeited	(89,992	)		$	31.48	(30,007	)		$	32.95	(1,064	)	$	25.87
Units/Shares Non-Vested at 12/31/15	396,943			$	32.83	132,316			$	34.30	7,623		$	29.68
Units/Shares Expected to Vest	390,820		(C)			130,274		(C)			7,623


(A)	For performance units, this represents the target number of performance units granted. Actual number of performance units earned, if any, is dependent upon performance and may range from 0 percent to 200 percent of the target.


(B)	Units paid out under terms of plan to member on long-term disability.


(C)	There is no intrinsic value of the performance units based on total shareholder return and earnings per share.

Fair Value of Vested Performance Units and Restricted Stock

A summary of the Company's fair value for its vested performance units and restricted stock is shown in the following table.



Year ended December 31 (In millions)	2015		2014		2013
Performance units
Total shareholder return	$	8.5	$	9.5	$	8.2
Earnings per share	—		3.8		4.9
Restricted stock	0.2		0.2		0.7

Unrecognized Compensation Cost

A summary of the Company's unrecognized compensation cost for its non-vested performance units and restricted stock and the weighted-average periods over which the compensation cost is expected to be recognized are shown in the following table.



December 31, 2015	Unrecognized Compensation Cost (in millions)		Weighted Average to be Recognized (in years)
Performance units
Total shareholder return	$	6.7	1.68
Earnings per share	2.4		1.69
Total performance units	9.1
Restricted stock	0.1		1.60
Total	$	9.2

Stock Options

The Company last issued stock options in 2004 and as of December 31, 2006, all stock options were fully vested and expensed. All stock options had a contractual life of 10 years and none are outstanding.

A summary of the activity for the Company's exercised stock options in 2013 is shown in the following table.



Year ended December 31 (In millions)	2013
Intrinsic value (A)	$	1.4
Cash received from stock options exercised	0.4


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