Share-Based Compensation & Deferred Compensation Arrangements

12 Months Ended

Dec. 31, 2011

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation and Deferred Compensation Arrangements

16.   Share-Based Compensation & Deferred Compensation Arrangements

The Company has various share-based compensation programs to encourage executives, key non-officer employees, and non-employee directors to remain with the Company and to more closely align their interests with those of the Company's shareholders.  Under these programs, the Company issues stock options, non-vested shares (herein referred to as restricted stock), and restricted stock units.  All share-based compensation programs are shareholder approved.  In addition, the Company maintains a deferred compensation plan for executives and non-employee directors where participants have the option to invest earned compensation and vested restricted stock and restricted units in phantom Company stock units.  Certain option and share awards provide for accelerated vesting if there is a change in control or upon the participant's retirement.

Following is a reconciliation of the total cost associated with share-based awards recognized in the Company's financial statements to its after tax effect on net income:

	Year ended December 31,
(In millions)	2011		2010		2009
Total cost of share-based compensation	$	5.8	$	4.9	$	4.6
Less capitalized cost		0.8		1.7		1.6
Total in other operating expense		5.0		3.2		3.0
Less income tax benefit in earnings		2.0		1.3		1.2
After tax effect of share-based compensation	$	3.0	$	1.9	$	1.8

Restricted Stock & Restricted Stock Unit Plans

The Company periodically grants restricted stock and/or restricted stock units to executives and other key non-officer employees.  The vesting of those grants is contingent upon meeting a total return and/or return on equity performance objectives.  In addition non-employee directors receive a portion of their fees in restricted stock.  Grants to executives and key non-officer employees generally vest at the end of a four-year period, with performance measured at the end of the third year.  Based on that performance, awards could double or could be entirely forfeited.  However, a limited number of awards are time-vested awards that vest ratably over a three year period.  Awards to non-employee directors are not performance based and generally vest over one year.  Because executives and non-employee directors have the choice of settling awards in shares, cash, or deferring their receipt into a deferred compensation plan (where the value is eventually withdrawn in cash), these awards are accounted for as liability awards at their settlement date fair value.  Certain share awards to key non-officer employees must be settled in shares and are therefore accounted for in equity at their grant date fair value.

A summary of the status of the Company's restricted stock and restricted unit awards separated between those accounted for as liabilities and equity as of December 31, 2011, and changes during the year ended December 31, 2011, follows:

	Equity Awards
				Wtd. Avg.
				Grant Date		Liability Awards
	Shares			Fair value		Shares/Units			Fair value
Restricted awards at January 1, 2011		41,458		$	26.19		668,892
Granted		27,518			25.64		277,480
Vested		(7,226	)		28.63		(108,390	)
Forfeited		(7,737	)		28.61		(139,872	)
Restricted awards at December 31, 2011		54,013		$	25.22		698,110		$           30.23

As of December 31, 2011, there was $7.6 million of total unrecognized compensation cost related to restricted stock awards.  That cost is expected to be recognized over a weighted-average period of 1.6 years.  The total fair value of shares vested for liability awards during the years ended December 31, 2011, 2010, and 2009, was $3.0 million, $5.0 million, and $2.8 million, respectively.  The total fair value of equity awards vesting during the year ended December 31, 2011, 2010, and 2009 was $0.2 million, $0.2 million, $0.1 million, respectively.

Stock Option Plans

In the past, option awards were granted to executives and other key employees with an exercise price equal to the market price of the Company's stock at the date of grant; those option awards generally required 3 years of continuous service and have 10-year contractual terms.  These awards generally vested on a pro-rata basis over 3 years.  The last option grant occurred in 2005, and the Company does not intend to issue options in the future.  All compensation cost has been recognized.  A summary of the status of the Company's stock option awards as of December 31, 2011, and changes during the year ended December 31, 2011, follows:

				Weighted average				Aggregate
						Remaining		Intrinsic
	Shares			Exercise		Contractual		Value
				Price		Term (years)		(In millions)
Outstanding at January 1, 2011		929,806		$	24.55
Exercised		(522,173	)	$	23.61
Outstanding at December 31, 2011		407,633		$	25.74		2.5	$	1.8
Exercisable at December 31, 2011		407,633		$	25.74		2.5	$	1.8

The total intrinsic value of options exercised during the year ended December 31, 2011 and 2010 was $2.4 million and $1.3 million, respectively.  The actual tax benefit realized for tax deductions from option exercises was approximately $1.0 million and $0.5 million in 2011 and 2010, respectively.

The Company periodically issues new shares and also from time to time repurchases shares to satisfy share option exercises.  During the year ended December 31, 2011 and 2010, the Company received cash upon exercise of stock options totaling approximately $12.3 million and $9.5 million, respectively.  During these periods, the Company repurchased shares totaling approximately $12.8 million and $1.2 million respectively.  During the year ended December 31, 2009, stock option activity was insignificant.

The fair value of option awards granted in prior years was estimated on the date of grant using a Black-Scholes option valuation model.  Expected volatilities were based on historical volatility of the Company's stock and other factors.  The Company used historical data to estimate the expected term and forfeiture patterns of the options.  The risk-free rate for periods within the contractual life of the option was based on the U.S. Treasury yield curve in effect at the time of grant.

Deferred Compensation Plans

The Company has nonqualified deferred compensation plans, which permit eligible executives and non-employee directors to defer portions of their compensation and vested restricted stock or units.  A record keeping account is established for each participant, and the participant chooses from a variety of measurement funds for the deemed investment of their accounts.  The measurement funds are similar to the funds in the Company's defined contribution plan and include an investment in phantom stock units of the Company.  The account balance fluctuates with the investment returns on those funds.  At December 31, 2011 and 2010, the liability associated with these plans totaled $21.1 million and $19.1 million, respectively.  Other than $0.7 million and $0.5 million which are classified in Accrued liabilities at December 31, 2011 and 2010, respectively, the liability is included in Deferred credits & other liabilities.  The impact of these plans on Other operating expenses was expense of $2.1 million in 2011, $2.3 million in 2010 and income of $0.8 million in 2009.  The amount recorded in earnings related to the investment activities in Vectren phantom stock associated with these plans during the years ended December 31, 2011, 2010, and 2009, was a cost of $1.7 million, a cost of $1.6 million and a benefit of $1.5 million, respectively.

The Company has certain investments currently funded primarily through corporate-owned life insurance policies.  These investments, which are consolidated, are available to pay deferred compensation benefits.  These investments are also subject to the claims of the Company's creditors.  The cash surrender value of these policies included in Other corporate & utility investments on the Consolidated Balance Sheets were $27.3 million and $27.5 million at December 31, 2011 and 2010, respectively.  Earnings from those investments, which are recorded in Other-net, were earnings $0.1 million in 2011, $1.9 million in 2010, and $4.1 million in 2009.