Share-Based Compensation & Deferred Compensation Arrangements

The Company has share-based compensation programs to encourage corporate and subsidiary officers, 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 both performance-based and time-vested awards. All share-based compensation programs are shareholder approved. Currently, awards issued to a majority of the officers are performance-based, accrue dividends that are also subject to performance measures, and are settled in cash. In addition, the Company maintains a deferred compensation plan for officers and non-employee directors where participants can invest earned compensation and vested share-based awards in phantom Company stock units, among other options. Certain vesting grants 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)	2017		2016		2015
Total cost of share-based compensation	$	40.2	$	30.0	$	19.4
Less capitalized cost	8.6		7.0		4.8
Total in other operating expense	31.6		23.0		14.6
Less income tax benefit in earnings	12.3		9.0		5.7
After tax effect of share-based compensation	$	19.3	$	14.0	$	8.9

Share-Based Awards & Other Awards

The vesting of awards issued to officers is contingent upon meeting total return and return on equity performance objectives. Grants to officers generally vest at the end of a three-year performance period. Based on performance objectives, the number of awards could double or could be entirely forfeited.

Non-employee directors receive a portion of their fees in share-based awards. These awards to non-employee directors are not performance-based and generally vest over one year. The majority of officers and non-employee directors must choose between either settling awards in cash or deferring awards into a deferred compensation plan (where the value is eventually withdrawn in cash). The number of such awards that may settle in shares, but are accounted for as liability awards due to their potential to be taken in cash when withdrawn from the deferred compensation plan, was approximately or less than 100,000 units as of December 31, 2017, 2016 and 2015.

Most officer, non-officer employee, and non-employee director awards are accounted for as liability awards at their settlement date fair value. The limited number of share awards to certain subsidiary officers that must be settled in shares are accounted for in equity at their grant date fair value.

A summary of the status of awards separated between those accounted for as liabilities and equity as of December 31, 2017 and 2016, and changes during the years ended December 31, 2017 and 2016, follow:



	Equity Awards
			Wtd. Avg.
			Grant Date		Liability Awards
	Units		Fair value		Units		Fair value
Awards at January 1, 2016	15,373		$	31.63	646,487
Granted	4,052		30.19		448,176
Vested	(11,711	)	30.19		(462,203	)
Forfeited	(1,382	)	31.87		(20,880	)
Awards at December 31, 2016	6,332		$	33.42	611,580		$	52.15
Granted	1,779		36.29		385,776
Vested	(7,648	)	33.25		(395,452	)
Forfeited	—		—		(8,364	)
Awards at December 31, 2017	463		$	46.21	593,540		$	65.02

As of December 31, 2017, there was $14.2 million of total unrecognized compensation cost associated with outstanding grants. That cost is expected to be recognized over a weighted-average period of 1.1 years. The total fair value of shares vested for liability awards during the years ended December 31, 2017, 2016, and 2015 was $25.1 million, $23.7 million, and $16.6 million, respectively. The total fair value of equity awards vesting during the years ended December 31, 2017, 2016, and 2015 was $0.5 million, $0.6 million, $1.1 million, respectively.

Deferred Compensation Plans

The Company has nonqualified deferred compensation plans, which permit eligible officers and non-employee directors to defer portions of their compensation and vested share-based compensation. 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 corporate 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. The liability associated with these plans totaled $61.4 million and $40.9 million at December 31, 2017 and 2016 respectively. Other than $1.2 million and $0.9 million which is classified in Accrued liabilities at December 31, 2017 and 2016, respectively, the liability is included in Deferred credits & other liabilities. The impact of these plans on Other operating expenses was expense of $13.1 million in 2017, $4.3 million in 2016 and $0.1 million in 2015. The amount recorded in earnings related to the investment activities in Vectren phantom stock associated with these plans during the years ended December 31, 2017, 2016, and 2015, was expense of $10.1 million, expense of $3.8 million, and income of $0.4 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 $42.2 million and $33.1 million at December 31, 2017 and 2016, respectively. Those investments generated earnings of $5.9 million in 2017, earnings of $3.5 million in 2016, and losses of $2.1 million in 2015. This activity is reflected in Other operating expenses.