19.Compensation Plans

Encana has a number of compensation arrangements under which the Company awards various types of long-term incentive grants to eligible employees. They include TSARs, Performance TSARs, SARs, Performance Share Units (“PSUs”), Deferred Share Units (“DSUs”) and RSUs. These compensation arrangements are share-based.

Encana accounts for TSARs, Performance TSARs, SARs, PSUs, and RSUs held by employees as cash-settled share-based payment transactions and, accordingly, accrues compensation costs over the vesting period based on the fair value of the rights determined using the Black-Scholes-Merton and other fair value models. TSARs and SARs granted vest and are exercisable at 30 percent of the number granted after one year, an additional 30 percent of the number granted after two years, are fully exercisable after three years and expire five years after the date granted. TSARs and SARs granted after February 2015 expire seven years after the date granted. Performance TSARs vest over a four-year period based on prescribed performance targets and expire if not eligible to vest after that time. PSUs and RSUs vest three years from the date of grant, provided the employee remains actively employed with Encana on the vesting date.

The following weighted average assumptions were used to determine the fair value of the share units held by employees:


		US$ Share Units
As at December 31	2017	2016	2015
Risk Free Interest Rate	1.67%	0.75%	0.48%
Dividend Yield	0.45%	0.51%	1.18%
Expected Volatility Rate (1)	57.87%	57.18%	39.16%
Expected Term	1.4 yrs	1.9 yrs	1.4 yrs
Market Share Price	US$13.33	US$11.74	US$5.09

		CS$ Share Units
As at December 31	2017	2016	2015
Risk Free Interest Rate	1.67%	0.75%	0.48%
Dividend Yield	0.46%	0.50%	1.09%
Expected Volatility Rate (1)	54.10%	53.24%	36.45%
Expected Term	1.5 yrs	1.9 yrs	1.5 yrs
Market Share Price	C$16.77	C$15.76	C$7.03

(1)

Volatility was estimated using historical rates.

The Company has recognized the following share-based compensation costs:


For the years ended December 31		2017		2016		2015
Total Compensation Costs of Transactions Classified as Cash-Settled	$	165	$	174	$	(29)
Less: Total Share-Based Compensation Costs Capitalized		(55)		(40)		10
Total Share-Based Compensation Expense (Recovery)	$	110	$	134	$	(19)
Recognized on the Consolidated Statement of Earnings in:
Operating	$	34	$	48	$	(7)
Administrative		76		86		(12)
	$	110	$	134	$	(19)

As at December 31, 2017, the liability for share-based payment transactions totaled $327 million (2016 - $208 million), of which $152 million (2016 - $88 million) is recognized in accounts payable and accrued liabilities and $175 million (2016 - $120 million) is recognized in other liabilities and provisions in the Consolidated Balance Sheet.


For the years ended December 31		2017		2016		2015
Liability for Cash-Settled Share-Based Payment Transactions:
Unvested	$	274	$	171	$	47
Vested		53		37		4
	$	327	$	208	$	51

The following sections outline certain information related to Encana’s compensation plans as at December 31, 2017.

A)TANDEM STOCK APPRECIATION RIGHTS

All options to purchase common shares issued under the Encana Stock Option Plan have associated TSARs attached. In lieu of exercising the option, the associated TSARs give the option holder the right to receive a cash payment equal to the excess of the market price of Encana’s common shares at the time of exercise over the original grant price. The TSARs vest and expire under the same terms and conditions as the underlying option.

The following tables summarize information related to the TSARs held by employees:


As at December 31	2017		2016
(thousands of units)	Outstanding TSARs	Weighted Average Exercise Price (C$)	Outstanding TSARs	Weighted Average Exercise Price (C$)

Outstanding, Beginning of Year	15,482	14.92	17,369	20.21
Granted	850	15.43	4,277	5.56
Exercised - SARs	(316)	5.56	-	-
Exercised - Options	-	-	-	-
Forfeited	(218)	19.55	(2,108)	19.62
Expired	(528)	20.99	(4,056)	25.26
Outstanding, End of Year	15,270	14.87	15,482	14.92
Exercisable, End of Year	10,736	17.42	8,523	18.66


As at December 31, 2017	Outstanding TSARs			Exercisable TSARs
Range of Exercise Price (C$)	Number of TSARs (thousands of units)	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price (C$)	Number of TSARs (thousands of units)	Weighted Average Exercise Price (C$)

0.00 to 9.99	3,910	5.17	5.56	952	5.56
10.00 to 19.99	7,816	1.74	16.93	6,241	17.43
20.00 to 29.99	3,544	1.15	20.57	3,543	20.57
	15,270	2.48	14.87	10,736	17.42

During the year, Encana recorded compensation costs of $12 million related to the TSARs (2016 - compensation costs of $39 million; 2015 - reduction of compensation costs of $12 million).

As at December 31, 2017, there was approximately $8 million of total unrecognized compensation costs (2016 - $17 million) related to unvested TSARs held by employees. The costs are expected to be recognized over a weighted average period of 1.9 years.

B)PERFORMANCE TANDEM STOCK APPRECIATION RIGHTS

In 2013, Encana granted Performance TSARs to the President & Chief Executive Officer. The Performance TSARs vested and expired over the same terms and conditions as the underlying option. Under this 2013 grant, vesting was also subject to Encana achieving prescribed performance targets over a four-year period based on Encana’s share price performance. As at December 31, 2017, all remaining Performance TSARs have expired and there are no remaining obligations associated with this grant.

During the year, Encana recorded a reduction of compensation costs of $2 million related to the Performance TSARs (2016 -compensation costs of $2 million; 2015 - reduction of compensation costs of $1 million).

C)STOCK APPRECIATION RIGHTS

Since 2010, U.S. dollar denominated SARs have been granted to eligible U.S. based employees, which entitle the employee to receive a cash payment equal to the excess of the market price of Encana’s common shares at the time of exercise over the original grant price of the right.

The following tables summarize information related to U.S. dollar denominated SARs held by employees:


As at December 31	2017		2016
(thousands of units)	Outstanding SARs	Weighted Average Exercise Price (US$)	Outstanding SARs	Weighted Average Exercise Price (US$)

Outstanding, Beginning of Year	6,721	14.55	10,137	20.26
Granted	349	11.75	1,453	4.06
Exercised	(147)	4.69	-	-
Forfeited	(418)	17.94	(1,464)	18.65
Expired	(162)	20.57	(3,405)	25.32
Outstanding, End of Year	6,343	14.25	6,721	14.55
Exercisable, End of Year	4,611	16.85	3,782	18.02


As at December 31, 2017	Outstanding SARs			Exercisable SARs
Range of Exercise Price (US$)	Number of SARs (thousands of units)	Weighted Average Remaining Contractual Life (years)	Weighted Average Exercise Price (US$)	Number of SARs (thousands of units)	Weighted Average Exercise Price (US$)

0.00 to 9.99	1,311	5.17	4.06	301	4.06
10.00 to 19.99	4,707	1.59	16.52	3,985	17.36
20.00 to 29.99	325	1.58	22.46	325	22.46
	6,343	2.33	14.25	4,611	16.85

During the year, Encana recorded compensation costs of $6 million related to the SARs (2016 - compensation costs of $13 million; 2015 - reduction of compensation costs of $5 million).

As at December 31, 2017, there was approximately $4 million of unrecognized compensation costs (2016 - $7 million) related to unvested SARs held by employees. The costs are expected to be recognized over a weighted average period of 1.5 years.

PERFORMANCE SHARE UNITS

Since 2010, PSUs have been granted to eligible employees, which entitle the employee to receive, upon vesting, a cash payment equal to the value of one common share of Encana for each PSU held, depending upon the terms of the PSU Plan. PSUs vest three years from the date granted, provided the employee remains actively employed with Encana on the vesting date. Based on the performance assessment, up to a maximum of two times the original PSU grant may be eligible to vest in respect of the year being measured. The respective proportion of the original PSU grant deemed eligible to vest for each year will be valued and the notional cash value deposited to a PSU account, with payout deferred to the final vesting date.

The ultimate value of the PSUs will depend upon Encana’s performance relative to predetermined corresponding performance targets measured over a three-year period. For grants commencing in 2013, performance is measured over a three-year period relative to a specified peer group.

The following table summarizes information related to the PSUs:


	Canadian Dollar Denominated		U.S. Dollar Denominated
(thousands of units)	Outstanding PUSs		Outstanding PUSs
As at December 31	2017	2016	2017	2016

Unvested and Outstanding, Beginning of Year	5,218	2,603	2,907	1,025
Granted	1,234	3,559	704	2,245
Vested and Released	(433)	-	(123)	-
Units, in Lieu of Dividends	33	38	18	21
Forfeited	(50)	(982)	(131)	(384)
Unvested and Outstanding, End of Year	6,002	5,218	3,375	2,907

During the year, Encana recorded compensation costs of $48 million related to the outstanding PSUs (2016 - compensation costs of $29 million; 2015 - compensation costs of $1 million).

As at December 31, 2017, there was approximately $53 million of total unrecognized compensation costs (2016 - $60 million) related to unvested PSUs held by employees. The costs are expected to be recognized over a weighted average period of 1.1 years.

E)DEFERRED SHARE UNITS

The Company has in place a program whereby Directors and certain key employees are issued DSUs, which vest immediately, are equivalent in value to a common share of the Company and are settled in cash.

Under the DSU Plan, employees have the option to convert either 25 or 50 percent of their annual High Performance Results (“HPR”) award into DSUs. The number of DSUs converted is based on the value of the award divided by the closing value of Encana’s share price at the end of the performance period of the HPR award.

For both Directors and employees, DSUs can only be redeemed following departure from Encana in accordance with the terms of the respective DSU Plan and must be redeemed prior to December 15th of the year following the departure from Encana.

The following table summarizes information related to the DSUs:


	Canadian Dollar Denominated
(thousands of units)	Outstanding DSUs
As at December 31	2017	2016

Outstanding, Beginning of Year	920	753
Granted	134	139
Converted from HPR awards	16	43
Units, in Lieu of Dividends	5	6
Redeemed	(180)	(21)
Outstanding, End of Year	895	920

During the year, Encana recorded compensation costs of $3 million related to the outstanding DSUs (2016 -compensation costs of $7 million; 2015 - reduction of compensation costs of $5 million).

F)RESTRICTED SHARE UNITS

Since 2011, RSUs have been granted to eligible employees. An RSU is a conditional grant to receive the equivalent of an Encana common share upon vesting of the RSUs and in accordance with the terms of the RSU Plan and Grant Agreement. RSUs vest three years from the date granted, provided the employee remains actively employed with Encana on the vesting date. As at December 31, 2017, Encana intends to settle the RSUs in cash on the vesting date.

The following table summarizes information related to the RSUs:


	Canadian Dollar Denominated		U.S. Dollar Denominated
(thousands of units)	Outstanding RSUs		Outstanding RSUs
As at December 31	2017	2016	2017	2016

Unvested and Outstanding, Beginning of Year	10,998	8,114	10,418	5,909
Granted	2,411	7,209	2,434	7,826
Units, in Lieu of Dividends	60	82	59	80
Vested and Released	(2,088)	(2,840)	(1,268)	(1,446)
Forfeited	(352)	(1,567)	(1,109)	(1,951)
Unvested and Outstanding, End of Year	11,029	10,998	10,534	10,418

During the year, Encana recorded compensation costs of $98 million related to the outstanding RSUs (2016 - compensation costs of $84 million; 2015 - reduction of compensation costs of $7 million).

As at December 31, 2017, there was approximately $99 million of total unrecognized compensation costs (2016 - $117 million) related to unvested RSUs held by employees. The costs are expected to be recognized over a weighted average period of 1.1 years.