SHARE-BASED PAYMENTS

At December 31, 2019, Pembina has the following share-based payment arrangements:

Share Option Plan (Equity Settled)

Pembina has a share option plan under which employees are eligible to receive options to purchase shares in Pembina.

Long-Term Share Unit Award Incentive Plan (Cash-Settled)

In 2005, Pembina established a long-term share unit award incentive plan. Under the share-based compensation plan, awards of restricted ("RSU") and performance ("PSU") share units are made to officers, non-officers and directors. The plan results in participants receiving cash compensation based on the value of the underlying notional shares granted under the plan. Payments are based on a trading value of Pembina's common shares plus notional dividends and performance of Pembina.

In 2015, Pembina also established a deferred share units ("DSU") plan. Under the DSU plan, directors are required to take at least 50 percent of total director compensation as DSUs. A DSU is a notional share that has the same value as one Pembina common share. Its value changes with Pembina's share price. DSUs do not have voting rights but they accrue dividends as additional DSUs, at the same rate as dividends paid on Pembina's common shares. DSUs are paid out when a director retires from the board and are redeemed for cash using the weighted average of trading price of common shares on the Toronto Stock Exchange ("TSX") for the last five trading days before the redemption date, multiplied by the number of DSUs the director holds. As of January 1, 2018 directors no longer receive meeting fees, but their base retainer and committee retainer has been increased.

Terms and Conditions of Share Option Plan and Share Unit Award Incentive Plan

The terms and conditions relating to the grants of the share option program and the long-term share unit award incentive plans are listed in the tables below:



Grant Date Share Options Granted to Employees (thousands of options, except as noted)	Number of Options	Contractual Life of Options
March 6, 2018	1,993	7
May 14, 2018	310	7
July 10, 2018	424	7
August 15, 2018	961	7
October 10, 2018	94	7
November 13, 2018	939	7
December 31, 2018	34	7
March 5, 2019	2,409	7
April 8, 2019	367	7
July 9, 2019	249	7
August 14, 2019	1,162	7
October 8, 2019	97	7
November 12, 2019	1,145	7

One-third vest on the first anniversary of the grant date, one-third vest on the second anniversary of the grant date and one-third vest on the third anniversary of the grant date.

Long-Term Share Unit Award Incentive Plan⁽¹⁾



Grant date RSUs, PSUs and DSUs to Officers, Non-Officers⁽²⁾ and Directors (thousands of units, except as noted)	PSUs⁽³⁾	RSUs⁽³⁾	DSUs	Total
January 1, 2018	404	395	44	843
January 1, 2019	475	460	36	971


⁽¹⁾	Distribution Units are granted in addition to RSU and PSU grants based on notional accrued dividends from RSU and PSU granted but not paid.


⁽²⁾	Non-Officers defined as senior selected positions within Pembina.


⁽³⁾	Contractual life of 3 years.

PSUs vest on the third anniversary of the grant date. RSUs vest one-third on the first anniversary of the grant date, one-third on the second anniversary of the grant date and one-third on the third anniversary of the grant date. Actual units awarded are based on the trading value of the shares and performance of Pembina.

Disclosure of Share Option Plan

The number and weighted average exercise prices of share options as follows:



(thousands of options, except as noted)	Number of Options		Weighted Average Exercise Price (dollars)
Outstanding at December 31, 2017	15,677		$40.94
Granted	4,755		$43.86
Exercised	(1,729	)	$35.34
Forfeited	(523	)	$41.56
Expired	(252	)	$49.20
Outstanding at December 31, 2018	17,928		$42.12
Granted	5,470		$48.27
Exercised	(3,979	)	$37.95
Forfeited	(655	)	$45.29
Expired	(180	)	$48.98
Outstanding at December 31, 2019	18,584		$44.65

As of December 31, 2019, the following options are outstanding:



(thousands of options, except as noted) Exercise Price (dollars)	Number Outstanding at December 31, 2019	Options Exercisable	Weighted Average Remaining Life
$29.60 – $41.38	3,466	3,426	3.1
$41.39 – $43.21	3,524	1,618	4.7
$43.22 – $46.00	3,491	2,170	4.2
$46.01 – $48.59	4,350	279	6.2
$48.60 – $52.01	3,753	2,057	3.9
Total	18,584	9,550	4.5

Options are exercised regularly throughout the year. Therefore, the weighted average share price during the year of $48.87 (2018: $44.97) is representative of the weighted average share price at the date of exercise.

Expected volatility is estimated by considering historic average share price volatility. The weighted average inputs used in the measurement of the fair values at grant date of share options are the following:

Share Options Granted



For the years ended December 31
(dollars, except as noted)	2019	2018
Weighted average
Fair value at grant date	4.12	3.86
Expected volatility (percent)	18.7	20.3
Expected option life (years)	3.67	3.67
Expected annual dividends per option	2.36	2.24
Expected forfeitures (percent)	6.6	6.7
Risk-free interest rate (based on government bonds)(percent)	1.6	2.1

Disclosure of Long-Term Share Unit Award Incentive Plan

The long-term share unit award incentive plans was valued using the volume weighted average price for 20 days ending December 31, 2019 of $47.52 (2018: $42.89). Actual payment may differ from amount valued based on market price and company performance.

Employee Expenses



For the years ended December 31
($ millions)	2019	2018
Share option plan, equity settled	16	14
Long-term share unit award incentive plan	50	49
Share-based compensation expense	66	63

Total carrying amount of liabilities for cash settled arrangements	95	96
Total intrinsic value of liability for vested benefits	57	57