Stock-based compensation primarily in the form of Southern Company performance share units (PSU) and restricted stock units (RSU) may be granted through the Omnibus Incentive Compensation Plan to Southern Company system employees ranging from line management to executives. Southern Company Gas and Southern Power had no employee participants in the stock-based compensation plans until 2017 and 2018, respectively. In conjunction with the Merger, stock-based compensation in the form of Southern Company RSUs and PSUs was granted to certain executives of Southern Company Gas through the Southern Company Omnibus Incentive Compensation Plan.

The majority of PSUs and RSUs awarded contain terms where employees become immediately vested in PSUs and RSUs upon retirement. As a result, compensation expense for employees that are retirement eligible at the grant date is recognized immediately, while compensation expense for employees that become retirement eligible during the vesting period is recognized over the period from grant date to the date of retirement eligibility. In addition, the Registrants recognize forfeitures as they occur.

PSUs granted to employees vest at the end of a three-year performance period. Shares of Southern Company common stock are delivered to employees at the end of the performance period with the number of shares issued ranging from 0% to 200% of the target number of PSUs granted, based on achievement of the performance goals established by the Compensation Committee of the Southern Company Board of Directors.

Southern Company has issued three types of PSUs, each with a unique performance goal. These types of PSUs include total shareholder return (TSR) awards based on the TSR for Southern Company common stock during the three-year performance period as compared to a group of industry peers; ROE awards based on Southern Company's equity-weighted return over the performance period; and EPS awards based on Southern Company's cumulative EPS over the performance period. EPS awards were last granted in 2017.

The fair value of TSR awards is determined as of the grant date using a Monte Carlo simulation model to estimate the TSR of Southern Company's common stock among industry peers over the performance period. In determining the fair value of the TSR awards issued to employees, the expected volatility is based on the historical volatility of Southern Company's stock over a period equal to the performance period. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant that covers the performance period of the awards. The following table shows the assumptions used in the pricing model and the weighted average grant-date fair value of TSR awards granted:

The fair values of EPS awards and ROE awards are based on the closing stock price of Southern Company common stock on the date of the grant. The weighted average grant-date fair value of the awards granted during 2019, 2018, and 2017 was $49.38, $43.49, and $49.21, respectively. Compensation expense for EPS and ROE awards is generally recognized ratably over the three-year performance period adjusted for expected changes in EPS and ROE performance. Total compensation cost recognized for vested EPS awards and ROE awards reflects final performance metrics.

During 2019, Southern Company granted 1.2 million PSUs and 1.2 million PSUs were vested or forfeited, resulting in 2.5 million unvested PSUs outstanding at December 31, 2019. In February 2020, the PSUs that vested for the three-year performance period ended December 31, 2019 were converted into 1.8 million shares outstanding at a share price of $68.59.



	2019		2018		2017
	(in millions)
Southern Company
Compensation cost recognized in income	$	77	$	91	$	74
Tax benefit of compensation cost recognized in income	20		24		29
Southern Company Gas
Compensation cost recognized in income	$	14	$	11	$	8
Tax benefit of compensation cost recognized in income	4		3		3

Total PSU compensation cost and the related tax benefit recognized in income were immaterial for all periods presented for Alabama Power, Georgia Power, Mississippi Power, and Southern Power. The compensation cost related to the grant of Southern Company PSUs to the employees of each Subsidiary Registrant is recognized in each Subsidiary Registrant's financial statements with a corresponding credit to equity representing a capital contribution from Southern Company.

At December 31, 2019, Southern Company's total unrecognized compensation cost related to PSUs was $31 million and is expected to be recognized over a weighted-average period of approximately 12 months. The total unrecognized compensation cost related to PSUs as of December 31, 2019 was immaterial for all other Registrants.

The fair value of RSUs is based on the closing stock price of Southern Company common stock on the date of the grant. The weighted average grant-date fair values of RSUs granted during 2019, 2018, and 2017 were $50.44, $43.81, and $49.25, respectively. For most RSU awards, one-third of the RSUs vest each year throughout a three-year service period and compensation cost for RSUs is generally recognized over the corresponding one-, two-, or three-year vesting period. Shares of Southern Company common stock are delivered to employees at the end of each vesting period.

Southern Company had 1.1 million RSUs outstanding at December 31, 2018. During 2019, Southern Company granted 0.6 million RSUs and 0.4 million RSUs were vested or forfeited, resulting in 1.3 million unvested RSUs outstanding at December 31, 2019, including RSUs related to employee retention agreements.

For the years ended December 31, 2019, 2018, and 2017, Southern Company's total compensation cost for RSUs recognized in income was $28 million, $27 million, and $25 million, respectively. The related tax benefit also recognized in income was $7 million, $7 million, and $10 million for the years ended December 31, 2019, 2018, and 2017, respectively. Total unrecognized compensation cost related to RSUs as of December 31, 2019 for Southern Company of $14 million will be recognized over a weighted-average period of approximately 10 months.

Total RSUs outstanding and total compensation cost and related tax benefit for the RSUs recognized in income for the years ended December 31, 2019, 2018, and 2017, as well as the total unrecognized compensation cost as of December 31, 2019, were immaterial for all other Registrants. The compensation cost related to the grant of Southern Company RSUs to the employees of each Subsidiary Registrant is recognized in such Subsidiary Registrant's financial statements with a corresponding credit to equity representing a capital contribution from Southern Company.

In 2015, Southern Company discontinued granting stock options. Stock options expire no later than 10 years after the grant date and the latest possible exercise will occur by November 2024. As of December 31, 2019, the weighted average remaining contractual term for the options outstanding and exercisable was approximately three years.

As of December 31, 2017, all stock option awards are vested and compensation cost fully recognized. Total compensation cost for stock option awards and the related tax benefits recognized in income for the year ended December 31, 2017 were immaterial for Southern Company, Alabama Power, Georgia Power, and Mississippi Power.



Year Ended December 31	2019		2018		2017
	(in millions)
Southern Company
Intrinsic value of options exercised	$	167	$	9	$	64
Tax benefit of options exercised	35		2		25
Alabama Power
Intrinsic value of options exercised	$	21	$	2	$	12
Tax benefit of options exercised	4		—		5
Georgia Power
Intrinsic value of options exercised	$	30	$	2	$	13
Tax benefit of options exercised	6		—		5
Mississippi Power
Intrinsic value of options exercised	$	4	$	1	$	2
Tax benefit of options exercised	1		—		1

At the effective time of the Merger, each outstanding award of existing Southern Company Gas PSUs was converted into an award of Southern Company RSUs. Under the terms of the restricted stock awards, the employees received Southern Company stock when they satisfied the requisite service period by being continuously employed through the original three-year vesting schedule of the award being replaced. Southern Company issued 0.7 million RSUs with a grant-date fair value of $53.83, based on the closing stock price of Southern Company common stock on the date of the grant. Approximately $13 million of the grant date fair value, which was related to pre-combination service, was accounted for as Merger consideration. Southern Company Gas recognized the remaining fair value as compensation expense on a straight-line basis over the remaining vesting period. The compensation cost related to the grant of RSUs to Southern Company Gas employees is recognized in Southern Company Gas' financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. As of

Southern Company awarded PSUs to certain Southern Company Gas employees who continued their employment with the Southern Company in lieu of certain change in control benefits the employee was entitled to receive following the Merger (change in control awards). Shares of Southern Company common stock and/or cash equal to the dollar value of the change in control benefit vested and were issued one-third each year as long as the employee remained in service with Southern Company or its subsidiaries at each vest date. In addition to the change in control benefit, Southern Company common stock was issued to the employees at the end of a performance period based on achievement of certain Southern Company common stock price metrics, as well performance goals established by the Compensation Committee of the Southern Company Board of Directors (achievement shares).

The change in control benefits were accounted for as a liability award with the fair value equal to the guaranteed dollar value of the change in control benefit. The compensation cost of the change in control benefit was recognized in Southern Company Gas' financial statements with a corresponding credit to a liability. The grant-date fair value of the achievement portion of the award was determined using a Monte Carlo simulation model to estimate the number of achievement shares expected to vest based on the Southern Company common stock price. The compensation cost of the achievement shares was recognized in Southern Company Gas' financial statements with a corresponding credit to equity, representing a capital contribution from Southern Company. The expected payout was reevaluated annually with expense recognized to date increased or decreased proportionately based on the expected performance. The compensation cost ultimately recognized for the achievement shares was based on the actual performance. As of December 31, 2019, all change in control awards are vested. For the year ended December 31, 2017, total compensation cost and the related tax benefit for the change in control awards recognized in income was $12 million and $6 million, respectively. Total compensation cost and the related tax benefit for the change in control awards recognized in income were immaterial for all other periods presented.