Note 12. Stock-Based and Other Compensation Plans

We recognized total stock-based compensation expense as follows:



	Year Ended December 31,
(millions)	2015			2014			2013
Stock-Based Compensation Expense Included in
General and Administrative Expense	$	50		$	63		$	58
Exploration Expense and Other	36			24			22
Total Stock-Based Compensation Expense	$	86		$	87		$	80
Tax Benefit Recognized	$	(30	)	$	(31	)	$	(28	)

Stock Option and Restricted Stock Plans Our stock option and restricted stock plans are described below.

1992 Stock Option and Restricted Stock Plan Under the Noble Energy, Inc. 1992 Stock Option and Restricted Stock Plan, as amended (the 1992 Plan), the Compensation, Benefits and Stock Option Committee of the Board of Directors (the Committee) may grant stock options and stock appreciation rights and award restricted stock and cash awards to our officers or other employees and those of our subsidiaries. The maximum number of shares that may be granted under the 1992 Plan is 77,400,000 shares of common stock. At December 31, 2015, 35,850,503 shares of our common stock were reserved for issuance, including 16,019,550 shares available for future grants and awards, under the 1992 Plan.

Stock options are issued with an exercise price equal to the fair market value of our common stock on the date of grant, and are subject to such other terms and conditions as may be determined by the Committee. Unless granted by the Committee for a shorter term, the options expire 10 years from the grant date. Option grants generally vest ratably over a three-year period.

Restricted stock awards made under the 1992 Plan are subject to such restrictions, terms and conditions, including forfeitures, if any, as may be determined by the Committee. During the period during which such restrictions apply, unless specifically provided otherwise in accordance with the terms of the 1992 Plan, the recipient of restricted stock would be the record owner of the shares and have all the rights of a stockholder with respect to the shares, including the right to vote and the right to receive dividends or other distributions made or paid with respect to the shares. The dividends or other distributions pertaining to the restricted shares will be held by the Company until the restriction period ends and the shares vest or forfeit. If the restricted shares forfeit, then the recipient shall not be entitled to receive the dividend or distribution which will transfer to the Company. Restricted stock awards with a time-vested restriction vest over a three year period (20% after year one, an additional 30% after year two and the remaining 50% after year three) or over a two year period (40% after year one and the remaining 60% after year two). Restricted stock awards with a performance-vested restriction cliff vest after a three year period if the Company achieves certain levels of total shareholder return relative to a pre-determined industry peer group.

2015 Stock Plan for Non-Employee Directors The 2015 Stock Plan for Non-Employee Directors of Noble Energy, Inc., as amended (the 2015 Plan) provides for grants of stock options and awards of restricted stock to our non-employee directors. The 2015 Plan superseded and replaced the 2005 Stock Plan for Non-Employee Directors of Noble Energy, Inc. The total number of shares of our common stock that may be issued under the 2015 Plan is 708,996. At December 31, 2015, 705,615 shares of our common stock were reserved for issuance including 693,665 shares available for future grants and awards, under the 2015 Plan.

2005 Stock Plan for Non-Employee Directors The 2005 Stock Plan for Non-Employee Directors of Noble Energy, Inc., as amended (the 2005 Plan) provides for grants of stock options and awards of restricted stock to our non-employee directors. The 2005 Plan superseded and replaced the 1988 Nonqualified Stock Option Plan for Non-Employee Directors of Noble Energy, Inc. The total number of shares of our common stock that may be issued under the 2005 Plan is 1,600,000. At December 31, 2015, 469,597 shares of our common stock were reserved for issuance.

Prior to March 17, 2011, the 2005 Plan provided for the automatic granting to a non-employee director of up to a maximum of 11,200 stock options on the date of election to the Board of Directors, annual grants of 2,800 options per non-employee director on February 1 of each year, and discretionary grants by the Board of Directors (with the February 1 annual and the discretionary grants made to a non-employee director during any calendar year being limited to a combined maximum of 11,200 options). The 2005 Plan was amended so that no automatic option grants would be made under the 2005 Plan on or after March 17, 2011. Discretionary grants by the Board of Directors continue to be permitted under the 2005 Plan (with the grants made to a non-employee director during any calendar year being limited to a maximum of 22,400). Options are issued with an exercise price equal to the market price of our common stock on the date of grant and may be exercised one year after the date of grant. Unless granted by the Board of Directors for a shorter term, the options expire 10 years from the date of grant.

Prior to March 17, 2011, the 2005 Plan also provided for the awarding to a non-employee director of up to a maximum of 4,800 shares of restricted stock on the date of election to the Board of Directors, annual awards of 1,200 shares of restricted stock per non-employee director on February 1 of each year, and discretionary awards by the Board of Directors (with the February 1 annual and the discretionary awards made to a non-employee director during any calendar year being limited to a combined maximum of 4,800 shares of restricted stock). The 2005 Plan was amended so that no automatic grants of restricted stock awards would be made under the 2005 Plan on or after March 17, 2011. Discretionary grants by the Board of Directors continue to be permitted under the 2005 Plan (with the grants made to a non-employee director during any calendar year limited to a maximum of 9,600). Restricted stock is restricted for a period of at least one year from the date of award.

1988 Nonqualified Stock Option Plan for Non-Employee Directors The 1988 Nonqualified Stock Option Plan for Non-Employee Directors of Noble Energy, Inc., as amended, (the 1988 Plan) provided for the issuance of stock options to our non-employee directors. Options issued under the 1988 Plan may be exercised one year after grant and expire 10 years from the grant date. The 1988 Plan provided for the granting of a fixed number of stock options to each non-employee director annually (20,000 stock options for the first calendar year of service and 10,000 stock options for each year thereafter) on February 1 of each year. The 1988 Plan was terminated in 2005, and no additional options can be granted thereunder.

Stock Option Grants The fair value of each stock option granted was estimated on the date of grant using a Black-Scholes-Merton option valuation model that used the assumptions described below:

•

Expected term The expected term represents the period of time that options granted are expected to be outstanding, which is the grant date to the date of expected exercise or other expected settlement for options granted. The hypothetical midpoint scenario we use considers our actual exercise and post-vesting cancellation history and expectations for future periods, which assumes that all vested, outstanding options are settled halfway between the current date and their expiration date.

•

Expected volatility The expected volatility represents the extent to which our stock price is expected to fluctuate between the grant date and the expected term of the award. We use the historical volatility of our common stock for a period equal to the expected term of the option prior to the date of grant. We believe that historical volatility produces an estimate that is representative of our expectations about the future volatility of our common stock over the expected term.


•	Risk-free rate The risk-free rate is the implied yield available on US Treasury securities with a remaining term equal to the expected term of the option. We base our risk-free rate on a weighting of five and seven year US Treasury securities as of the date of grant.


•	Dividend yield The dividend yield represents the value of our stock’s annualized dividend as compared to our stock’s average price for the three-year period ended prior to the date of grant. It is calculated by dividing one full year of our expected dividends by our average stock price over the three-year period ended prior to the date of grant.

The assumptions used in valuing stock options granted were as follows:



	Year Ended December 31,
(weighted averages)	2015			2014			2013
Expected Term (in Years)	6.0			5.9			5.7
Expected Volatility	32.6		%	35.1		%	36.4		%
Risk-Free Rate	1.4		%	1.8		%	1.1		%
Expected Dividend Yield	1.2		%	1.1		%	1.2		%
Weighted Average Grant-Date Fair Value	$	13.93		$	20.31		$	17.08

Stock option activity was as follows:



	Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
			(per share)		(in years)	(in millions)
Outstanding at December 31, 2014	13,008,322		$	43.98
Granted	2,714,185		47.25
Exercised	(343,145	)	23.35
Forfeited	(808,350	)	52.24
Outstanding at December 31, 2015	14,571,012		$	44.59	5.6	$	21
Exercisable at December 31, 2015	10,659,799		$	41.53	4.5	$	21

The total intrinsic value of options exercised was $7 million in 2015, $58 million in 2014, and $64 million in 2013.

As of December 31, 2015, $34 million of compensation cost related to unvested stock options granted under the Plans remained to be recognized. The cost is expected to be recognized over a weighted-average period of 1.3 years. We issue new shares of our common stock to settle option exercises. Dividends are not paid on unexercised options.

Restricted Stock Awards Awards of time-vested restricted stock (shares subject to service conditions) are valued at the price of our common stock at the date of award. The fair values of market based restricted stock awards are estimated on the date of award using a Monte Carlo valuation model that uses the assumptions in the following table. The Monte Carlo model is based on random projections of stock price paths and must be repeated numerous times to achieve a probabilistic assessment. Expected volatility represents the extent to which our stock price is expected to fluctuate between now and the award’s anticipated term. We use the historical volatility of Noble Energy common stock for the three-year period ended prior to the date of award. The risk-free rate is based on a three-year period for U.S. Treasury securities as of the year ended prior to the date of award.

The assumptions used in valuing market based restricted stock awards granted were as follows:



	Year Ended December 31,
	2015		2014
Number of Simulations	500,000		500,000
Expected Volatility	30	%	30	%
Risk-Free Rate	0.8	%	0.7	%

Restricted stock activity was as follows:



	Subject to Time Vesting				Subject to Market Conditions
	Number of Shares		Weighted Average Award Date Fair Value		Number of Shares		Weighted Average Award Date Fair Value
			(per share)				(per share)
Outstanding at December 31, 2014	1,048,800		$	55.68	1,518,336		$	29.10
Awarded	1,554,002		39.57		762,786		27.30
Vested	(1,464,374	)	46.57		(1,172	)	42.21
Forfeited	(118,958	)	51.36		(350,028	)	28.41
Outstanding at December 31, 2015	1,019,470		$	45.55	1,929,922		$	28.50

The total fair value of restricted stock that vested was $62 million in 2015, $50 million in 2014, and $43 million in 2013.

The weighted average award-date fair value of restricted stock awarded was $35.53 per share in 2015, $41.22 per share in 2014, and $38.07 per share in 2013.

As of December 31, 2015, $42 million of compensation cost related to all of our unvested restricted stock awarded under the Plans remained to be recognized. The cost is expected to be recognized over a weighted-average period of 1.7 years. Common stock dividends accrue on restricted stock awards and are paid upon vesting. We issue new shares of our common stock when awarding restricted stock.

Other Compensation Plans

401(k) Plan We sponsor a 401(k) savings plan. All regular employees are eligible to participate. We make contributions to match employee contributions up to the first 6% of compensation deferred into the plan, and certain profit sharing contributions for employees hired on or after May 1, 2006, based upon their ages and salaries. We made cash contributions of $35 million in 2015, $26 million in 2014, and $21 million in 2013.

As a result of the termination of the pension plan (see below), employees who were hired prior to May 1, 2006 became eligible to receive profit sharing contributions effective January 1, 2014. In addition, certain of these employees are eligible to receive transition contributions related to the termination of the plan.

Deferred Compensation Plans We have a non-qualified deferred compensation plan for which participant-directed investments are held in a rabbi trust and are available to satisfy the claims of our creditors in the event of bankruptcy or insolvency. Participants in that nonqualified deferred compensation plan may elect to receive distributions in either cash or shares of our common stock. Components of that rabbi trust are as follows:



	December 31,
(millions, except share amounts)	2015		2014
Rabbi Trust Assets
Mutual Fund Investments	$	63	$	83
Noble Energy Common Stock (at Fair Value)	35		51
Total Rabbi Trust Assets	$	98	$	134
Liability Under Related Deferred Compensation Plan	$	98	$	134
Number of Shares of Noble Energy Common Stock Held by Rabbi Trust	872,277		1,073,286

Assets of that rabbi trust, other than our common stock, are invested in certain mutual funds that cover an investment spectrum ranging from equities to money market instruments. These mutual funds have published market prices and are reported at fair value. See Note 13. Fair Value Measurements and Disclosures. The mutual funds are included in the mutual fund investments account in other noncurrent assets in the consolidated balance sheets.

Shares of our common stock held by the rabbi trust holding common stock are accounted for as treasury stock (recorded at cost, $16.72 per share) in the shareholders’ equity section of the consolidated balance sheets. Amounts payable to plan participants are included in other noncurrent liabilities in the consolidated balance sheets and include the market value of the shares of our common stock. Approximately 800,000 shares, or 92%, of our common stock held in respect of one nonqualified deferred compensation plan at December 31, 2015 were attributable to a member of our Board of Directors. The shares are being distributed in equal installments over the next four years. Distributions of 200,000 shares were made in 2015 and 200,000 shares in 2014. In addition, plan participants sold 1,009 shares of our common stock in 2015, 19,049 shares in 2014, and 1,008 shares in 2013. Proceeds were invested in mutual funds and/or distributed to plan participants. Distributions to plan participants were valued at $18 million in 2015, $22 million in 2014 and $25 million in 2013.

All fluctuations in market value of the deferred compensation liability have been reflected in other non-operating (income) expense, net in the consolidated statements of operations. We recognized deferred compensation expense (income) of $(16) million in 2015, $(25) million in 2014 and $26 million in 2013.

We also maintain other nonqualified deferred compensation plan (besides the restoration plan described below) for the benefit of certain of our employees. Deferred compensation liabilities of $119 million and $84 million were outstanding at December 31, 2015 and 2014, respectively, under those other plans.

Pension and Other Postretirement Benefit Plans We have had a noncontributory, tax-qualified defined benefit pension plan (pension plan) covering employees who were hired prior to May 1, 2006, and an unfunded, nonqualified restoration plan that provided the pension plan formula benefits that could not be provided by the qualified pension plan because of pay deferrals and the compensation and benefit limitations imposed on the pension plan by the Internal Revenue Code of 1986, as amended. We have also sponsored other plans, which include plans offering medical and life insurance benefits, for the benefit of our employees and retirees.

During 2015, we completed the termination of the pension plan. We liquidated the associated pension obligation through lump-sum payments to participants or the purchase of annuities on their behalf. Upon termination of the pension plan, all unamortized prior service cost and net actuarial loss remaining in AOCL was charged to expense. This amount totaled $88 million.

In coordination with the termination and liquidation of the pension plan, we also amended our restoration plan to freeze the accrual of benefits. Payments under the restoration plan will continue to be made in ordinary course without acceleration. Restoration plan participants who remain employed by us upon final liquidation and distribution of assets of the pension plan were given the option to have the lump sum present value of their restoration plan benefits converted into an account balance under our nonqualified deferred compensation plan.

During 2014, we curtailed the retiree medical program, resulting in a gain of $21 million, and, at December 31, 2014, accrued a one-time taxable cash payment of $20 million to certain employees who would have been eligible for retiree medical benefits at any point during the next 10 years.

The benefit obligations, plan assets and AOCL balances for the pension, restoration and other postretirement benefit plans are summarized below as of December 31:



	Retirement and Restoration Plans ⁽¹⁾						Medical and Life Plans
(millions)	2015			2014			2015			2014
Pension or Other Benefit Obligation	$	(24	)	$	(363	)	$	(5	)	$	(7	)
Fair Value of Plan Assets	—			242			—			—
Net Amount Recognized in Consolidated Balance Sheet	(24		)	(121		)	(5		)	(7		)
Current Liabilities	(2		)	(102		)	(1		)	(2		)
Noncurrent Liabilities	(22		)	(19		)	(4		)	(5		)
Net Prior Service (Cost) Credit, Before Tax	$	(15	)	$	(75	)	$	2		$	2
Net Gains (Losses), Before Tax	(4		)	(42		)	—			—
Accumulated Other Comprehensive Income (Loss)	$	(19	)	$	(117	)	$	2		$	2

⁽¹⁾ The retirement (pension) plan was terminated during 2015. Balances at December 31, 2015 relate to the restoration plan only.

At December 31, 2014, pension plan assets were invested in cash and separately managed accounts consisting primarily of short term fixed income securities.

Net periodic benefit cost related to these plans totaled $16 million in 2015, $11 million in 2014, and $37 million in 2013.