Share-Based Compensation

Restricted Stock — Certain employees may elect to receive shares of common or restricted stock under the Xcel Energy Inc. Executive Annual Incentive Award Plan. Restricted stock is treated as an equity award and vests and settles in equal annual installments over a three-year period. Xcel Energy Inc. reinvests dividends on the restricted stock while restrictions are in place. Restrictions also apply to the additional shares of restricted stock acquired through dividend reinvestment. If the restricted shares are forfeited, the employee is not entitled to the dividends on those shares. Restricted stock has a fair value equal to the market trading price of Xcel Energy Inc.’s stock at the grant date.

Xcel Energy Inc. granted shares of restricted stock for the years ended Dec. 31 as follows:



(Shares in Thousands)	2016		2015		2014
Granted shares	20		42		46
Grant date fair value	$	38.82	$	35.00	$	29.69

A summary of the changes of nonvested restricted stock for the year ended 2016 were as follows:



(Shares in Thousands)	Shares		Weighted Average Grant Date Fair Value
Nonvested restricted stock at Jan. 1, 2016	83		$	32.62
Granted	20		38.82
Forfeited	—		—
Vested	(38	)	31.41
Dividend equivalents	2		40.04
Nonvested restricted stock at Dec. 31, 2016	67		35.43

Other Equity Awards — Xcel Energy Inc.’s Board of Directors has granted equity awards under the Xcel Energy Inc. 2005 Long-Term Incentive Plan (as amended and restated in 2010) and the 2015 Omnibus Incentive Plan (effective May 20, 2015). These plans allow the attachment of various vesting conditions and performance goals to the awards granted. The vesting conditions and performance goals may vary by plan year. At the end of the restricted period, such grants will be awarded if the vesting conditions and/or performance goals are met.

Commencing in 2014, certain employees were granted equity awards with one portion of shares subject only to service conditions, and the other portion subject to performance conditions. Inclusive of other grants of time-based awards, a total of 0.3 million, 0.3 million, and 0.4 million time-based equity shares subject only to service conditions were granted in 2016, 2015, and 2014, respectively. Other than shares associated with these time-based awards, restricted stock and certain 401(k) employer match settlements, payout of all other employee equity awards and the lapsing of restrictions on the transfer of units are based on the achievement of performance criteria.

The performance conditions for a portion of the awards granted from 2014 to 2016 are based on relative TSR, measured identically to TSR liability awards granted in those years, and measurement of performance for a portion of units awarded from 2011 to 2013 is based on EPS growth with an additional condition that Xcel Energy Inc.’s annual dividend paid on its common stock remains at a specified amount per share or greater. The performance conditions for the remaining employee equity awards are based on environmental goals. Equity awards with performance conditions awarded from 2011 to 2016, plus associated dividend equivalents, will be settled or forfeited and the restricted period will lapse after three years, with potential payouts ranging from zero to 150 percent for 2011 to 2013 grants, and zero to 200 percent for 2014 to 2016 grants, depending on the level of achievement.


•	The 2011 awards measured on EPS growth and the 2011 environmental awards met their targets as of Dec. 31, 2013 and were settled in shares in February 2014.


•	The 2012 awards measured on EPS growth and the 2012 environmental awards met their targets as of Dec. 31, 2014, and were settled in shares in February 2015.


•	The 2013 awards measured on EPS growth, the 2013 environmental awards and the 2013 time-based awards met their targets as of Dec. 31, 2015, and were settled in shares in February 2016.


•	The 2014 environmental awards and the 2014 time-based awards met their targets as of Dec. 31, 2016, and will be settled in shares in February 2017.

Equity award units granted to employees, excluding restricted stock and applicable 401(k) employer match settlements, for the years ended Dec. 31 were as follows:



(Units in Thousands)	2016		2015		2014
Granted units	522		496		588
Weighted average grant date fair value	$	36.00	$	36.09	$	29.90

Approximately 0.5 million of these units vested during 2016 at a total fair value of $21.6 million. Approximately 0.8 million of these units vested during 2015 at a total fair value of $27.1 million. Approximately 0.5 million of these units vested during 2014 at a total fair value of $19.6 million.

A summary of the changes in the nonvested portion of these equity award units for the year ended 2016, were as follows:



(Units in Thousands)	Units		Weighted Average Grant Date Fair Value
Nonvested Units at Jan. 1, 2016	1,025		$	32.81
Granted	522		36.00
Forfeited	(80	)	33.48
Vested	(530	)	29.92
Dividend equivalents	47		33.64
Nonvested Units at Dec. 31, 2016	984		36.05

The total fair value of these nonvested equity awards as of Dec. 31, 2016 was $40.0 million and the weighted average remaining contractual life was 1.7 years.

Stock Equivalent Units — Non-employee members of the Xcel Energy Inc. Board of Directors receive annual awards of stock equivalent units, with each unit having a value equal to one share of Xcel Energy Inc. common stock. The annual grants are vested as of the date of each member’s election to the Board of Directors; there is no further service or other condition attached to the annual grants. Additionally, directors may elect to receive their fees in stock equivalent units in lieu of cash. Dividends on Xcel Energy Inc.’s common stock are converted to stock equivalent units and granted based on the number of stock equivalent units held by each participant as of the dividend date. The stock equivalent units are payable as a distribution of Xcel Energy Inc.’s common stock upon a director’s termination of service.

The stock equivalent units granted for the years ended Dec. 31 were as follows:



(Units in Thousands)	2016		2015		2014
Granted units	49		60		62
Grant date fair value	$	40.68	$	34.58	$	30.57

A summary of the stock equivalent unit changes for the year ended 2016 are as follows:



(Units in Thousands)	Units		Weighted Average Grant Date Fair Value
Stock equivalent units at Jan. 1, 2016	746		$	25.38
Granted	49		40.68
Units distributed	(69	)	19.98
Dividend equivalents	24		40.57
Stock equivalent units at Dec. 31, 2016	750		27.39

TSR Liability Awards — Xcel Energy Inc.’s Board of Directors has granted TSR liability awards under the Xcel Energy Inc. 2005 Long-Term Incentive Plan (as amended and restated effective in 2010). The plan allows Xcel Energy to attach various performance goals to the awards granted. The liability awards granted have been historically dependent on a single measure of performance, Xcel Energy Inc.’s relative TSR measured over a three-year period. For 2016, 2015 and 2014 awards, Xcel Energy Inc.’s TSR is compared to the TSR of other companies in a 22-member utilities peer group. At the end of the three-year period, potential payouts of the awards range from zero to 200 percent, depending on Xcel Energy Inc.’s TSR compared to the applicable peer group or index.

The TSR liability awards granted for the years ended Dec. 31 were as follows:



(In Thousands)	2016	2015	2014
Awards granted	264	224	270

The total amounts of TSR liability awards settled during the years ended Dec. 31 were as follows:



(In Thousands)	2016		2015		2014
Awards settled	354		—		—
Settlement amount (cash, common stock and deferred amounts)	$	13,724	$	—	$	—

The amount of cash used to settle Xcel Energy’s TSR liability awards was $5.6 million in 2016.

Share-Based Compensation Expense — Other than for restricted stock and certain 401(k) employer match settlements, the vesting of employee equity awards is generally predicated on the achievement of a performance condition, which is the achievement of a TSR, EPS or environmental measures target. Additionally, approximately 0.3 million, 0.3 million, and 0.4 million of equity awards were granted in 2016, 2015, and 2014, respectively, with vesting subject only to service conditions for periods of three years. Generally, all of these instruments are considered to be equity awards since the plan settlement determination (shares or cash) resides with Xcel Energy and not the participants. In addition, these awards have not been previously settled in cash and Xcel Energy plans to continue electing share settlement. The grant date fair value of equity awards is expensed over the service period as employees vest in their rights to those awards.

The TSR liability awards have been historically settled partially in cash, and therefore do not qualify as equity awards, but rather are accounted for as liabilities. As liability awards, the fair value on which ratable expense is based, as employees vest in their rights to those awards, is remeasured each period based on the current stock price and performance achievement, and final expense is based on the market value of the shares on the date the award is settled.

The compensation costs related to share-based awards for the years ended Dec. 31 were as follows:



(Thousands of Dollars)	2016		2015		2014
Compensation cost for share-based awards ^{(a) (b)}	$	41,170	$	44,928	$	32,189
Tax benefit recognized in income	16,005		17,570		12,557
Capitalized compensation cost for share-based awards ^(c)	—		—		1,887


^(a)	Compensation costs for share-based payment arrangements are included in O&M expense in the consolidated statements of income.

^(b)

Included in compensation cost for share-based awards are matching contributions related to the Xcel Energy 401(k) plan, which totaled $7.4 million for 2014. In October 2013, Xcel Energy determined that it would settle the 401(k) employer match in cash instead of common stock going forward for all employee groups except PSCo bargaining employees. Share-based compensation accounting for the impacted employee groups ceased in October 2013, and corresponding expense amounts recorded to equity were reclassified to a liability for expected cash settlements. In August 2015, consistent with a new PSCo bargaining agreement, share-based compensation accounting ceased for the employer 401(k) match for PSCo bargaining employees, which will be paid in cash. As a result, 2015 and 2016 compensation cost for share-based awards includes no 401(k) matching contributions.


^(c)	An allocated amount of the 401(k) match is capitalized.

The maximum aggregate number of shares of common stock available for issuance under the Xcel Energy Inc. 2015 Omnibus Incentive Plan (effective May 20, 2015) is 7.0 million shares. The maximum aggregate number of shares of common stock available for issuance under the Xcel Energy Inc. 2005 Long-Term Incentive Plan (as amended and restated effective Feb. 17, 2010) is 8.3 million shares. Under the Xcel Energy Inc. Executive Annual Incentive Award Plan (as amended and restated effective Feb. 17, 2010), the total number of shares approved for issuance is 1.2 million shares.

As of Dec. 31, 2016 and 2015, there was approximately $29.0 million and $36.4 million, respectively, of total unrecognized compensation cost related to nonvested share-based compensation awards. Xcel Energy expects to recognize the amount unrecognized at Dec. 31, 2016 over a weighted average period of 1.6 years.