15. Share-Based Compensation

At December 31, 2013, 26 million shares of the 31 million shares of Anadarko common stock originally authorized for awards under active share-based compensation plans remained available for future issuance. The Company generally issues new shares to satisfy awards under employee share-based payment plans. The number of shares available is reduced by awards granted. The following summarizes share-based compensation expense for the years ended December 31:



millions	2013		2012			2011
Equity-Classified Awards
Restricted stock	$	122	$	103		$	80
Stock options	27		43			51
Performance-based share awards and other	1		1			1
Total equity-classified award compensation expense	150		147			132
Liability-Classified Awards
Value creation plan	—		(2		)	26
Performance-based unit awards	4		8			28
Other performance-based awards	—		165			28
Other	1		2			1
Total liability-classified award compensation expense	5		173			83
Pretax compensation expense	$	155	$	320		$	215
Income tax benefit	$	57	$	117		$	78

Cash flows from financing activities included excess tax benefits related to share-based compensation of $11 million in 2013, $51 million in 2012, and $(15) million in 2011. Cash received from stock option exercises was $135 million in 2013, $52 million in 2012, and $45 million in 2011.

15. Share-Based Compensation (Continued)

Equity-Classified Awards

Restricted Stock Certain employees may be granted restricted stock in the form of restricted stock awards or restricted stock units. Restricted stock is subject to forfeiture restrictions and cannot be sold, transferred, or disposed of during the restriction period. The holders of restricted stock awards have the same rights as a stockholder of the Company with respect to such shares, including the right to vote and receive dividends or other distributions paid with respect to the shares. A restricted stock unit is equivalent to a restricted stock award except that unit holders do not have the right to vote. Restricted stock vests over service periods ranging from the date of grant up to three years and is not considered issued and outstanding until vested.

Non-employee directors are granted deferred shares, which are also considered restricted stock, that are held in a grantor trust by the Company until payable. Non-employee directors may receive these shares in a lump-sum payment or in annual installments.

The following summarizes the Company’s restricted stock activity:



	Shares (millions)		Weighted- Average Grant-Date Fair Value (per share)
Non-vested at January 1, 2013	2.82		$	79.27
Granted	1.88		$	84.17
Vested	(1.32	)	$	78.19
Forfeited	(0.16	)	$	80.37
Non-vested at December 31, 2013	3.22		$	82.53

The weighted-average grant-date fair value per share of restricted stock granted was $79.97 during 2012 and $81.19 during 2011. The total fair value of restricted shares vested was $110 million during 2013, $105 million during 2012, and $124 million during 2011, based on the market price at the vesting date. At December 31, 2013, total unrecognized compensation cost related to restricted stock of $175 million is expected to be recognized over a weighted-average remaining service period of 1.9 years.

15. Share-Based Compensation (Continued)

Stock Options Certain employees may be granted nonqualified options to purchase shares of Anadarko common stock with an exercise price equal to, or greater than, the fair market value of Anadarko common stock on the date of grant. These stock options vest over three years from the date of grant and terminate at the earlier of the date of exercise or seven years from the date of grant.

The fair value of stock option awards is determined using the Black-Scholes option-pricing model. The expected life of an option is estimated based on historical exercise behavior. Volatility assumptions are estimated based on an average of historical volatility over the expected life of an option and the 12-month average implied volatility. Risk-free interest rates are based on the U.S. Treasury rate over the expected life of an option. The dividend yield is based on a 12-month average dividend yield, taking into account the Company’s expected dividend policy over the expected life of an option. Expected forfeiture rates are estimated based on historical forfeiture experience. The Company used the following weighted-average assumptions to estimate the fair value of stock options granted during 2013, 2012, and 2011:



	2013		2012		2011
Expected option life—years	4.8		4.9		4.8
Volatility	33.9	%	44.2	%	42.0	%
Risk-free interest rate	1.3	%	0.7	%	1.5	%
Dividend yield	0.8	%	0.5	%	0.5	%

The following summarizes the Company’s stock option activity:



	Shares (millions)		Weighted- Average Exercise Price (per share)		Weighted- Average Remaining Contractual Term (years)	Aggregate Intrinsic Value (millions)
Outstanding at January 1, 2013	9.36		$	58.66
Granted	0.91		$	91.71
Exercised	(2.43	)	$	55.59
Forfeited or expired	(0.12	)	$	74.55
Outstanding at December 31, 2013	7.72		$	63.30	3.59	$	138.3
Vested or expected to vest at December 31, 2013	7.65		$	63.14	3.57	$	138.2
Exercisable at December 31, 2013	5.87		$	57.00	2.83	$	133.5

The per-option weighted-average grant-date fair value of stock options granted was $26.27 during 2013, $25.84 during 2012, and $29.77 during 2011. The total intrinsic value of stock options exercised was $80 million during 2013, $49 million during 2012, and $45 million during 2011, based on the difference between the market price at the exercise date and the exercise price. At December 31, 2013, total unrecognized compensation cost related to stock options of $41 million is expected to be recognized over a weighted-average remaining service period of 2.2 years.

15. Share-Based Compensation (Continued)

Performance-Based Share Awards In 2007, certain officers of the Company were provided Performance Unit Award Agreements with performance periods ranging from one to three years. The number of shares of common stock earned under these agreements was based on a comparison of the Company’s TSR to the TSR of a predetermined group of peer companies over the specified performance periods. The maximum number of shares of Anadarko common stock available to be earned was 934,424 shares based on predefined payout percentages. At December 31, 2013, all performance periods have ended and a total of 521,258 shares were earned, with no additional shares available to be earned in the future. Of the total shares earned, 506,449 shares have been issued and 14,809 shares have been deferred pursuant to the agreements. The fair value of the performance-based share awards issued was $11 million during 2013, zero during 2012, and $6 million during 2011, based on the market price on the date of issuance. At December 31, 2013, the Company had no unrecognized compensation cost related to these awards.

Liability-Classified Awards

Value Creation Plan As a part of its employee compensation program, the Company offers an incentive compensation program that provides non-officer employees the opportunity to earn cash bonus awards based on the Company’s TSR for the year, compared to the TSR of a predetermined group of peer companies. The Company paid zero during 2013 related to the plan, $24 million during 2012, and zero during 2011. At December 31, 2013, the Company had no outstanding liability attributable to the 2013 performance period.

Performance-Based Unit Awards Certain officers of the Company were provided Performance Unit Award Agreements with two- and three-year performance periods. The vesting of these units is based on comparing the Company’s TSR to the TSR of a predetermined group of peer companies over the specified performance period. Each performance unit represents the value of one share of the Company’s common stock. At the end of each performance period, the value of the vested performance units, if any, is paid in cash. The Company paid $15 million related to vested performance units in 2013, $37 million in 2012, and $25 million in 2011. At December 31, 2013, the Company’s liability under Performance Unit Award Agreements was $15 million, with total unrecognized compensation cost related to these awards of $20 million expected to be recognized over a weighted-average remaining performance period of 1.9 years.

Other Performance-Based Awards Prior to 2011, certain officers of the general partner of WES were awarded general partner Unit Appreciation Rights (UARs) pursuant to the Western Gas Holdings, LLC Equity Incentive Plan. The fair value of the UARs was determined based on the fair value of WES’s general partner, as determined by the WGP IPO price. The Company paid $203 million related to the UARs upon the WGP IPO in 2012 in settlement of obligations related to all awards then outstanding.