STOCK-BASED COMPENSATION PLANS

FirstEnergy grants stock-based awards through the ICP 2015, primarily in the form of restricted stock and performance-based restricted stock units. Under FirstEnergy's previous incentive compensation plan, the ICP 2007, FirstEnergy also granted stock options and performance shares. The ICP 2007 and ICP 2015 include shareholder authorization to issue 29 million shares and 10 million shares, respectively, of common stock or their equivalent. As of December 31, 2018, approximately 4.7 million shares were available for future grants under the ICP 2015 assuming maximum performance metrics are achieved for the outstanding cycles of restricted stock units. No shares are available for future grants under the ICP 2007. Shares not issued due to forfeitures or cancellations may be added back to the ICP 2015. Shares granted under the ICP 2007 and ICP 2015 are issued from authorized but unissued common stock. Vesting periods for stock-based awards range from one to ten years, with the majority of awards having a vesting period of three years. FirstEnergy also issues stock through its 401(k) Savings Plan, EDCP, and DCPD. Currently, FirstEnergy records the compensation costs for stock-based compensation awards that will be paid in stock over the vesting period based on the fair value on the grant date. Beginning in 2017, based upon the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," FE has elected to account for forfeitures as they occur.

As discussed in Note 1, "Organization and Basis of Presentation," on March 31, 2018, FES and FENOC announced the FES Bankruptcy. FirstEnergy will retain certain obligations for the FES Debtors employees' outstanding awards issued under the 2015 ICP for the 2016-2018 performance cycle.

FirstEnergy adjusts the compensation costs for stock-based compensation awards that will be paid in cash based on changes in the fair value of the award as of each reporting date. FirstEnergy records the actual tax benefit realized from tax deductions when awards are exercised or settled. Actual income tax benefits realized during the years ended December 31, 2018, 2017 and 2016, were $15 million, $15 million and $13 million, respectively. The income tax effects of awards are recognized in the income statement when the awards vest, are settled or are forfeited.

Stock-based compensation costs and the amount of stock-based compensation costs capitalized related to FirstEnergy plans are included in the following tables:



	Years Ended December 31,
Stock-based Compensation Plan	2018		2017		2016
	(In millions)
Restricted Stock Units	$	102	$	49	$	62
Restricted Stock	1		1		2
Performance Shares	—		—		(3		)
401(k) Savings Plan	33		42		39
EDCP & DCPD	7		6		5
Total	$	143	$	98	$	105
Stock-based compensation costs capitalized	$	60	$	37	$	37

Outstanding stock options were fully amortized as of December 31, 2016. Stock option expense was not material for FirstEnergy for the year December 31, 2016, and there was no stock option expense for the years ended December 31, 2018 and 2017. Income tax benefits associated with stock-based compensation plan expense were $18 million, $10 million and $14 million for the years ended 2018, 2017 and 2016, respectively.

Restricted Stock Units

Beginning with the performance-based restricted stock units granted in 2015, two-thirds of each award will be paid in stock and one-third will be paid in cash. Outstanding restricted stock unit awards for FES and FENOC participants, however, were previously modified to only pay in cash. Restricted stock units payable in stock provide the participant the right to receive, at the end of the period of restriction, a number of shares of common stock equal to the number of stock units set forth in the agreement, subject to adjustment based on FirstEnergy's performance relative to financial and operational performance targets applicable to each award. The grant date fair value of the stock portion of the restricted stock unit award is measured based on the average of the high and low prices of FE common stock on the date of grant. Beginning with awards granted in 2018, restricted stock units include a performance metric consisting of a relative total shareholder return modifier utilizing the S&P 500 Utility Index as a comparator group. The estimated grant date fair value for these awards is calculated using the Monte Carlo simulation method.

Restricted stock units payable in cash provide the participant the right to receive cash based on the number of stock units set forth in the agreement and value of the equivalent number of shares of FE common stock as of the vesting date. The cash portion of the restricted stock unit award is considered a liability award, which is remeasured each period based on FE's stock price and projected performance adjustments. The liability recorded for the portion of performance-based restricted stock units payable in cash in the future as of December 31, 2018, was $56 million. During 2018, approximately $30 million was paid in relation to the cash portion of restricted stock unit obligations that vested in 2018.

The vesting period for the performance-based restricted stock unit awards granted in 2016, 2017 and 2018, was each three years. Dividend equivalents are received on the restricted stock units and are reinvested in additional restricted stock units and subject to the same performance conditions as the underlying award.

Restricted stock unit activity for the year ended December 31, 2018, was as follows:



Restricted Stock Unit Activity	Shares (in millions)		Weighted-Average Grant Date Fair Value (per share)
Nonvested as of January 1, 2018	3.3		$	33.24
Granted in 2018	2.0		36.78
Forfeited in 2018	(0.1	)	33.77
Vested in 2018⁽¹⁾	(1.9	)	32.49
Nonvested as of December 31, 2018	3.3		$	33.78

⁽¹⁾ Excludes dividend equivalents of approximately 143 thousand shares earned during vesting period.

The weighted-average fair value of awards granted in 2018, 2017 and 2016 was $36.78, $31.71 and $34.77, respectively. For the years ended December 31, 2018, 2017, and 2016, the fair value of restricted stock units vested was $62 million, $42 million, and $36 million, respectively. As of December 31, 2018, there was $30 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted for restricted stock units; which is expected to be recognized over a period of approximately three years.

Restricted Stock

Certain employees receive awards of FE restricted stock (as opposed to "units" with the right to receive shares at the end of the restriction period) subject to restrictions that lapse over a defined period of time or upon achieving performance results. The fair value of restricted stock is measured based on the average of the high and low prices of FE common stock on the date of grant. Dividends are received on the restricted stock and are reinvested in additional shares of restricted stock, subject to the vesting conditions of the underlying award. Restricted stock activity for the year ended December 31, 2018, was not material.

Stock Options

Stock options have been granted to certain employees allowing them to purchase a specified number of common shares at a fixed exercise price over a defined period of time. Stock options generally expire ten years from the date of grant. There were no stock options granted in 2018. Stock option activity during 2018 was as follows:



Stock Option Activity	Number of Shares (in millions)		Weighted Average Exercise Price (per share)
Balance, January 1, 2017 (all options exercisable)	1.4		$	44.41
Options exercised	(0.3	)	35.45
Options forfeited	(0.3	)	79.99
Balance, December 31, 2018 (all options exercisable)	0.8		$	37.37

Approximately $12 million of cash was received in 2018 from the exercise of stock options. There was no cash received from the exercise of stock options in 2017 and the amount in 2016 was not material. The weighted-average remaining contractual term of options outstanding as of December 31, 2018, was 1.35 years.

Performance Shares

Prior to the 2015 grant of performance-based restricted stock units discussed above, performance shares were granted. Performance shares are share equivalents and do not have voting rights. The performance shares outstanding track the performance of FE's common stock over a three-year vesting period. Dividend equivalents accrued on performance shares and were reinvested into additional performance shares with the same performance conditions. The final award value could have been adjusted based on the performance of FE stock performance as compared to a composite of peer companies. In 2016, $2 million cash was paid to settle performance shares that vested over the 2013-2015 performance cycle. In 2018 and 2017, no cash was paid to settle the last outstanding cycle of performance shares that could have vested over the 2014-2016 performance cycle. Following 2017, FirstEnergy no longer has outstanding performance share awards.

401(k) Savings Plan

In each 2018 and 2017, approximately 1.3 million shares of FE common stock were issued and contributed to participants' accounts.

EDCP

Under the EDCP, certain employees can defer a portion of their compensation, including base salary, annual incentive awards and/or long-term incentive awards, into unfunded accounts. Annual incentive and long-term incentive awards may be deferred in FE stock accounts. Base salary and annual incentive awards may be deferred into a retirement cash account which earns interest. Dividends are calculated quarterly on stock units outstanding and are credited in the form of additional stock units. The form of payout as stock or cash vary depending upon the form of the award, the duration of the deferral and other factors. Certain types of deferrals such as dividend equivalent units, Annual incentive awards, and performance share awards are required to be paid in cash. Until 2015, payouts of the stock accounts typically occurred three years from the date of deferral, although participants could have elected to defer their shares into a retirement stock account that would pay out in cash upon retirement. In 2015, FirstEnergy amended the EDCP to eliminate the right to receive deferred shares after three years, effective for deferrals made on or after November 1, 2015. Awards deferred into a retirement stock account will pay out in cash upon separation from service, death or disability. Interest accrues on the cash allocated to the retirement cash account and the balance will pay out in cash over a time period as elected by the participant.

DCPD

Under the DCPD, members of FE's Board of Directors can elect to defer all or a portion of their equity retainers to a deferred stock account and their cash retainers to deferred stock or deferred cash accounts. The net liability recognized for DCPD of approximately $9 million and $8 million as of December 31, 2018 and December 31, 2017, respectively, is included in the caption “Retirement benefits,” on the Consolidated Balance Sheets.