4.Share-Based Compensation

On June 3, 2009, Devon's stockholders adopted the 2009 Long-Term Incentive Plan, which expires on June 2, 2019. This plan authorizes the Compensation Committee, which consists of independent, non-management members of Devon's Board of Directors, to grant nonqualified and incentive stock options, restricted stock awards, performance restricted stock awards, restricted stock units, performance share units, stock appreciation rights and cash-out rights to eligible employees. The plan also authorizes the grant of nonqualified stock options, restricted stock awards, restricted stock units and stock appreciation rights to directors.

In the second quarter of 2012, Devon’s stockholders adopted an amendment to the 2009 Long-Term Incentive Plan, which also expires June 2, 2019. This amendment increases the number of shares authorized for issuance from 21.5 million shares to 47.0 million shares. To calculate shares issued under the 2009 Long-Term Incentive Plan subsequent to this amendment, options and stock appreciation rights represent one share and other awards represent 2.38 shares.

Devon also has a stock option plan that was adopted in 2005 under which stock options were issued to certain employees. Options granted under this plan remain exercisable by the employees owning such options, but no new options or restricted stock awards will be granted under this plan.

Devon did not have an annual long-term incentive grant in 2013 due to revisions in the timing of the employee compensation cycle. The annual long-term incentive grant related to 2013 performance was granted in February 2014.

The following table presents the effects of share-based compensation included in Devon's accompanying consolidated comprehensive statements of earnings. Devon’s gross general and administrative expense for the year ended December 31, 2014 includes $17 million of unit-based compensation related to grants made under EnLink’s long-term incentive plans.

The vesting for certain share-based awards was accelerated as part of Devon’s restructuring as discussed in Note 6. The associated expense for these accelerated awards is included in restructuring costs in the accompanying consolidated comprehensive statements of earnings.



	Year Ended December 31,
	2014		2013		2012

	(In millions)
Gross general and administrative expense	$	199	$	157	$	179
Share-based compensation expense capitalized pursuant to the
full cost method of accounting for oil and gas properties	$	53	$	60	$	56
Related income tax benefit	$	30	$	23	$	34

Stock Options

In accordance with Devon’s incentive plans, the exercise price of stock options granted may not be less than the market value of the stock at the date of grant. In addition, options granted are exercisable during a period established for each grant, which may not exceed eight years from the date of grant. The recipient must pay the exercise price in cash or in common stock, or a combination thereof, at the time that the option is exercised. Generally, the service requirement for vesting ranges from zero to four years.

The fair value of stock options on the date of grant is expensed over the applicable vesting period. Devon estimates the fair values of stock options granted using a Black-Scholes option valuation model, which requires Devon to make several assumptions. The volatility of Devon's common stock is based on the historical volatility of the market price of Devon's common stock over a period of time equal to the expected term of the option and ending on the grant date. The dividend yield is based on Devon’s historical and current yield in effect at the date of grant. The risk-free interest rate is based on the zero-coupon United States Treasury yield for the expected term of the option at the date of grant. The expected term of the options is based on historical exercise and termination experience for various groups of employees and directors. Each group is determined based on the similarity of their historical exercise and termination behavior. The following table presents a summary of the grant-date fair values of stock options granted and the related assumptions for 2012. All such amounts represent the weighted-average amounts for the year. No stock options were granted in 2014 and 2013.


	2012
Grant-date fair value	$	22.20
Volatility factor		42.5%
Dividend yield		1.2%
Risk-free interest rate		1.1%
Expected term (in years)		6.0

The following table presents a summary of Devon's outstanding stock options.


			Weighted Average
	Options	Exercise Price		Remaining Term	Intrinsic Value
	(In thousands)			(In years)	(In millions)
Outstanding at December 31, 2013	6,446	$	69.35
Granted	-	$	-
Exercised	(1,417)	$	65.55
Expired	(528)	$	70.64
Forfeited	(283)	$	67.86
Outstanding at December 31, 2014	4,218	$	70.56	3.11	$	1
Vested and expected to vest at December 31, 2014	4,201	$	70.57	3.10	$	1
Exercisable at December 31, 2014	3,969	$	70.80	3.00	$	1

The aggregate intrinsic value of stock options that were exercised during 2014, 2013 and 2012 was $9 million, $0.3 million and $34 million, respectively. As of December 31, 2014, Devon's unrecognized compensation cost related to unvested stock options was $3 million. Such cost is expected to be recognized over a weighted-average period of 1.0 years.

Restricted Stock Awards and Units

Restricted stock awards and units are subject to the terms, conditions, restrictions and limitations, if any, that the Compensation Committee deems appropriate, including restrictions on continued employment. Generally, the service requirement for vesting ranges from zero to four years. During the vesting period, recipients of restricted stock awards receive dividends that are not subject to restrictions or other limitations. Devon estimates the fair values of restricted stock awards and units as the closing price of Devon's common stock on the grant date of the award or unit, which is expensed over the applicable vesting period. The following table presents a summary of Devon's unvested restricted stock awards and units.


	Restricted Stock Awards & Units	Weighted Average Grant-Date Fair Value
	(In thousands)
Unvested at December 31, 2013	3,292	$	59.76
Granted	3,487	$	62.75
Vested	(1,767)	$	60.23
Forfeited	(708)	$	60.47
Unvested at December 31, 2014	4,304	$	60.85

The aggregate fair value of restricted stock awards and units that vested during 2014, 2013 and 2012 was $112 million, $141 million and $112 million, respectively. As of December 31, 2014, Devon's unrecognized compensation cost related to unvested restricted stock awards and units was $194 million. Such cost is expected to be recognized over a weighted-average period of 2.5 years.

Performance-Based Restricted Stock Awards

Performance-based restricted stock awards are granted to certain members of Devon’s senior management. Vesting of the awards is dependent on Devon meeting certain internal performance targets and the recipient meeting certain service requirements. Generally, the service requirement for vesting ranges from zero to four years. If Devon meets or exceeds the performance target, the awards vest after the recipient meets the related requisite service period. If the performance target and service period requirement are not met, the award does not vest. Once vested, recipients are entitled to dividends on the awards. Devon estimates the fair values of the awards as the closing price of Devon's common stock on the grant date of the award, which is expensed over the applicable vesting period. The following table presents a summary of Devon's performance-based restricted stock awards.


	Performance Restricted Stock Awards	Weighted Average Grant-Date Fair Value
	(In thousands)
Unvested at December 31, 2013	316	$	56.25
Granted	234	$	61.33
Vested	(170)	$	56.18
Unvested at December 31, 2014	380	$	59.41

The aggregate fair value of performance-based restricted stock awards that vested during 2014 and 2013 was $10 million and $5 million, respectively. No awards vested in 2012. As of December 31, 2014, Devon's unrecognized compensation cost related to these awards was $5 million. Such cost is expected to be recognized over a weighted-average period of 2.9 years.

Performance Share Units

Performance share units are granted to certain members of Devon’s senior management. Each unit that vests entitles the recipient to one share of Devon common stock. The vesting of these units is based on comparing Devon’s total shareholder return (“TSR”) to the TSR of a predetermined group of fourteen peer companies over the specified two- or three-year performance period. The vesting of units may be between zero and 200 percent of the units granted depending on Devon’s TSR as compared to the peer group on the vesting date.

At the end of the vesting period, recipients receive dividend equivalents with respect to the number of units vested. The fair value of each performance share unit is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all grants made under the plan: (i) a risk-free interest rate based on United States Treasury rates as of the grant date; (ii) a volatility assumption based on the historical realized price volatility of Devon and the designated peer group; and (iii) an estimated ranking of Devon among the designated peer group. The fair value of the unit on the date of grant is expensed over the applicable vesting period. The following table presents a summary of the grant-date fair values of performance share units granted and the related assumptions.


	2014					2013					2012

Grant-date fair value	$	70.18	-	$	81.05	$	61.27	-	$	63.48	$	61.27	-	$	63.48
Risk-free interest rate	0.54%						0.26%	-		0.36%		0.26%	-		0.36%
Volatility factor	28.8%					30.3%					30.3%

Contractual term (in years)	2.89					3.0					3.0

The following table presents a summary of Devon's performance share units.


	Performance Share Units	Weighted Average Grant-Date Fair Value
	(In thousands)
Unvested at December 31, 2013	925	$	66.64
Granted	708	$	77.77
Forfeited	(156)	$	76.59
Unvested at December 31, 2014 (1)	1,477	$	70.90

____________________________

(1)

A maximum of 3.0 million common shares could be awarded based upon Devon’s final TSR ranking.

As of December 31, 2014, Devon's unrecognized compensation cost related to unvested units was $34 million. Such cost is expected to be recognized over a weighted-average period of 1.8 years.

EnLink Share-Based Awards

As of December 31, 2014, EnLink’s unrecognized compensation cost related to unvested restricted incentive units was $20 million. Such cost is expected to be recognized over a weighted-average period of 1.9 years.

As of December 31, 2014, the General Partner’s unrecognized compensation cost related to unvested restricted incentive units was $21 million. Such cost is expected to be recognized over a weighted-average period of 1.9 years.