Equity-Indexed Compensation Plans

PAA Long-Term Incentive Plan Awards

Our LTIP awards include both liability-classified and equity-classified awards. In accordance with FASB guidance regarding share-based payments, the fair value of liability-classified LTIP awards is calculated based on the closing market price of the underlying PAA unit at each balance sheet date and adjusted for the present value of any distributions that are estimated to occur on the underlying units over the vesting period that will not be received by the award recipients. The fair value of equity-classified LTIP awards is calculated based on the closing market price of the underlying PAA unit on the respective grant dates and adjusted for the present value of any distributions that are estimated to occur on the underlying units over the vesting period that will not be received by the award recipient. This fair value is recognized as compensation expense over the service period.

Our LTIP awards contain (i) time based vesting criteria, (ii) performance conditions based on the attainment of certain levels of four quarter trailing distributable cash flow (“DCF”) per common unit or (iii) a combination of time based vesting criteria and performance conditions based on four quarter trailing DCF per common unit. For awards with performance conditions, expense is accrued over the service period only if the performance condition is considered probable of occurring. When awards with performance conditions that were previously considered improbable become probable, we incur additional expense in the period that the probability assessment changes. This is necessary to bring the accrued obligation associated with these awards up to the level it would be if we had been accruing for these awards since the grant date.

The following is a summary of the awards authorized under our LTIPs as of December 31, 2018 (in millions):



LTIP		PAA LTIP Awards Authorized
Plains All American 2013 Long-Term Incentive Plan		13.1
Plains All American PNG Successor Long-Term Incentive Plan		1.3
Plains All American GP LLC 2006 Long-Term Incentive Tracking Unit Plan		10.8
Total ⁽¹⁾		25.2


⁽¹⁾	Of the 25.2 million total awards authorized, 8.8 million awards are currently available. The remaining balance has already vested or is currently outstanding.

Although other types of awards are contemplated under certain of the LTIPs, currently outstanding awards are limited to “phantom units,” which mature into the right to receive common units of PAA (or cash equivalent) upon vesting, and “tracking units,” which, upon vesting, represent the right to receive a cash payment in an amount based upon the market value of a PAA common unit at the time of vesting. Some awards also include DERs, which, subject to applicable vesting criteria, entitle the grantee to a cash payment equal to the cash distribution paid on an outstanding PAA common unit. The DERs terminate with the vesting or forfeiture of the underlying LTIP award.

As of December 31, 2018, 6.8 million LTIP awards were outstanding. Of this amount, 4.3 million include DERs. The outstanding and probable LTIP awards are expected to vest at various dates between January 2019 and August 2023.

Our accrued liability at December 31, 2018 related to all outstanding liability-classified LTIP awards and DERs was $27 million, of which $19 million was classified as short-term and $8 million was classified as long-term. These short- and long-term accrued LTIP liabilities are reflected in “Other current liabilities” and “Other long-term liabilities and deferred credits,” respectively, on our Consolidated Balance Sheets. At December 31, 2017, the accrued liability was $27 million, of which $15 million was classified as short-term and $12 million was classified as long-term.

Activity for LTIP awards under our equity-indexed compensation plans denominated in PAA units is summarized in the following table (units in millions):



	PAA Units ⁽¹⁾
	Units		Weighted Average Grant Date Fair Value per Unit
Outstanding at December 31, 2015	6.9		$	41.23
Granted	4.5		$	23.38
Vested	(1.9	)	$	45.91
Modified	—		$	(8.21	)
Cancelled or forfeited	(0.6	)	$	37.19
Outstanding at December 31, 2016	8.9		$	29.62
Granted	0.9		$	23.52
Vested	(1.7	)	$	42.12
Modified	—		$	(6.04	)
Cancelled or forfeited	(0.8	)	$	26.99
Outstanding at December 31, 2017	7.3		$	24.68
Granted	1.7		$	23.44
Vested	(1.7	)	$	32.42
Modified	—		$	2.15
Cancelled or forfeited	(0.5	)	$	21.99
Outstanding at December 31, 2018	6.8		$	22.19

⁽¹⁾

Approximately 0.6 million, 0.6 million and 0.5 million PAA common units were issued, net of tax withholding of approximately 0.2 million, 0.2 million and 0.3 million units during 2018, 2017 and 2016, respectively, in connection with the settlement of vested awards. The remaining PAA awards (approximately 0.9 million, 0.9 million and 1.1 million units) that vested during 2018, 2017 and 2016, respectively, were settled in cash.

Equity-Indexed Compensation Plan Information

We refer to all of the LTIPs as our “equity-indexed compensation plans.” The table below summarizes the expense recognized and the value of vested LTIP awards (settled both in common units and cash) under our equity-indexed compensation plans and includes both liability-classified and equity-classified awards (in millions):



	Year Ended December 31,
	2018		2017		2016
Equity-indexed compensation expense	$	79	$	41	$	60
LTIP unit-settled vestings	$	21	$	16	$	24
LTIP cash-settled vestings	$	22	$	25	$	28

Based on the December 31, 2018 fair value measurement and probability assessment regarding future performance conditions based on distributable cash flow measures determined by management, we expect to recognize $48 million of additional expense over the life of our outstanding awards related to the remaining unrecognized fair value. Actual amounts may differ materially as a result of a change in the market price of our units and/or probability assessments regarding future distributions. We estimate that the remaining fair value will be recognized in expense as shown below (in millions):



Year	Equity-Indexed Compensation Plan Fair Value Amortization ⁽¹⁾
2019	$	30
2020	14
2021	4
2022⁽²⁾	—
2023 ⁽²⁾	—
Total	$	48


⁽¹⁾	Amounts do not include fair value associated with awards containing performance conditions that are not considered to be probable of occurring at December 31, 2018.


⁽²⁾	Less than $1 million of expense from amortized fair value during the period.