STOCK-BASED COMPENSATION

In January 2007, the NJR 2007 Stock Award and Incentive Plan replaced the 2002 Employee and Outside Director Long-Term Incentive Plan. Shares have been issued in the form of options, performance shares, restricted stock and deferred retention stock. The Outside Director Stock Compensation Plan allows for the issuance of non-restricted shares to non-employee directors. As of September 30, 2014, 1,596,316 and 28,897 shares remain available for future issuance to employees and directors, respectively.

The following table summarizes all stock-based compensation expense recognized during the following fiscal years:



(Thousands)	2014			2013			2012
Stock-based compensation expense:
Performance share awards	$	2,509		$	1,049		$	1,276
Restricted and non-restricted stock	1,664			1,081			1,362
Deferred retention stock	13,643			1,326			2,733
Compensation expense included in operation and maintenance expense	17,816			3,456			5,371
Income tax benefit	(7,278		)	(1,412		)	(2,194		)
Total, net of tax	$	10,538		$	2,044		$	3,177

Stock Options

The following table summarizes the stock option activity for the past three fiscal years:



	Shares		Weighted Average Exercise Price
Outstanding at September 30, 2011	109,763			$27.84
Granted	—			—
Exercised	(28,138	)		$25.30
Forfeited	—			—
Outstanding at September 30, 2012	81,625			$28.71
Granted	—			—
Exercised	(15,000	)		$25.08
Forfeited	—			—
Outstanding at September 30, 2013	66,625			$29.53
Granted	—			—
Exercised	(42,500	)		$26.26
Forfeited	—			—
Outstanding at September 30, 2014	24,125			$30.00
Exercisable at September 30, 2014	24,125			$30.00
Exercisable at September 30, 2013	66,625			$29.53
Exercisable at September 30, 2012	81,625			$28.71

There are no costs related to outstanding options for the stock options listed above. During fiscal 2014 and fiscal 2013, NJR received proceeds of $1.2 million and $376,000, respectively, from the exercise of stock options.

The following table summarizes stock options outstanding and exercisable as of September 30, 2014:



	Outstanding and Exercisable
Exercise Price Range	Number Of Stock Options	Weighted Average Remaining Contractual Term (in years)	Weighted Average Exercise Price	Aggregate Intrinsic Value (in thousands)
$28.65 - $30.37	24,125	0.6	$30.00		$	495

Performance Shares

In fiscal 2014, the Company granted to various officers 34,577 performance shares, which are market condition awards that vest on September 30, 2016, subject to the Company meeting certain performance conditions. In fiscal 2014, the Company also granted to various officers 39,287 performance shares, of which 25,240 vest in September 2016 and 14,047 vest annually over a three year period beginning in September 2014, both of which are subject to the Company meeting certain performance conditions. In fiscal 2013, the Company granted to various officers 49,904 performance shares, which are market condition awards that vest on September 30, 2015, subject to the Company meeting certain performance conditions. In fiscal 2012, the Company granted to various officers 28,418 performance shares, which vested on September 30, 2014. There is $2.2 million of deferred compensation related to unvested performance shares that is expected to be recognized over the next two years.

The following table summarizes the performance share activity under the NJR 2007 Stock Award and Incentive Plan for the past three fiscal years:



	Shares ⁽¹⁾		Weighted Average Grant Date Fair Value
Non-vested and outstanding at September 30, 2011	106,027			$28.04
Granted	28,418			$47.17
Vested ⁽²⁾	(49,702	)		30.08
Cancelled/forfeited	—			—
Non-vested and outstanding at September 30, 2012	84,743			$33.26
Granted	49,904			$30.74
Vested	—			—
Cancelled/forfeited ⁽³⁾	(56,325	)		26.24
Non-vested and outstanding at September 30, 2013	78,322			$36.70
Granted	73,864			$40.55
Vested ⁽⁴⁾	(28,418	)		47.17
Cancelled/forfeited	—			—
Non-vested and outstanding at September 30, 2014	123,768			$36.59


(1)	The number of common shares issued related to performance shares may range from zero to 150 percent of the number of shares shown in the table above based on the Company's achievement of performance goals.


(2)	As certified by the Company's Leadership and Compensation Committee on November 13, 2012, the number of common shares related to performance shares and market condition shares earned was 68.8 percent , or 15,427 shares and 70 percent, or 19,095 shares, respectively. The number represented on this line is the target number of 100 percent. See footnote (1) above.


(3)	As certified by the Company's Leadership and Compensation Committee on November 12, 2013, the number of common shares granted in fiscal 2011 related to performance shares and market condition shares earned was zero. The number represented on this line is the target number of 100 percent. See footnote (1) above.


(4)	As certified by the Company's Leadership and Compensation Committee on November 11, 2014, the number of common shares related to performance shares earned was 150 percent, or 42,627 shares, excluding accumulated dividends. The number represented on this line is the target number of 100 percent. See footnote (1) above.

The Company measures compensation expense related to performance shares based on the fair value of these awards at their date of grant. In accordance with ASC 718, Compensation - Stock Compensation, compensation expense for market condition grants are recognized for awards granted, and are not adjusted based on actual achievement of the performance goals. The Company estimated the fair value of these grants on the date of grant using a lattice model. Performance condition grants are initially fair valued at the company's stock price on grant date, and are subsequently adjusted for actual achievement of the performance goals.

Restricted Stock

In fiscal 2014, the company granted 16,678 shares of restricted stock that will vest annually over a three year period beginning in October 2014. In fiscal 2013, the company granted 2,139 shares of restricted stock that will vest in October 2015. In fiscal 2012, the company granted 1,929 shares of restricted stock that vested in October 2014. There is $576,000 of deferred compensation related to unvested restricted stock shares that is expected to be recognized over the next two years.

The following table summarizes the restricted stock activity under the NJR 2007 Stock Award and Incentive Plan for the past three fiscal years:



	Shares		Weighted Average Grant Date Fair Value		Total Fair Value of Vested Shares (in Thousands)
Non-vested and outstanding at September 30, 2011	77,097			$39.90		—
Granted	1,929			$47.17		—
Vested	(19,680	)		$39.10		$	879
Cancelled/forfeited	—			—		—
Non-vested and outstanding at September 30, 2012	59,346			$40.40		—
Granted	2,139			$40.62		—
Vested ⁽¹⁾	(19,680	)		$39.10		$	888
Cancelled/forfeited	(2,550	)		$40.74		—
Non-vested and outstanding at September 30, 2013	39,255			$41.05		—
Granted	16,678			$45.56		—
Vested ⁽¹⁾	(34,230	)		$40.74		$	1,534
Cancelled/forfeited	(958	)		$40.74		—
Non-vested and outstanding at September 30, 2014	20,745			$45.20		—

Deferred Retention Stock

Deferred retention stock awards vest immediately when granted, with shares delivered at a future date in accordance with the terms of the underlying agreements. The expense for these awards is recognized in the fiscal year in which services are rendered and the related shares are granted upon approval by the Board of Directors, which generally occurs subsequent to the fiscal year end.

The following table summarizes the deferred retention stock award under the NJR 2007 Stock Award and Incentive Plan for the past three fiscal years:



	Shares		Weighted Average Grant Date Fair Value		Total Fair Value of Vested Shares (in Thousands)
Outstanding at September 30, 2011	106,730			$35.37		—
Granted/Vested	49,171			$47.17		—
Delivered	(103,903	)		$35.37		$	4,787
Forfeited	(2,827	)		35.37		—
Outstanding at September 30, 2012	49,171			$47.17		—
Granted/Vested	67,295			$40.62		—
Delivered	—			—		—
Forfeited	(4,673	)		$43.44		—
Outstanding at September 30, 2013	111,793			$43.38		—
Granted/Vested	28,985			$45.75		—
Delivered	—			—		—
Forfeited	(2,387	)		$42.94		—
Outstanding at September 30, 2014	138,391			$43.89		—

Non-Employee Director Stock

Non-employee director compensation includes an annual retainer that is awarded in stock. In January 2014, the company issued 15,848 shares for the annual retainer with a weighted average fair value of $44.80 per share. The shares vested immediately and are amortized to expense over a 12 month period. As of September 30, 2014, there is $177,000 of expense remaining to be recognized through December 31, 2014. In January 2013 and January 2012, the company issued 16,262 and 10,800 shares for the annual retainer with weighted average fair values of $39.97 and $48.18, respectively.