Stock-Based Compensation Plans and Arrangements

Plan Summaries

As of December 31, 2015, we had one active stock-based compensation plan that provides for grants of equity awards to our employees and non-employee directors. We also maintained an Employee Stock Purchase Plan (“ESPP”). Shares issued under these stock-based compensation plans may be either shares reacquired by us or shares that are authorized but unissued.

The SLM Corporation 2012 Omnibus Incentive Plan was approved by shareholders on May 24, 2012. At December 31, 2015, 29 million shares, as adjusted to reflect the effects of the Spin-Off, were authorized to be issued from this plan.

An amendment to our ESPP was approved by our shareholders on May 24, 2012 that authorized the issuance of 6 million shares under the plan and kept the terms of the plan substantially the same. The number of shares authorized under the plan was subsequently adjusted to 15 million shares on June 25, 2014, to reflect the effects of the Spin-Off.

Effect of Spin-Off on Equity Awards

In connection with the Spin-Off of Navient, we made certain adjustments to the exercise price and number of our stock-based compensation awards with the intention of preserving the intrinsic value of the outstanding awards held by Sallie Mae officers and employees prior to the Spin-Off. In general, holders of awards granted prior to 2014 received both Sallie Mae and Navient equity awards, and holders of awards granted in 2014 received solely equity awards of their post-Spin-Off employer. Stock options, restricted stock, restricted stock units, performance stock units and dividend equivalent units were adjusted into equity in the new companies by a specific conversion ratio per company, which was based upon the volume weighted average prices for each company at the time of the Spin-Off, in an effort to keep the value of the equity awards constant. Our performance stock units with vesting contingent upon performance were replaced with time-vesting restricted stock units. These adjustments were accounted for as modifications to the original awards. In general, the Sallie Mae and Navient awards are subject to substantially the same terms and conditions as the original pre-Spin-Off SLM awards. A comparison of the fair value of the modified awards with the fair value of the original awards immediately before the modification resulted in approximately $0.1 million of incremental expense related to fully-vested stock option awards and was expensed immediately and $0.6 million of incremental compensation expense related to unvested restricted stock and restricted stock units which will be recorded over the remaining vesting period of the equity awards.

Stock-Based Compensation

The total stock-based compensation cost recognized in the consolidated statements of income for the years ended December 31, 2015, 2014 and 2013 was $21.6 million, $25.0 million and $15.7 million, respectively. As of December 31, 2015, there was $14.4 million of total unrecognized compensation expense related to unvested stock awards net of estimated forfeitures, which is expected to be recognized over a weighted average period of 1.8 years. We amortize compensation expense on a straight-line basis over the related vesting periods of each tranche of each award.

Stock Options

Stock options granted prior to 2012 expire 10 years after the grant date, and those granted since 2012 expire in 5 years. The exercise price must be equal to or greater than the market price of our common stock on the grant date. We have granted time-vested, price-vested and performance-vested options to our employees and non-employee directors. Time-vested options granted to management and non-management employees generally vest over three years. Price-vested options granted to management employees vest upon our common stock reaching a targeted closing price for a set number of days. Performance-vested options granted to management employees vest one-third per year for three years based on corporate earnings-related performance targets. Options granted to non-employee directors vest upon the director’s election to the Board.

There were no options granted in the year ended December 31, 2015. The fair values of the options granted in the years ended December 31, 2014 and 2013 were estimated as of the grant date using a Black-Scholes option pricing model with the following weighted average assumptions:



	Years Ended December 31,
(Dollars per share)	2014			2013
Risk-free interest rate	0.76		%	0.65		%
Expected volatility	26		%	31		%
Expected dividend rate	2.48		%	3.35		%
Expected life of the option	2.9 years			2.8 years
Weighted average fair value of options granted	$	3.48		$	3.11

The expected life of the options is based on observed historical exercise patterns. Groups of employees (and non-employee directors) that have received similar option grant terms are considered separately for valuation purposes. The expected volatility is based on implied volatility from publicly traded options on our stock at the grant date and historical volatility of our stock consistent with the expected life of the option. The risk-free interest rate is based on the U.S. Treasury spot rate at the grant date consistent with the expected life of the option. The dividend yield is based on the projected annual dividend payment per share based on the dividend amount at the grant date, divided by the stock price at the grant date.

The following table summarizes stock option activity for the year ended December 31, 2015.



(Dollars in thousands, except per share data)	Number of Options		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value⁽¹⁾
Outstanding at December 31, 2014	16,155,119		$	9.91
Granted	—		—
Exercised⁽²⁾⁽³⁾	(2,709,554	)	4.76
Canceled	(1,534,589	)	17.69
Outstanding at December 31, 2015⁽⁴⁾	11,910,976		$	10.08	2.4	$	10,214
Exercisable at December 31, 2015	10,599,378		$	7.49	2.4	$	10,137


⁽¹⁾	The aggregate intrinsic value represents the total intrinsic value (the aggregate difference between our closing stock price on December 31, 2015 and the exercise price of in-the-money options) that would have been received by the option holders if all in-the-money options had been exercised on December 31, 2015.


⁽²⁾	The total intrinsic value of options exercised was $13.7 million, $11.4 million, and $8.5 million for the years ended December 31, 2015, 2014 and 2013, respectively.


⁽³⁾	No cash was received from option exercises for the year ended December 31, 2015. The actual tax benefit realized for the tax deductions from option exercises totaled $3.7 million for the year ended December 31, 2015.


⁽⁴⁾	For net-settled options, gross number is reflected.

Restricted Stock

Restricted stock awards generally vest over three years and in some cases based on corporate earnings-related performance targets. Outstanding restricted stock is entitled to dividend equivalent units that vest subject to the same vesting requirements or lapse of transfer restrictions, as applicable, as the underlying restricted stock award. The fair value of restricted stock awards is based on our stock price at the grant date.

The following table summarizes restricted stock activity for the year ended December 31, 2015.



(Amounts in thousands, except per share data)	Number of Shares		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2014	54,968		$	9.12
Granted	86,174		8.94
Vested⁽¹⁾	(54,968	)	8.19
Canceled	—		—
Non-vested at December 31, 2015⁽²⁾	86,174		$	8.94


⁽¹⁾	The total fair value of shares that vested during the years ended December 31, 2015, 2014 and 2013 was $0.5 million, $0.4 million and $0.6 million, respectively.


⁽²⁾	As of December 31, 2015, there was $0.4 million of unrecognized compensation cost related to restricted stock net of estimated forfeitures, which is expected to be recognized over a weighted average period of 0.5 years.

Restricted Stock Units and Performance Stock Units

Restricted stock units (“RSUs”) and performance stock units (“PSUs”) are equity awards granted to employees that entitle the holder to shares of our common stock when the award vests. RSUs may be time-vested over three years or vested at grant but subject to transfer restrictions, while PSUs vest based on corporate earnings-related performance targets over a three-year period. In April 2014, our PSUs with vesting contingent upon performance were replaced with time-vesting RSUs. This conversion was made prior to the Spin-Off and was assessed to yield no incremental expense.

Outstanding RSUs are entitled to dividend equivalent units that vest subject to the same vesting requirements or lapse of transfer restrictions, as applicable, as the underlying award. The fair value of RSUs is based on our stock price at the grant date.

The following table summarizes RSU and PSU activity for the year ended December 31, 2015.



(Amounts in thousands, except per share data)	Number of RSUs/ PSUs		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2014	6,279,743		$	10.95
Granted	2,466,593		9.45
Vested and converted to common stock⁽¹⁾	(2,796,739	)	6.78
Canceled	(109,209	)	8.57
Outstanding at December 31, 2015⁽²⁾	5,840,388		$	8.52


⁽¹⁾	The total fair value of RSUs/PSUs that vested and converted to common stock during the years ended December 31, 2015, 2014 and 2013 was $18.9 million, $12.6 million and $6.4 million, respectively.


⁽²⁾	As of December 31, 2015, there was $13.8 million of unrecognized compensation cost related to RSUs net of estimated forfeitures, which is expected to be recognized over a weighted average period of 1.9 years.

Employee Stock Purchase Plan

In the third quarter of 2014, we resumed offering the opportunity for employees to enroll in our ESPP. Employees may purchase shares of our common stock at the end of a 12-month offering period at a price equal to the share price at the beginning of the 12-month period, less 15 percent, up to a maximum purchase price of $7,500 (whole dollars). The purchase price for each offering is determined at the beginning of the offering period on August 1.

The fair values of the stock purchase rights of the ESPP offerings were calculated using a Black-Scholes option pricing model with the following weighted average assumptions.



	Years Ended December 31,
(Dollars per share)	2015			2014			2013
Risk-free interest rate	0.33		%	0.13		%	0.15		%
Expected volatility	27		%	25		%	29		%
Expected dividend rate	—		%	—		%	3.51		%
Expected life of the option	1 year			1 year			1 year
Weighted average fair value of stock purchase rights	$	1.74		$	1.66		$	2.95

The expected volatility is based on implied volatility from publicly traded options on our stock at the grant date and historical volatility of our stock consistent with the expected life. The risk-free interest rate is based on the U.S. Treasury spot rate at the grant date consistent with the expected life. The dividend yield is zero, as we have not paid dividends nor do we anticipate paying dividends on our common stock in 2016.

The fair values were amortized to compensation cost on a straight-line basis over a one-year vesting period. As of December 31, 2015, there was $0.2 million of unrecognized compensation cost related to the ESPP net of estimated forfeitures, which is expected to be recognized by July 2016.

During the year ended December 31, 2015, plan participants purchased 163,136 shares of our common stock. As our ESPP resumed in late 2014, no shares were purchased for the year ended December 31, 2014. During the year ended December 31, 2013, plan participants purchased 47,176 shares of our common stock.