LONG-TERM INCENTIVE COMPENSATION

Restricted Stock Awards

We have issued restricted shares to our employees and non-employee directors. The Third Amended and Restated Westwood Holdings Group, Inc. Stock Incentive Plan, as amended (the “Plan”), reserves shares of Westwood common stock for issuance to eligible employees, directors and consultants of Westwood or its subsidiaries in the form of restricted stock. The total number of shares issuable under the Plan (including predecessor plans to the Plan) may not exceed 4,398,100 shares. At September 30, 2016, approximately 346,000 shares remain available for issuance under the Plan.

The following table presents the total stock based compensation expense recorded for stock based compensation arrangements for the periods indicated (in thousands):



	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Service condition stock based compensation expense	$	2,679	$	2,550	$	7,978	$	6,953
Performance condition stock based compensation expense	1,234		2,118		3,705		5,072
Stock based compensation expense under the Plan	3,913		4,668		11,683		12,025
Canadian EB Plan stock based compensation expense	169		197		481		535
Total stock based compensation expense	$	4,082	$	4,865	$	12,164	$	12,560

Restricted Stock

Under the Plan, we have granted to employees and non-employee directors restricted stock subject to service conditions, and to certain key employees restricted stock subject to both service and performance conditions.

As of September 30, 2016, there was approximately $27.3 million of unrecognized compensation cost for restricted stock grants under the Plan, which we expect to recognize over a weighted-average period of 2.4 years. Our two types of restricted stock grants under the Plan are discussed below.

Restricted Stock Subject Only to a Service Condition

We calculate compensation cost for restricted stock grants by using the fair market value of our common stock at the date of grant, the number of shares issued, an adjustment for restrictions on dividends and an estimate of shares that will not vest due to forfeitures. This compensation cost is amortized on a straight-line basis over the applicable vesting period.

The following table details the status and changes in our restricted stock grants subject only to a service condition for the nine months ended September 30, 2016:



Restricted shares subject only to a service condition:	Shares		Weighted Average Grant Date Fair Value
Non-vested, January 1, 2016	580,469		$	56.76
Granted	259,293		47.97
Vested	(174,310	)	51.42
Forfeited	(17,896	)	56.60
Non-vested, September 30, 2016	647,556		$	54.68

Restricted Stock Subject to Service and Performance Conditions

Under the Plan, certain key employees are provided agreements for grants of restricted shares that vest over multiple years provided that the annual performance goals established by the Compensation Committee of Westwood’s Board of Directors are met. Each year the Compensation Committee establishes a specific goal for that year’s vesting of the restricted shares, which historically has been based upon Westwood’s adjusted pre-tax income, as defined below. The date that the Compensation Committee establishes the annual goal is considered to be the grant date and the fair value measurement date to determine expense on the shares that are likely to vest. In most cases, the vesting period ends when the Compensation Committee formally approves the performance-based restricted stock vesting based on the final calculation of adjusted pre-tax income as derived from the Company’s audited consolidated financial statements. Certain performance grants include a scaled vesting based on actual adjusted pre-tax income. If a portion of the performance-based restricted shares does not vest, no compensation expense is recognized for that portion and any previously recognized compensation expense related to shares that do not vest is reversed. In March 2016, the Compensation Committee established the 2016 goal for adjusted pre-tax income, which is equal to income before income taxes increased by expenses incurred for the year for (i) incentive compensation for all officers and employees, (ii) performance-based restricted stock awards, and (iii) mutual fund share incentive awards, and excludes start up, non-recurring and similar expense items, at the Compensation Committee’s discretion. Beginning in the first quarter of 2016, we concluded that it was probable that we would meet the performance goals required to vest the applicable performance based restricted shares this year and began recording expense related to those shares.



Restricted shares subject to service and performance conditions:	Shares		Weighted Average Grant Date Fair Value
Non-vested, January 1, 2016	101,313		$	61.29
Granted	151,334		55.90
Vested	(101,313	)	61.29
Forfeited	—		—
Non-vested, September 30, 2016	151,334		$	55.90

The above amounts as of September 30, 2016 do not include 51,258 non-vested restricted shares that potentially vest over performance years subsequent to 2016 inasmuch as the Compensation Committee has not set annual performance goals for later years and therefore no grant date has been established.

Canadian Plan

The Share Award Plan of Westwood Holdings Group, Inc. for Service Provided in Canada to its Subsidiaries (the “Canadian Plan”) provides compensation in the form of common stock for services performed by employees of Westwood International. Under the Canadian Plan, no more than $10 million CDN ($7.6 million in U.S. Dollars using the exchange rate on September 30, 2016) may be funded to the plan trustee for purchases of common stock with respect to awards granted under the Canadian Plan. At September 30, 2016, approximately $6.0 million CDN ($4.5 million in U.S. Dollars using the exchange rate on September 30, 2016) remains available for issuance under the Canadian Plan, or approximately 85,494 shares based on the closing share price of our stock of $53.11 as of September 30, 2016. During the first nine months of 2016, the trust formed pursuant to the Canadian Plan purchased in the open market 10,474 Westwood common shares for approximately $614,000. As of September 30, 2016, the trust holds 43,648 shares of Westwood common stock. As of September 30, 2016, unrecognized compensation cost related to restricted stock grants under the Canadian Plan totaled $813,000, which we expect to recognize over a weighted-average period of 1.6 years.

Mutual Fund Share Incentive Awards

We grant annually to certain employees mutual fund incentive awards, which are bonus awards based on our mutual funds achieving specific performance goals. Awards granted are notionally credited to a participant account maintained by us that contains a number of mutual fund shares equal to the award amount divided by the net closing value of a fund share on the date the amount is credited to the account.

These awards vest after approximately one year of service following the year in which the participant earns the award. We begin accruing a liability for mutual fund incentive awards when we believe it is probable that the award will be earned and record expense for these awards over the service period of the award, which is approximately two years. During the year in which the amount of the award is determined, we record expense based on the expected value of the award. After the award is earned, we record expense based on the value of the shares awarded and the percentage of the vesting period that has elapsed. Our liability under these awards may increase or decrease based on changes in the value of the mutual fund shares awarded, including reinvested income from the mutual funds during the vesting period. Upon vesting, participants receive the value of the mutual fund share awards adjusted for earnings or losses attributable to the underlying mutual funds. For the three months ended September 30, 2016 and 2015, we recorded expense of $313,000 and $149,000, respectively, related to mutual fund share incentive awards. For the nine months ended September 30, 2016 and 2015, we recorded expense of $933,000 and $879,000, respectively, related to mutual fund share incentive awards. As of September 30, 2016 and December 31, 2015, we had an accrued liability of $1.4 million and $2.0 million, respectively, related to mutual fund share incentive awards.