LONG-TERM INCENTIVE COMPENSATION

Restricted Stock Awards

We have issued restricted shares to our employees and non-employee directors. The Fourth 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. In April 2017, stockholders approved an additional 250,000 shares to be authorized under the Plan, increasing the total number of shares issuable under the Plan (including predecessor plans to the Plan) to 4,648,100 shares. At September 30, 2017, approximately 433,000 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,
	2017		2016		2017		2016
Service condition stock-based compensation expense	$	2,591	$	2,679	$	7,828	$	7,978
Performance condition stock-based compensation expense	1,454		1,234		3,949		3,705
Stock-based compensation expense under the Plan	4,045		3,913		11,777		11,683
Canadian Plan stock-based compensation expense	188		169		521		481
Total stock-based compensation expense	$	4,233	$	4,082	$	12,298	$	12,164

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, 2017, there was approximately $26.3 million of unrecognized compensation cost for restricted stock grants under the Plan, which we expect to recognize over a weighted-average period of 2.2 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 and an adjustment for restrictions on dividends. This compensation cost is amortized on a straight-line basis over the applicable vesting period. As discussed in Note 2 “Summary of Significant Accounting Policies,” the Company made an accounting policy election to account for forfeitures as they occur effective upon the adoption of ASU 2016-09 on January 1, 2017.

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, 2017:



	Shares		Weighted Average Grant Date Fair Value
Non-vested, January 1, 2017	607,501		$	54.67
Granted	143,460		61.20
Vested	(182,085	)	57.43
Forfeited	(36,579	)	55.11
Non-vested, September 30, 2017	532,297		$	55.46

Restricted Stock Subject to Service and Performance Conditions

Under the Plan, certain key employees were provided agreements for grants of restricted shares that vest over multiple year periods subject to achieving annual performance goals established by the Compensation Committee of Westwood’s Board of Directors. Each year the Compensation Committee establishes a specific goal for that year’s vesting of the restricted shares. For 2017, the goal is based on Income before income tax from our audited consolidated statement of comprehensive income for fiscal 2017. 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. The vesting period ends when the Compensation Committee formally approves the performance-based restricted stock vesting based on the Income before income tax from the Company’s audited consolidated financial statements. 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 2017, the Compensation Committee established the fiscal 2017 goal for our Chief Executive Officer and Chief Investment Officer as Income before income taxes of $24.0 million for 50% of their respective awards, and an Income before income taxes target of $34.0 million (ranging from 25% of target for threshold performance of $30.3 million to 185% of target for maximum performance of $42.5 million) for the remaining 50% of their respective awards. For all other restricted stock grants subject to performance conditions, the Compensation Committee established the fiscal 2017 goal as Income before income taxes of at least $24.0 million. These performance grants allow the Compensation Committee to exclude certain items, including legal settlements, from the Income before income taxes target. At the Committee's discretion, we excluded the $4.0 million legal settlement expense recorded during the third quarter of 2017 from our forecasted Income before income taxes target and concluded that it was probable that we would exceed the target performance goals required to vest the applicable percentage of the performance-based restricted shares this year and continued recording expense related to the shares expected to vest.

The following table details the status and changes in our restricted stock grants subject to service and performance conditions for the nine months ended September 30, 2017:



	Shares		Weighted Average Grant Date Fair Value
Non-vested, January 1, 2017	153,620		$	55.90
Granted	157,877		54.86
Vested	(102,367	)	56.58
Forfeited	(45,675	)	55.86
Non-vested, September 30, 2017	163,455		$	55.87

The above amounts as of September 30, 2017 do not include 16,313 non-vested restricted shares that potentially vest over performance years subsequent to 2017 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 ($8.0 million in U.S. Dollars using the exchange rate on September 30, 2017) may be funded to the plan trustee for purchases of common stock with respect to awards granted under the Canadian Plan. At September 30, 2017, approximately $4.3 million CDN ($3.4 million in U.S. Dollars using the exchange rate on September 30, 2017) remains available for issuance under the Canadian Plan, or approximately 51,200 shares based on the closing share price of our stock of $67.27 as of September 30, 2017. During the first nine months of 2017, the trust formed pursuant to the Canadian Plan purchased in the open market 23,822 Westwood common shares for approximately $1.3 million. As of September 30, 2017, the trust holds 55,418 shares of Westwood common stock. As of September 30, 2017, unrecognized compensation cost related to restricted stock grants under the Canadian Plan totaled $864,000, which we expect to recognize over a weighted-average period of 1.8 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.

For awards earned prior to 2017, the award vested after approximately one year of service following the year in which the participant earned the award. Beginning in 2017, the award vests after approximately two years of service following the year in which the participant earned 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 either two or three 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, 2017 and 2016, we recorded expense of approximately $281,000 and $313,000, respectively, related to mutual fund share incentive awards. For the nine months ended September 30, 2017 and 2016, we recorded expense of approximately $819,000 and $933,000, respectively, related to mutual fund share incentive awards. As of September 30, 2017 and December 31, 2016, we had an accrued liability of approximately $1.5 million and $1.7 million, respectively, related to mutual fund share incentive awards.