6.Share‑Based Compensation

Management Omnibus Incentive Plan

Long-term incentive compensation is provided under the Company’s 2002 Management Omnibus Incentive Plan (“the Incentive Plan”) which provides for a variety of share-based compensation awards, including nonqualified stock options, incentive stock options, stock appreciation rights and restricted stock (“RS”) awards.

The maximum number of shares of common stock with respect to which awards may be granted is 2,500,000. The Incentive Plan was amended in March of 2013 to remove "share recycling" plan provisions. Hence, shares of stock covered by an award under the Incentive Plan that are forfeited are no longer available for issuance in connection with 2013 and future grants of awards. At December 31, 2016, there were 279,142 shares available for future grant. The Board of Directors and the Compensation Committee intend to issue more awards under the Incentive Plan in the future.

For the years ended December 31, 2016, 2015, and 2014, the Company recorded compensation expense related to awards under the Incentive Plan of $2,797, $2,423, and $2,981, net of income tax benefit of $1,506, $1,304, and $1,605, respectively.

Stock Options

The following table summarizes stock option activity under the Incentive Plan.


		Years Ended December 31,
		2016				2015				2014
		Shares	Weighted			Shares	Weighted			Shares	Weighted
		Under	Average			Under	Average			Under	Average
		Option	Exercise Price			Option	Exercise Price			Option	Exercise Price
Outstanding at beginning of year	$	6,200	$	42.85	$	12,700	$	42.85	$	20,200	$	41.64
Exercised		(6,000)		42.85		(6,500)		42.85		(7,500)		39.60
Forfeited		(200)		42.85		—		—		—		—
Outstanding at end of period		—		—		6,200		42.85		12,700		42.85
Exercisable at end of period	$	—	$	—	$	6,200	$	42.85	$	12,700	$	42.85

As of December 31, 2016, all stock option awards have expired and all compensation expense related to stock option awards has been recognized. At December 31, 2015, and 2014, the aggregate intrinsic value of outstanding shares under option was $84, and $269 with a weighted average remaining contractual term of 0.2 and 1.2 years, respectively. Aggregate intrinsic value represents the total pretax intrinsic value, which is the difference between the fair value based upon the Company’s closing year‑ end stock price at December 31, 2015, and 2014 and the exercise price which would have been received by the option holders had all option holders exercised their options as of those dates. The exercise price on stock options outstanding under the Incentive Plan was $42.85 at December 31, 2016, December 31, 2015 and December 31, 2014. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015, and 2014, was $85, $138, and $183, respectively.

Restricted Stock

Service-based restricted stock awarded in the form of unvested shares is recorded at the market value of the Company’s common stock on the grant date and amortized ratably as compensation expense over the requisite service period. Service-based restricted stock awards generally vest over a three-year period and vest 30% on the first and second anniversaries of the grant date and 40% on the third anniversary of the grant date, except for non-executive employees’ restricted stock awards which vest ratably over a five-year service period and independent directors’ stock awards which vest immediately. Our independent directors are subject to stock ownership guidelines, which require them to have a value equal to four times their annual cash retainer.

In addition to service-based awards, the Company grants performance-based restricted shares to certain employees. These performance shares cliff vest after a three-year performance period provided certain performance measures are attained. A portion of these awards, which contain a market condition, vest according to the level of total shareholder return achieved by the Company compared to its property-casualty insurance peers over a three-year period. The remainders, which contain a performance condition, vest according to the level of Company’s combined ratio results compared to a target based on its property-casualty insurance peers.

Actual payouts can range from 0% to 200% of target shares awarded depending upon the level of achievement of the respective market and performance conditions during a three fiscal-year performance period. Compensation expense for share awards with a performance condition is based on the probable number of awards expected to vest using the performance level most likely to be achieved at the end of the performance period.

Performance-based awards with market conditions are accounted for and measured differently from awards that have a performance or service condition. The effect of a market condition is reflected in the award’s fair value on the grant date. That fair value is recognized as compensation cost over the requisite service period regardless of whether the market-based performance objective has been satisfied.

All of the Company’s restricted stock awards are issued as incentive compensation and are equity classified.

The following table summarizes restricted stock activity under the Incentive Plan assuming a target payout for the performance-based shares.


	Years Ended December 31,
	2016			2015			2014
	Shares	Weighted		Shares	Weighted		Shares	Weighted
	Under	Average		Under	Average		Under	Average
	Restriction	Fair Value		Restriction	Fair Value		Restriction	Fair Value
Outstanding at beginning of year	112,024	$	54.44	176,116	$	46.38	211,234	$	43.51
Granted	46,556		56.09	46,943		61.57	50,781		53.94
Vested and unrestricted	(56,279)		53.43	(108,130)		44.51	(81,149)		43.80
Forfeited	(6,808)		50.02	(2,905)		49.94	(4,750)		44.46
Outstanding at end of period	95,493	$	55.86	112,024	$	54.44	176,116	$	46.38

	Years Ended December 31,
	2016			2015			2014
	Performance-based	Weighted		Performance-based	Weighted		Performance-based	Weighted
	Shares Under	Average		Shares Under	Average		Shares Under	Average
	Restriction	Fair Value		Restriction	Fair Value		Restriction	Fair Value
Outstanding at beginning of year	99,101	$	55.55	64,724	$	50.40	37,456	$	44.13
Granted	44,626		61.07	37,722		63.62	29,903		57.94
Vested and unrestricted	(15,289)		47.42	—		—	—		—
Forfeited	(33,828)		52.07	(3,345)		46.91	(2,635)		46.96
Outstanding at end of period	94,610	$	57.60	99,101	$	55.55	64,724	$	50.40

As of December 31, 2016, there was $6,455 of unrecognized compensation expense related to non‑vested restricted stock awards that is expected to be recognized over a weighted average period of 1.8 years. The total fair value of the shares that were vested and unrestricted during the years ended December 31, 2016, 2015, and 2014 was $3,732, $2,897, and $3,554, respectively.