10. Stock-Based Compensation Plans

The Company has a stock incentive plan which provides for the grant of stock options, stock appreciation rights, restricted stock, performance shares, performance units, or other stock-based awards as incentives and rewards to encourage employees, consultants and non-employee directors to participate in the long-term success of the Company. As of December 31, 2015, there were 612,857 shares available for grant under the stock incentive plan.

Total stock-based compensation expense was as follows:

	Year Ended December 31,
		2015		2014		2013
	(In thousands)
Employee:
Restricted stock and performance shares	$	10,792	$	8,193	$	7,269
Stock options		826		676		900
		11,618		8,869		8,169
Non-employee directors:
Restricted stock		901		900		710
Total stock-based compensation	$	12,519	$	9,769	$	8,879

The Company records stock-based compensation expense for employees in employee compensation and benefits and for non-employee directors in general and administrative expenses in the Consolidated Statements of Operations.

Stock Options

The exercise price of each option granted is equal to the market price of the Company’s common stock on the date of grant. Generally, option grants have provided for vesting over a three or five-year period. Options generally expire in ten years from the date of grant. The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model. The determination of fair value of share-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables, including the expected stock price volatility over the term of the awards, the risk-free interest rate, the expected dividend yield rate and the expected term. Expected volatilities are based on historical volatility of the Company’s stock. The risk-free interest rate is based on U.S. Treasury securities with a maturity value approximating the expected term of the option. The dividend yield rate is based on the expected annual dividends to be paid divided by the expected stock price. The expected term represents the period of time that options granted are expected to be outstanding based on actual and projected employee stock option exercise behavior.

The weighted-average fair value for options granted during 2015, 2014 and 2013 was $36.46, $19.25 and $19.61, respectively. The following table represents the assumptions used for the Black-Scholes option-pricing model to determine the per share weighted-average fair value for options granted for the three years ended December 31, 2015:

	2015		2014		2013
Expected life (years)	7.0		5.0		9.9
Risk-free interest rate	1.9	%	1.7	%	1.9	%
Expected volatility	56.7	%	35.5	%	44.3	%
Expected dividend yield	1.1	%	1.0	%	1.2	%

In addition to the option grants above, the Company granted 119,981 stock options to the Company’s Chief Executive Officer in January 2015 which expire in 5.5 years from the grant date. Subject to the Chief Executive Officer’s continued employment with the Company through the applicable vesting date, one-third of the options under the option award will vest and become exercisable on each of January 15, 2018, 2019 and 2020. The fair value of the option award as of the date of the grant was $2.0 million as determined by an independent third party using a Monte Carlo simulation model. Key assumptions used for the Monte Carlo pricing model included an exercise price of $88.25 (125% of the market price on the date of the grant), a risk free interest rate of 1.4%, volatility of 27.3% and a dividend yield of 0.9%.

The following table reports stock option activity during the three years ended December 31, 2015 and the intrinsic value as of December 31, 2015:

				Weighted-		Remaining
	Number of			Average		Contractual
	Shares			Exercise Price ($)		Term		Intrinsic Value ($)
								(In thousands)
Outstanding at December 31, 2012		1,429,822			13.62
Granted		51,597			41.75
Canceled		(4,348	)		33.84
Exercised		(256,622	)		12.33
Outstanding at December 31, 2013		1,220,449			15.01
Granted		382			63.07
Canceled		(41,071	)		41.47
Exercised		(165,340	)		15.85
Outstanding at December 31, 2014		1,014,420			13.81
Granted		120,650			88.15
Canceled		-
Exercised		(196,034	)		11.60				15,312
Outstanding at December 31, 2015		939,036			23.83		2.9		82,412
Exercisable at December 31, 2015		790,471			14.07		2.6		77,084

The intrinsic value is the amount by which the closing price of the Company’s common stock on December 31, 2015 of $111.59 or the price on the day of exercise exceeds the exercise price of the stock options multiplied by the number of shares. As of December 31, 2015, there was $1.5 million of total unrecognized compensation cost related to non-vested stock options. That cost is expected to be recognized over a weighted-average period of 3.3 years.

Restricted Stock and Performance Shares

Restricted stock generally vests over a three or five-year period. Compensation expense is measured at the grant date and recognized ratably over the vesting period. Performance share awards are granted to certain senior managers. Each performance share award is earned or forfeited based on the level of achievement by the Company of pre-tax operating income on a per share basis before performance share and cash bonus expense. The pay-out ranges from zero to 150% of the performance share award. For each performance share earned, a participant is awarded an equal number of shares of restricted stock. Any restricted stock awarded to a participant vests and ceases to be restricted stock in two equal installments on each of the second and third anniversaries of the date of grant of the applicable performance share award. Compensation expense for performance shares is measured at the grant date and recognized on a graded basis over the vesting period. The pay-out achievement was 130%, 85.0%, and 108.0% of the performance award for 2015, 2014 and 2013, respectively. The following table reports performance share activity for the three years ended December 31, 2015:

Performance year	2015		2014		2013
Share pay-out at plan		28,520		29,678		42,908
Actual share pay-out in following year		37,076		25,228		46,340
Weighted average fair value per share on grant date	$	70.60	$	63.07	$	35.98

In addition to the grants above, the Company granted a 116,659 performance stock award to the Company’s Chief Executive Officer in January 2015. The performance stock award provides that the number of performance shares earned by the Chief Executive Officer will be based on the Company’s achievement of certain performance levels. Subject to the Chief Executive Officer’s continued employment, if only the minimum performance level is achieved, then 35,463 performance shares will vest 100% on January 15, 2020, and if any performance level above the minimum level is achieved then the performance shares will vest 50% on each of January 15, 2019 and January 15, 2020. Certain performance levels above the minimum level were achieved during 2015. As a result, 92,419 shares of the performance stock award were earned and will vest 50% on each of January 15, 2019 and January 15, 2020. The fair value of the performance stock award as of the date of the grant was $6 million as determined by an independent third party using a Monte Carlo simulation model. Key assumptions used for the Monte Carlo pricing model included a risk free interest rate of 1.3%, volatility of 27.3% and a dividend yield of 0.9%.

The following table reports restricted stock and performance share activity during the three years ended December 31, 2015:

				Weighted-Average
	Number of			Grant Date Fair
	Restricted Shares			Value
Outstanding at December 31, 2012		751,259		$	21.88
Granted		255,266
Performance share pay-out		41,481
Canceled		(93,358	)
Vested		(384,914	)
Outstanding at December 31, 2013		569,734		$	31.86
Granted		149,349
Performance share pay-out		46,340
Canceled		(43,185	)
Vested		(286,249	)
Outstanding at December 31, 2014		435,989		$	41.83
Granted		210,087
Performance share pay-out		25,228
Canceled		(3,845	)
Vested		(235,321	)
Outstanding at December 31, 2015		432,138		$	56.24

As of December 31, 2015, there was $16.5 million of total unrecognized compensation expense related to non-vested restricted stock and performance shares. That cost is expected to be recognized over a weighted-average period of 1.9 years.

Employee Stock Purchase Plan

During 2015, the Company established a non-qualified employee stock purchase plan for non-executive employees. Under the plan, participants are granted the right to purchase shares of common stock based on the fair market value on the last day of the six-month offering period. On the purchase date, the Company will grant to the participants a number of shares of common stock equal to 20% of the aggregate shares purchased by the participant. These matching shares vest over a one-year period. For the year ended December 31, 2015, the Company did not issue any matching shares in connection with the plan but recognized $26 thousand in stock-based compensation expense related to the plan.