9. 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, 2017, there were 219,983 shares available for grant under the stock incentive plan.

Total stock-based compensation expense was as follows:

	Year Ended December 31,
	2017		2016		2015
	(In thousands)
Employees:
Restricted stock and performance shares	$	11,566	$	12,459	$	10,792
Stock options		1,882		1,143		826
		13,448		13,602		11,618
Non-employee directors:
Restricted stock		973		909		901
Total stock-based compensation	$	14,421	$	14,511	$	12,519

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 six or 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 2017, 2016 and 2015 was $40.08, $32.24 and $36.46, 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, 2017:

	2017			2016			2015
Expected life (years)		5.0			6.0			7.0
Risk-free interest rate		1.9	%		1.9	%		1.9	%
Expected volatility		28.0	%		33.0	%		56.7	%
Expected dividend yield		0.8	%		1.0	%		1.1	%

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, 2017 and the intrinsic value as of December 31, 2017:

	Number of Shares			Weighted-Average Exercise Price ($)		Remaining Contractual Term		Intrinsic Value ($)
								(In thousands)
Outstanding at December 31, 2014		1,014,420		$	13.81
Granted		120,650			88.15
Canceled		—			—
Exercised		(196,034	)		11.60
Outstanding at December 31, 2015		939,036			23.83
Granted		112,988			102.40
Canceled		(874	)		101.77
Exercised		(195,410	)		12.35
Outstanding at December 31, 2016		855,740			36.80
Granted		54,838			156.85
Canceled		—			—
Exercised		(380,967	)		11.26			$	68,068
Outstanding at December 31, 2017		529,611			67.60		3.3		71,046
Exercisable at December 31, 2017		254,079			24.61		3.0		45,009

The intrinsic value is the amount by which the closing price of the Company’s common stock on December 31, 2017 of $201.75 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, 2017, there was $4.3 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 2.2 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. Annual performance share awards are granted to certain officers and senior managers. Each performance share award is earned or forfeited based on the level of achievement by the Company of pre-tax operating income, as defined. 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 following table reports performance share activity for annual awards for the three years ended December 31, 2017:


Performance year:	2017		2016		2015
Share pay-out plan		12,971		15,390		28,520
Actual share pay-out in following year		8,094		21,423		37,696
Weighted average fair value per share on grant date	$	155.53	$	101.77	$	70.60

On April 1, 2017, the Company granted 9,367 multi-year performance shares to a certain officer. The performance share awards are earned or forfeited based on attaining certain cumulative operating income thresholds of the Company and select subsidiaries over the two-year period beginning January 1, 2017. The pay-out ranges from zero to 150% of the performance award value. Any restricted stock awarded will vest 50% on April 1, 2020 and 50% on April 1, 2021. The fair value per share of the awards on the grant date was $186.74.

In January 2016, the Company granted 33,509 multi-year performance shares to certain officers and senior managers. Each performance share award is earned or forfeited based on the level of achievement by the Company of aggregate operating income over the three-year period beginning January 1, 2016. The pay-out ranges from zero to 150% of the performance award value. Any restricted stock awarded will vest 50% on January 31, 2020 and 50% on January 31, 2021. The fair value per share of the awards on the grant date was $103.30.

In addition to the grants above, the Company granted 116,659 performance shares to the Company’s Chief Executive Officer in January 2015. The performance share award provided that the number of performance shares earned by the Chief Executive Officer would be based on the Company’s achievement of certain performance levels. Upon achievement of the performance levels, a total of 92,419 shares and 24,240 shares were earned in 2015 and 2016, respectively. Subject to the Chief Executive Officer’s continued employment, the performance share award will vest 50% on each of January 15, 2019 and January 15, 2020. The fair value of the performance share 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, 2017:

	Number of Restricted Shares			Weighted-Average Grant Date Fair Value

Outstanding at December 31, 2014		435,989		$	41.83
Granted		117,668
Performance share pay-out		117,647
Canceled		(3,845	)
Vested		(235,321	)
Outstanding at December 31, 2015		432,138		$	56.24
Granted		95,419
Performance share pay-out		61,936
Canceled		(12,786	)
Vested		(192,729	)
Outstanding at December 31, 2016		383,978		$	71.50
Granted		61,434
Performance share pay-out		21,422
Canceled		(4,590	)
Vested		(142,645	)
Outstanding at December 31, 2017		319,599		$	88.77

As of December 31, 2017, there was $18.6 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 1.7 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. The Company issued 1,034 and 1,190 matching shares in connection with the plan for the years ended December 31, 2017 and 2016, respectively. No matching shares were issued for the year ended December 31, 2015.