Stock Based Compensation

On June 19, 2015, at the Company’s 2015 Annual Meeting of Stockholders, the Company's stockholders approved the 2015 Plan, which amended and restated the 2006 Omnibus Award Plan to, among other things, increased the total number of shares reserved for grants of awards under the 2015 Plan by 1,700,000 shares. As of December 31, 2016, the Company had 1,894,867 shares available for grant under the 2015 Plan.

Under the 2015 Plan, the Compensation Committee (the “Committee”) may grant awards of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, stock bonus awards, performance based compensation awards (including cash bonus awards and market condition based awards) or any combination of the foregoing.

The Committee determines which employees are eligible to receive the equity awards, the number of equity awards to be granted, the exercise price, the vesting period and the exercise period. The vesting period for the equity award issued is determined on the date of the grant and is non-transferable during the life of the equity award. The majority of options expire ten years from the date of grant. The equity awards generally vest proportionally over a period of four years from the date of grant, unless specified otherwise.

The Company applies the provisions of ASC 718, to account for its stock based compensation, using the modified prospective method of transition. Under the provisions of this guidance, the estimated fair value of share-based awards granted under stock incentive plans is recognized as compensation expense over the vesting period.

The following costs related to the Company’s stock-based compensation plan are included in the consolidated statements of income:



	Year ended December 31,
	2016		2015		2014
Cost of revenue	$	3,664	$	2,895	$	2,290
General and administrative expenses	8,372		6,077		4,350
Selling and marketing expenses	7,734		7,075		4,371
Total	$	19,770	$	16,047	$	11,011

Stock Options

The fair value of each stock option granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model.

The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. All stock-based payment awards are amortized on a straight-line basis over the requisite service periods of the awards, which are generally the vesting periods.

Stock option activity under the Company’s stock plans is shown below:



	Number of Options		Weighted- Average Exercise Price		Aggregate Intrinsic Value		Weighted- Average Remaining Contractual Life (Years)
Outstanding at December 31, 2015	1,210,141		$	16.31	$	34,638	3.50
Granted	—		—
Exercised	(398,239	)	16.32
Forfeited	—		—
Outstanding at December 31, 2016	811,902		$	16.31	$	27,718	2.96
Vested and exercisable at December 31, 2016	811,902		$	16.31	$	27,718	2.96

The unrecognized compensation cost for unvested options as of December 31, 2016 is nil. The Company did not grant any options during the years ended December 31, 2016 and 2015. The weighted-average fair value of options granted during the year ended December 31, 2014 was $9.77. The total grant date fair value of options vested during the years ended December 31, 2016, 2015 and 2014 was $706, $1,228 and $2,112, respectively. The aggregate intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $12,911, $4,413 and $5,757, respectively.

The following table summarizes the status of the Company’s stock options outstanding, vested and exercisable at December 31, 2016:



	Options Outstanding			Options Vested and Exercisable
Range of Exercise Prices	Shares	Weighted- Average Exercise Price		Shares	Weighted- Average Exercise Price
$8.00 to $15.00	362,134	$	9.31	362,134	$	9.31
$15.01 to $21.00	194,515	18.84		194,515	18.84
$21.01 to $28.00	255,253	24.30		255,253	24.30
Total	811,902	$	16.31	811,902	$	16.31

Restricted Stock and Restricted Stock Units

An award of restricted stock is a grant of shares subject to conditions and restrictions set by the Committee. The grant or the vesting of an award of restricted stock may be conditioned upon service to the Company or its affiliates or upon the attainment of performance goals or other factors, as determined in the discretion of the Committee. The Committee may also, in its discretion, provide for the lapse of restrictions imposed upon an award of restricted stock. Holders of an award of restricted stock may have, with respect to the restricted stock granted, all of the rights of a stockholder, including the right to vote and to receive dividends.

The Committee is authorized to award restricted stock units to participants. The Committee establishes the terms, conditions and restrictions applicable to each award of restricted stock units, including the time or times at which restricted stock units will be granted or vested and the number of units to be covered by each award. The terms and conditions of each restricted stock award will be reflected in a restricted stock unit agreement.

Any cash or in-kind dividends paid with respect to unvested shares of restricted stock and restricted stock units are withheld by the Company and paid to the holder of such shares of restricted stock, without interest, only if and when such shares of restricted stock and restricted stock units vest. Any unvested shares of restricted stock and restricted stock units are immediately forfeited without consideration upon the termination of holder’s employment with the Company or its affiliates. Accordingly, the Company’s unvested restricted stock and restricted stock units do not include non-forfeitable rights to dividends or dividend equivalents and are therefore not considered as participating securities for purposes of earnings per share calculations pursuant to the two-class method.

Restricted stock and restricted stock unit activity under the Company’s stock plans is shown below:



	Restricted Stock				Restricted Stock Units
	Number		Weighted- Average Intrinsic Value		Number		Weighted- Average Intrinsic Value
Outstanding at December 31, 2015^{(1) (2)}	134,934		$	35.28	1,228,287		$	30.06
Granted	127,063		49.08		468,370		48.94
Vested	(15,057	)	34.61		(358,712	)	28.55
Forfeited	—		—		(81,657	)	32.38
Outstanding at December 31, 2016⁽¹⁾	246,940		$	42.42	1,256,288		$	37.38

(1) Excludes 19,874 and 21,364 restricted stock units vested during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016 and 2015 restricted stock units vested for which the underlying common stock is yet to be issued are 135,054 and 149,364, respectively.

(2) Includes adjustment of 5,296 forfeited shares in 2015.

The fair value of restricted stock and restricted stock units is generally the market price of the Company’s shares on the date of grant. As of December 31, 2016, unrecognized compensation cost of $43,016 is expected to be expensed over a weighted average period of 2.70 years. The weighted-average fair value of restricted stock and restricted stock units granted during the years ended December 31, 2016, 2015 and 2014 was $48.97, $35.18 and $26.47, respectively. The total grant date fair value of restricted stock and restricted stock units vested during the years ended December 31, 2016, 2015 and 2014 was $10,761, $12,620 and $11,393, respectively.

During the year ended December 31, 2016, the Company granted 33,459 and 93,604 restricted stock in connection with its Liss and Datasource acquisitions, respectively, and 21,987 restricted stock units in connection with its IQR acquisition. During the year ended December 31, 2015, the Company granted 122,131 restricted stock in connection with its RPM acquisition. The fair value of these grants will be recognized as compensation expense on a straight-line basis over the vesting term.

Performance Based Stock Awards

Under the 2015 Plan, the Company grants performance-based restricted stock units (“PRSUs”) to executive officers and other specified employees. 50% of the PRSUs cliff vest at the end of a three-year period based on a revenue target for the third year (“PUs”). However, for PUs granted in 2014 and 2015, up to one-third of the PUs may be earned based on the Company’s revenue performance in each of the first two years against annual revenue targets in those years. The total amount of PUs that the recipient earns based on these performance criteria will be the greater of (i) the PUs earned in the year of vesting and (ii) the sum of the earned PUs during the first two years. The remaining 50% is based on a market condition (“MUs”) that is contingent on the Company meeting or exceeding the total shareholder return relative to a group of peer companies specified under the program measured over a three-year performance period. The award recipient may earn up to two hundred percent (200%) of the PRSUs granted based on the actual achievement of targets.

The fair value of each PU was determined based on the market price of one common share on the date of grant, and the associated compensation expense was calculated on the basis that performance targets at 100% of the PUs is probable of being achieved. The compensation expense for the PUs is recognized on a straight-line basis over the service period, which is through the end of the third year. Over this period, the number of shares that will be issued will be adjusted upward or downward based upon the probability of achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized as an expense will be based on a comparison of the final performance metrics to the specified targets.

The grant date fair value for the MUs was determined using a Monte Carlo simulation model and the related compensation expense will be expensed on a straight-line basis over the vesting period. All compensation expense related to the MUs will be recognized if the requisite performance period is fulfilled, even if the market condition is not achieved.

The Monte-Carlo simulation model simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model also incorporates the following ranges of assumptions:


•	The historical volatilities are used over the most recent three-year period for the components of the peer group.


•	The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period


•	Since the plan stipulates that the awards are based upon the TSR of the Company and the components of the peer group, it is assumed that the dividends get reinvested in the issuing entity on a continuous basis.


•	The correlation coefficients are used to model the way in which each entity tends to move in relation to each other are based upon the price data used to calculate the historical volatilities.

The fair value of each MU granted to employees is estimated on the date of grant using the following weighted average assumptions:



	Year ended December 31,
	2016		2015		2014
Dividend yield	—		—		—
Expected life (years)	2.85		2.84		2.88
Risk free interest rate	0.88	%	0.98	%	0.65	%
Volatility	28.0	%	30.3	%	30.4	%

Performance restricted stock unit activity under the Company’s stock plans is shown below:



	Revenue Based PRSUs				Market Condition Based PRSUs
	Number		Weighted Avg Fair Value		Number		Weighted Avg Fair Value
Outstanding at December 31, 2015	107,213		$	30.88	207,212		$	38.80
Granted	59,861		48.57		59,859		67.94
Addition due to achievement of higher-than-target performance*	307		25.63		44,100		33.60
Vested	(44,407	)	25.63		(88,200	)	33.60
Forfeited	(7,800	)	36.51		(7,800	)	54.16
Outstanding at December 31, 2016	115,174		$	41.70	215,171		$	47.42

* Represents additional shares issued in respect of MUs granted in February 2014 due to the achievement of higher-than-target performance.

As of December 31, 2016, unrecognized compensation cost of $8,603 is expected to be expensed over a weighted average period of 1.59 years.

Subsequent to December 31, 2016, the Company granted approximately 495,000 PRSUs and restricted stock units to its employees.