14.	INCENTIVE PLANS

Share-Based Incentive Plan Awards

A description of Lazard Ltd’s 2008 Plan and 2005 Equity Incentive Plan (the “2005 Plan”) and activity with respect thereto during the years ended December 31, 2017, 2016 and 2015 is presented below.

Shares Available Under the 2008 Plan and 2005 Plan

The 2008 Plan authorizes the issuance of shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, restricted stock units (“RSUs”), performance-based restricted stock units (“PRSUs”) and other share-based awards. Under the 2008 Plan, the maximum number of shares available is based on a formula that limits the aggregate number of shares that may, at any time, be subject to awards that are considered “outstanding” under the 2008 Plan to 30% of the then-outstanding shares of Class A common stock. The 2008 Plan will expire in May 2018, although unvested awards granted under the 2008 Plan before it expires will remain outstanding and continue to be subject to its terms.

The 2005 Plan authorized the issuance of up to 25,000,000 shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, RSUs and other share-based awards. Each RSU or similar award granted under the 2005 Plan represents a contingent right to receive one share of Class A common stock, at no cost to the recipient. The fair value of such awards is generally determined based on the closing market price of Class A common stock at the date of grant. The 2005 Plan expired in the second quarter of 2015, although unvested awards granted under the 2005 Plan remain outstanding and continue to be subject to its terms.

The following reflects the amortization expense recorded with respect to share-based incentive plans within “compensation and benefits” expense (with respect to RSUs, PRSUs and restricted stock awards) and “professional services” expense (with respect to deferred stock units (“DSUs”)) within the Company’s accompanying consolidated statements of operations:

	Year Ended December 31,
	2017		2016		2015
Share-based incentive awards:
RSUs	$	190,821	$	171,188	$	166,395
PRSUs		40,767		43,018		36,529
Restricted Stock		39,369		45,536		22,342
DSUs		2,008		1,720		1,457
Total	$	272,965	$	261,462	$	226,723

The ultimate amount of compensation and benefits expense relating to share-based awards is dependent upon the actual number of shares of Class A common stock that vest. The Company periodically assesses the forfeiture rates used for such estimates, including as a result of any applicable performance conditions. A change in estimated forfeiture rates or performance results in a cumulative adjustment to compensation and benefits expense and also would cause the aggregate amount of compensation expense recognized in future periods to differ from the estimated unrecognized compensation expense described below.

For purposes of calculating diluted net income per share, RSUs, DSUs and restricted stock awards are included in the diluted weighted average shares of Class A common stock outstanding using the “treasury stock” method. PRSUs are included in the diluted weighted average shares of Class A common stock outstanding to the extent the performance conditions are met at the end of the reporting period, also using the “treasury stock” method.

The Company’s share-based incentive plans and awards are described below.

RSUs and DSUs

RSUs generally require future service as a condition for the delivery of the underlying shares of Class A common stock (unless the recipient is then eligible for retirement under the Company’s retirement policy) and convert into shares of Class A common stock on a one-for-one basis after the stipulated vesting periods. PRSUs, which are RSUs that are also subject to service-based vesting conditions, have additional performance conditions, and are described below. The grant date fair value of the RSUs, net of an estimated forfeiture rate, is amortized over the vesting periods or requisite service periods (generally one-third after two years, and the remaining two-thirds after the third year), and is adjusted for actual forfeitures over such period.

RSUs generally include a dividend participation right that provides that during vesting periods each RSU is attributed additional RSUs (or fractions thereof) equivalent to any dividends paid on Class A common stock during such period. During the years ended December 31, 2017, 2016 and 2015, issuances of RSUs pertaining to such dividend participation rights and respective charges to “retained earnings”, net of estimated forfeitures (with corresponding credits to “additional paid-in-capital”), consisted of the following:

	Year Ended December 31,
	2017		2016		2015
Number of RSUs issued		985,584		1,085,354		693,714
Charges to retained earnings, net of estimated forfeitures	$	41,746	$	37,284	$	34,255

Non-executive members of the Board of Directors (“Non-Executive Directors”) receive approximately 55% of their annual compensation for service on the Board of Directors and its committees in the form of DSUs, which resulted in 31,280, 38,771 and 23,961 DSUs granted during the years ended December 31, 2017, 2016 and 2015, respectively. Their remaining compensation is payable in cash, which they may elect to receive in the form of additional DSUs under the Directors’ Fee Deferral Unit Plan described below. DSUs are convertible into shares of Class A common stock at the time of cessation of service to the Board of Directors and, for purposes of calculating diluted net income per share, are included in the diluted weighted average shares of Class A common stock outstanding using the “treasury stock” method. DSUs include a cash dividend participation right equivalent to dividends paid on Class A common stock.

The Company’s Directors’ Fee Deferral Unit Plan permits the Non-Executive Directors to elect to receive additional DSUs in lieu of some or all of their cash fees. The number of DSUs granted to a Non-Executive Director pursuant to this election will equal the value of cash fees that the applicable Non-Executive Director has elected to forego pursuant to such election, divided by the market value of a share of Class A common stock on the date immediately preceding the date of the grant. During the years ended December 31, 2017, 2016 and 2015, 13,882, 10,043 and 2,482 DSUs, respectively, had been granted pursuant to such Plan.

DSU awards are expensed at their fair value on their date of grant, inclusive of amounts related to the Directors’ Fee Deferral Unit Plan.

The following is a summary of activity relating to RSUs and DSUs during the three-year period ended December 31, 2017:

	RSUs					DSUs
	Units			Weighted Average Grant Date Fair Value		Units			Weighted Average Grant Date Fair Value
Balance, January 1, 2015		13,529,116		$	35.19		286,227		$	34.21
Granted (including 693,714 RSUs relating to dividend participation)		4,296,386		$	48.57		26,443		$	55.11
Forfeited		(469,776	)	$	43.54		-			-
Vested		(7,756,068	)	$	31.12		-			-
Balance, December 31, 2015		9,599,658		$	44.06		312,670		$	35.98
Granted (including 1,085,354 RSUs relating to dividend participation)		6,878,306		$	34.86		48,814		$	35.23
Forfeited		(239,432	)	$	39.53		-			-
Vested		(4,540,394	)	$	39.16		(84,759	)	$	35.30
Balance, December 31, 2016		11,698,138		$	40.65		276,725		$	36.05
Granted (including 985,584 RSUs relating to dividend participation)		5,437,591		$	43.03		45,162		$	44.46
Forfeited		(217,720	)	$	40.20		-			-
Vested		(3,998,163	)	$	45.26		(43,465	)	$	35.77
Balance, December 31, 2017		12,919,846		$	40.23		278,422		$	37.46

In connection with RSUs that vested during the years ended December 31, 2017, 2016 and 2015, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 1,290,601, 1,421,396 and 2,249,935 shares of Class A common stock during such respective years. Accordingly, 2,707,562, 3,118,998 and 5,506,133 shares of Class A common stock held by the Company were delivered during the years ended December 31, 2017, 2016 and 2015, respectively.

As of December 31, 2017, estimated unrecognized RSU compensation expense was approximately $139,793, with such expense expected to be recognized over a weighted average period of approximately 0.8 years subsequent to December 31, 2017.

Restricted Stock

The following is a summary of activity related to shares of restricted Class A common stock associated with compensation arrangements during the three-year period ended December 31, 2017:

	Restricted Shares			Weighted Average Grant Date Fair Value
Balance, January 1, 2015		729,827		$	38.63
Granted		576,886		$	50.88
Forfeited		(45,851	)	$	50.17
Vested		(547,124	)	$	39.50
Balance, December 31, 2015		713,738		$	47.12
Granted		1,795,258		$	36.76
Forfeited		(34,051	)	$	40.48
Vested		(819,872	)	$	37.16
Balance, December 31, 2016		1,655,073		$	40.95
Granted		841,355		$	42.58
Forfeited		(66,592	)	$	40.80
Vested		(491,676	)	$	45.35
Balance, December 31, 2017		1,938,160		$	40.54

In connection with shares of restricted Class A common stock that vested during the years ended December 31, 2017, 2016 and 2015, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 150,470, 141,026 and 108,833 shares of Class A common stock during such respective years. Accordingly, 341,206, 678,846 and 438,291 shares of Class A common stock held by the Company were delivered during the years ended December 31, 2017, 2016 and 2015, respectively.

The restricted stock awards include a cash dividend participation right equivalent to dividends paid on Class A common stock during the period, which will vest concurrently with the underlying restricted stock award. At December 31, 2017, estimated unrecognized restricted stock expense was approximately $27,181, with such expense to be recognized over a weighted average period of approximately 0.8 years subsequent to December 31, 2017.

PRSUs

PRSUs are RSUs that are subject to both performance-based and service-based vesting conditions. The number of shares of Class A common stock that a recipient will receive upon vesting of a PRSU will be calculated by reference to certain performance metrics that relate to the Company’s performance over a three-year period. The target number of shares of Class A common stock subject to each PRSU is one; however, based on the achievement of the performance criteria, the number of shares of Class A common stock that may be received in connection with each PRSU generally can range from zero to two times the target number. PRSUs will vest on a single date approximately three years following the date of the grant, provided the applicable service and performance conditions are satisfied. In addition, the performance metrics applicable to each PRSU will be evaluated on an annual basis at the end of each fiscal year during the performance period and, if the Company has achieved a threshold level of performance with respect to the fiscal year, 25% of the target number of shares of Class A common stock subject to each PRSU will no longer be at risk of forfeiture based on the achievement of performance criteria. PRSUs include dividend participation rights that provide that during vesting periods the target number of PRSUs (or, following the relevant performance period, the actual number of shares of Class A common stock that are no longer subject to performance conditions) receive dividend equivalents at the same rate that dividends are paid on Class A common stock during such periods. These dividend equivalents are credited as RSUs that are not subject to the performance-based vesting criteria but are otherwise subject to the same restrictions as the underlying PRSUs to which they relate.

The following is a summary of activity relating to PRSUs during the three-year period ended December 31, 2017:

	PRSUs			Weighted Average Grant Date Fair Value
Balance, January 1, 2015		1,347,148		$	37.79
Granted (a)		368,389		$	52.85
Vested		(696,499	)	$	35.96
Balance, December 31, 2015		1,019,038		$	44.49
Granted (a)		627,956		$	32.91
Performance units earned (b)		360,783		$	41.20
Vested		(417,021	)	$	38.43
Balance, December 31, 2016		1,590,756		$	40.76
Granted (a)		458,113		$	43.76
Performance units earned (b)		368,389		$	47.74
Vested		(825,565	)	$	42.27
Balance, December 31, 2017		1,591,693		$	42.46

(a)	Represents PRSU awards granted during the relevant year at the target payout level.

(b)	Represents shares of Class A common stock earned during the fiscal year under the performance criteria of previously-granted PRSU awards in excess of the target payout level of such awards.

In connection with certain PRSUs that vested or were settled during the years ended December 31, 2017, 2016 and 2015, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 127,530, 64,169 and 32,086 shares of Class A common stock during such respective years. Accordingly, 698,035, 352,852 and 664,413 shares of Class A common stock held by the Company were delivered during the years ended December 31, 2017, 2016 and 2015, respectively.

Compensation expense recognized for PRSU awards is determined by multiplying the number of shares of Class A common stock underlying such awards that, based on the Company’s estimate, are considered probable of vesting, by the grant date fair value. As of December 31, 2017, the total estimated unrecognized compensation expense was approximately $9,174, and the Company expects to amortize such expense over a weighted-average period of approximately 0.7 years subsequent to December 31, 2017.

LFI and Other Similar Deferred Compensation Arrangements

Commencing in February 2011, the Company granted LFI to eligible employees. In connection with LFI and other similar deferred compensation arrangements, which generally require future service as a condition for vesting, the Company recorded a prepaid compensation asset and a corresponding compensation liability on the grant date based upon the fair value of the award. The prepaid asset is amortized on a straight-line basis over the applicable vesting periods or requisite service periods (which are generally similar to the comparable periods for RSUs), and is charged to “compensation and benefits” expense within the Company’s consolidated statement of operations. LFI and similar deferred compensation arrangements that do not require future service are expensed immediately. The related compensation liability is accounted for at fair value as a derivative liability, which contemplates the impact of estimated forfeitures, and is adjusted for changes in fair value primarily related to changes in value of the underlying investments.

The following is a summary of activity relating to LFI and other similar deferred compensation arrangements during the years ended December 31, 2017 and 2016:

	Prepaid Compensation Asset			Compensation Liability
Balance, January 1, 2017	$	49,650		$	170,388
Granted		77,580			77,580
Settled		-			(96,025	)
Forfeited		(992	)		(1,819	)
Amortization		(67,575	)		-
Change in fair value related to:
Increase in fair value of underlying investments		-			23,526
Adjustment for estimated forfeitures		-			6,634
Other		1,692			2,017
Balance, December 31, 2017	$	60,355		$	182,301

	Prepaid Compensation Asset			Compensation Liability
Balance, January 1, 2016	$	75,703		$	193,574
Granted		52,121			52,121
Settled		-			(77,457	)
Forfeited		(2,942	)		(5,380	)
Amortization		(73,340	)		-
Change in fair value related to:
Increase in fair value of underlying investments		-			3,318
Adjustment for estimated forfeitures		-			4,671
Other		(1,892	)		(459	)
Balance, December 31, 2016	$	49,650		$	170,388

The amortization of the prepaid compensation asset will generally be recognized over a weighted average period of approximately 0.9 years subsequent to December 31, 2017.

The following is a summary of the impact of LFI and other similar deferred compensation arrangements on “compensation and benefits” expense within the accompanying consolidated statements of operations for the years ended December 31, 2017, 2016 and 2015:

	Year Ended Ended December 31,
	2017		2016		2015
Amortization, net of forfeitures	$	73,382	$	75,573	$	85,563
Change in the fair value of underlying investments		23,526		3,318		(3,827	)
Total	$	96,908	$	78,891	$	81,736

Incentive Awards Granted In February 2018

In February 2018, the Company granted approximately $351,000 of deferred incentive compensation awards (including PRSUs valued at the target payout level) to eligible employees. These grants included: RSUs or shares of restricted Class A common stock; deferred incentive compensation awards that allow eligible employees the choice of receiving a portion of their award in a combination of (i) LFI and (ii) additional RSUs or shares of restricted Class A common stock; deferred cash awards; and a portion of fund managers’ year-end incentive compensation that is reinvested in certain asset management funds.

The RSUs, restricted Class A common stock and LFI granted each provide for one-third vesting on or around March 2, 2020 and the remaining two-thirds vesting on or around March 1, 2021. The PRSUs granted provide for vesting on or around March 1, 2021, provided that the applicable service and performance conditions are satisfied, and will convert into Class A common stock within a range equal to zero to two times the target number of shares of Class A common stock subject to the awards. Compensation expense with respect to such incentive awards will generally be recognized over the vesting period, with such compensation expense to be recognized over a weighted average period of approximately 2.7 years.