13.	INCENTIVE PLANS

Share-Based Incentive Plan Awards

A description of Lazard Ltd’s 2018 Plan, 2008 Plan and 2005 Equity Incentive Plan (the “2005 Plan”) and activity with respect thereto during the three month periods ended March 31, 2018 and 2017 is presented below.

Shares Available Under the 2018 Plan, 2008 Plan and 2005 Plan

The 2018 Plan became effective on April 24, 2018 and replaced the 2008 Plan, which was terminated on April 24, 2018. The 2018 Plan authorizes the issuance of up to 30,000,000 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.

The 2008 Plan authorized the issuance of shares of Class A common stock pursuant to the grant or exercise of stock options, stock appreciation rights, RSUs, PRSUs and other share-based awards. Under the 2008 Plan, the maximum number of shares available was based on a formula that limited the aggregate number of shares that could, at any time, be subject to awards that were considered “outstanding” under the 2008 Plan to 30% of the then-outstanding shares of Class A common stock. The 2008 Plan was terminated on April 24, 2018, and no additional awards have been or will be granted under the 2008 Plan after its termination, although unvested awards granted under the 2008 Plan before its termination 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. The 2005 Plan expired in the second quarter of 2015, although unvested deferred stock unit (“DSU”) awards granted under the 2005 Plan before its expiration 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 DSUs) within the Company’s accompanying condensed consolidated statements of operations for the three month periods ended March 31, 2018 and 2017:

	Three Months Ended
	March 31,
	2018		2017
Share-based incentive awards:
RSUs	$	60,887	$	55,941
PRSUs		10,967		11,782
Restricted Stock		10,773		9,649
DSUs		193		155
Total	$	82,820	$	77,527

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 three month periods ended March 31, 2018 and 2017, 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:

	Three Months Ended
	March 31,
	2018		2017
Number of RSUs issued		535,695		613,795
Charges to retained earnings, net of estimated forfeitures	$	28,406	$	25,977

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 405 and 1,551 DSUs granted during the three month periods ended March 31, 2018 and 2017, 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 three month periods ended March 31, 2018 and 2017, 3,066 and 3,555 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 month periods ended March 31, 2018 and 2017:

	RSUs					DSUs
	Units			Weighted Average Grant Date Fair Value		Units		Weighted Average Grant Date Fair Value
Balance, January 1, 2018		12,919,846		$	40.23		278,422	$	37.46
Granted (including 535,695 RSUs relating to dividend participation)		3,749,981		$	54.41		3,471	$	55.52
Forfeited		(29,620	)	$	47.60		-		-
Vested		(4,513,378	)	$	43.44		-	$	-
Balance, March 31, 2018		12,126,829		$	43.40		281,893	$	37.68
Balance, January 1, 2017		11,698,138		$	40.65		276,725	$	36.05
Granted (including 613,795 RSUs relating to dividend participation)		4,926,935		$	43.05		5,106	$	42.91
Forfeited		(19,077	)	$	39.88		-		-
Vested		(3,621,454	)	$	45.53		-	$	-
Balance, March 31, 2017		12,984,542		$	40.20		281,831	$	36.18

In connection with RSUs that vested during the three month periods ended March 31, 2018 and 2017, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 1,554,542 and 1,229,531 shares of Class A common stock during such respective three month periods. Accordingly, 2,958,836 and 2,391,923 shares of Class A common stock held by the Company were delivered during the three month periods ended March 31, 2018 and 2017, respectively.

As of March 31, 2018, estimated unrecognized RSU compensation expense was approximately $251,445, with such expense expected to be recognized over a weighted average period of approximately 0.9 years subsequent to March 31, 2018.

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 month periods ended March 31, 2018 and 2017:

	Restricted Shares			Weighted Average Grant Date Fair Value
Balance, January 1, 2018		1,938,160		$	40.54
Granted		529,987		$	54.45
Forfeited		(9,328	)	$	46.45
Vested		(599,055	)	$	42.39
Balance, March 31, 2018		1,859,764		$	43.88
Balance, January 1, 2017		1,655,073		$	40.95
Granted		841,355		$	42.58
Forfeited		(11,087	)	$	41.38
Vested		(263,457	)	$	47.93
Balance, March 31, 2017		2,221,884		$	40.73

In connection with shares of restricted Class A common stock that vested during the three month periods ended March 31, 2018 and 2017, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 217,227 and 108,239 shares of Class A common stock during such respective three month periods. Accordingly, 381,828 and 155,218 shares of Class A common stock held by the Company were delivered during the three month periods ended March 31, 2018 and 2017, 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 March 31, 2018, estimated unrecognized restricted stock expense was approximately $43,861, with such expense to be recognized over a weighted average period of approximately 0.8 years subsequent to March 31, 2018.

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 month periods ended March 31, 2018 and 2017:

	PRSUs			Weighted Average Grant Date Fair Value
Balance, January 1, 2018		1,591,693		$	42.46
Granted (a)		399,869		$	56.80
Vested		(799,402	)	$	46.74
Balance, March 31, 2018		1,192,160		$	44.39
Balance, January 1, 2017		1,590,756		$	40.76
Granted (a)		458,113		$	43.76
Vested		(752,770	)	$	42.26
Balance, March 31, 2017		1,296,099		$	40.95

(a)

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

In connection with certain PRSUs that vested or were settled during the three month periods ended March 31, 2018 and 2017, the Company satisfied its minimum statutory tax withholding requirements in lieu of delivering 91,962 and 85,629 shares of Class A common stock during such respective three month periods. Accordingly, 707,440 and 667,141 shares of Class A common stock held by the Company were delivered during the three month periods ended March 31, 2018 and 2017, 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 March 31, 2018, the total estimated unrecognized compensation expense was approximately $20,919, and the Company expects to amortize such expense over a weighted-average period of approximately 0.7 years subsequent to March 31, 2018.

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 condensed 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 three month periods ended March 31, 2018 and 2017:

	Prepaid Compensation Asset			Compensation Liability
Balance, January 1, 2018	$	60,355		$	182,301
Granted		103,947			103,947
Settled		-			(72,979	)
Forfeited		(84	)		(138	)
Amortization		(15,373	)		-
Change in fair value related to:
Decrease in fair value of underlying investments		-			(1,436	)
Adjustment for estimated forfeitures		-			517
Other		251			204
Balance, March 31, 2018	$	149,096		$	212,416

	Prepaid Compensation Asset			Compensation Liability
Balance, January 1, 2017	$	49,650		$	170,388
Granted		77,580			77,580
Settled		-			(81,559	)
Forfeited		(93	)		(133	)
Amortization		(12,491	)		-
Change in fair value related to:
Increase in fair value of underlying investments		-			7,353
Adjustment for estimated forfeitures	-				532
Other		(12	)		579
Balance, March 31, 2017	$	114,634		$	174,740

The amortization of the prepaid compensation asset will generally be recognized over a weighted average period of approximately 0.8 years subsequent to March 31, 2018.

The following is a summary of the impact of LFI and other similar deferred compensation arrangements on “compensation and benefits” expense within the accompanying condensed consolidated statements of operations for the three month periods ended March 31, 2018 and 2017:

	Three Months Ended
	March 31,
	2018			2017
Amortization, net of forfeitures	$	15,836		$	12,983
Change in the fair value of underlying investments		(1,436	)		7,353
Total	$	14,400		$	20,336