9. DEFERRED COMPENSATION PLAN

Share-based compensation cost is measured at the grant date based on the fair value of the liability awards and is recognized as expense ratably over the vesting periods and is included in other insurance expense in the consolidated statements of comprehensive income. The fair value of the liability awards is remeasured at the end of each reporting period through the remaining vesting period with the change in fair value recognized in earnings currently.

In accordance with the 2006 Dental Care Plus Management Equity Incentive Plan and the Dental Care Plus, Inc. and DCP Holding Company Deferred Compensation Plan (the “Plans”), Company directors and certain key employees elected to defer portions of their director fees and employee compensation, as applicable. The Company recorded expense of approximately $67,000, $88,000, and $60,000 related to deferred director fees and deferred employee compensation for the years ended December 31, 2013, 2012 and 2011, respectively. Directors and key employees who elect to defer cash compensation may request that the Company invest this compensation in a mutual fund investment or phantom shares of the Company. The deferred cash compensation is included in the deferred compensation liability at December 31, 2013 and 2012.

The Plans also provide for the directors and key employees to receive share awards based on the book value of the Redeemable Common Shares and to elect to defer receiving such amounts until termination of board membership or employment and vesting requirements are met. If a director or key employee does not elect to defer receiving his or her share awards, the individual will receive Class B Redeemable Common Shares upon vesting. If the share awards are deferred, these deferred amounts will be paid in cash at redemption. An individual director’s award vests 100% at the end of each year if the director meets certain attendance requirements. The key employee awards vest 10%, 20%, 30% and 40% at the end of each respective year in a four-year period following the grant date. There are no performance criteria associated with the vesting of the awards for key employees and the only requirement for vesting is that the individual is an employee of the Company at the end of the vesting year in question. There were approximately 165 and 168 of these non-vested awards outstanding at December 31, 2013 and 2012, respectively. The number of awards expected to vest approximates the total non-vested awards outstanding.

In 2012, the Company established a long-term incentive compensation program for named executive officers pursuant to which an officer may receive an award of up to 45% of such officer’s base salary in the form of share awards which will vest if established Company performance criteria related to the growth of total preferred and common redeemable shares are achieved over a three year period. There were approximately 480 and 368 of these non-vested awards outstanding at December 31, 2013 and 2012, respectively.

The deferred compensation expense related to these awards is recorded ratably during the applicable vesting period. The Company recorded deferred compensation expense of approximately $616,000, $466,000 and $288,000, with a tax benefit of approximately $209,000, $158,000 and $98,000, related to deferred share awards and the change in the value of phantom shares for the years ended December 31, 2013, 2012 and 2011, respectively. As of December 31, 2013, there is approximately $399,000 of total unrecognized compensation cost related to non-vested awards under the Plans. That cost is expected to be recognized over a weighted average period of 1.46 years.

In February 2013 and March 2012, the Board declared a per share cash dividend for all Class A and Class B redeemable common shares in the amounts of $32.60 and $21.00, respectively. With the dividend, the holders of restricted share units and phantom shares received an equivalent share based dividend that resulted in an increase in the deferred compensation liability of approximately $52,000 and $28,000 for the years ended December 31, 2013 and 2012, respectively.

The expected fair value of the awards is calculated by applying the three year historical average trend rate of the book value per redeemable common share over the respective vesting period. The weighted average grant date fair value of the awards granted in the years ended December 31, 2013 and 2012 were $957 and $743, respectively. At December 31, 2013 and 2012, the deferred compensation liability was approximately $2,063,000 and $1,613,000, respectively.

The maximum aggregate number of share based awards that may be issued under the Plans are 15,000 Class B Common Shares. In 2013, the non-employee members of the Board were granted a total of 252 share based awards. In 2013, key employees were granted 204 share awards. As of December 31, 2013, the Company granted a total of 2,740 share awards, net of forfeitures and rescinded share awards.

The following is a summary of activity of non-vested awards for the years ended December 31, 2013 and 2012:


	Individual Director’s Share Awards			Weighted Average Grant Date Fair Value		Key Employee Share Awards			Weighted Average Grant Date Fair Value
Non-vested awards at January 1, 2013							535.8		$	746
Granted		252.0		$	886		204.0			1,045
Vested during the year		(252.0	)		886		(74.2	)		799
Forfeited							(21.0	)		871

Non-vested awards at December 31, 2013							644.6		$	830


	Individual Director’s Share Awards			Weighted Average Grant Date Fair Value		Key Employee Share Awards			Weighted Average Grant Date Fair Value
Non-vested awards at January 1, 2012							148.4		$	788
Granted		165.0		$	723		466.0			750
Vested during the year		(152.0	)		723		(78.6	)		853
Forfeited		(13.0	)

Non-vested awards at December 31, 2012							535.8		$	746

The following is a summary of activity of vested awards for the years ended December 31, 2013 and 2012:


	Individual Director’s Awards			Weighted Average Vested price		Key Employee Awards			Weighted Average Vested price
Vested awards at January 1, 2013		876.0		$	815		339.7		$	840
Share based dividend		34.5			828		13.4			828
Vested during the year		252.0			881		74.2			1,015
Redeemed vested awards		(103.8	)		794		(14.8	)		814
Converted to Redeemable Common Shares		(252.0	)		881		(4.0	)		886

Vested awards at December 31, 2013		806.7		$	886		408.5		$	920


	Individual Director’s Awards			Weighted Average Vested price		Key Employee Awards			Weighted Average Vested price
Vested awards at January 1, 2012		908.0		$	702		256.6		$	710
Share based dividend		26.7			715		7.5			715
Vested during the year		152.0			812		78.6			892
Redeemed vested awards		(58.7	)		682
Converted to Redeemable Common Shares		(152.0	)		812		(3.0	)		812

Vested awards at December 31, 2012		876.0		$	815		339.7		$	840