16. EQUITY-BASED COMPENSATION

The Partnership has granted equity-based compensation awards to Blackstone’s senior managing directors, non-partner professionals, non-professionals and selected external advisers under the Partnership’s 2007 Equity Incentive Plan (the “Equity Plan”), the majority of which to date were granted in connection with Blackstone’s initial public offering (“IPO”). The Equity Plan allows for the granting of options, unit appreciation rights or other unit-based awards (units, restricted units, restricted common units, deferred restricted common units, phantom restricted common units or other unit-based awards based in whole or in part on the fair value of the Blackstone common units or Blackstone Holdings Partnership Units) which may contain certain service or performance requirements. As of January 1, 2013, the Partnership had the ability to grant 163,217,431 units under the Equity Plan.

For the years ended December 31, 2013, 2012 and 2011 the Partnership recorded compensation expense of $855.1 million, $949.6 million, and $1.4 billion, respectively, in relation to its equity-based awards with corresponding tax benefits of $33.3 million, $25.0 million, and $22.4 million, respectively.

As of December 31, 2013, there was $1.3 billion of estimated unrecognized compensation expense related to unvested awards. This cost is expected to be recognized over a weighted-average period of 1.9 years.

Total vested and unvested outstanding units, including Blackstone common units, Blackstone Holdings Partnership Units and deferred restricted common units, were 1,153,844,153 as of December 31, 2013. Total outstanding unvested phantom units were 147,169 as of December 31, 2013.

A summary of the status of the Partnership’s unvested equity-based awards as of December 31, 2013 and of changes during the period January 1, 2013 through December 31, 2013 is presented below:


	Blackstone Holdings					The Blackstone Group L.P.
	Partnership Units			Weighted- Average Grant Date Fair Value		Equity Settled Awards					Cash Settled Awards
Unvested Units	Partnership Units			Weighted- Average Grant Date Fair Value		Deferred Restricted Common Units and Options			Weighted- Average Grant Date Fair Value		Phantom Units			Weighted- Average Grant Date Fair Value
Balance, December 31, 2012		66,591,089		$	28.19		20,199,382		$	15.76		221,356		$	14.89
Granted		4,645,938			20.65		7,245,002			22.56		7,687			22.85
Vested		(21,385,204	)		29.91		(6,458,664	)		23.77		(78,318	)		20.82
Forfeited		(1,794,007	)		29.69		(981,581	)		17.27		(3,556	)		23.70

Balance, December 31, 2013		48,057,816		$	26.64		20,004,139		$	15.57		147,169		$	12.00

Units Expected to Vest

The following unvested units, after expected forfeitures, as of December 31, 2013, are expected to vest:


	Units		Weighted-Average Service Period in Years
Blackstone Holdings Partnership Units		44,277,748		1.90
Deferred Restricted Blackstone Common Units and Options		16,515,381		2.30

Total Equity-Based Awards		60,793,129		2.00

Phantom Units		146,520		0.03

Deferred Restricted Common Units and Phantom Units

The Partnership has granted deferred restricted common units to certain senior and non-senior managing director professionals, analysts and senior finance and administrative personnel and selected external advisers and phantom units (cash settled equity-based awards) to other senior and non-senior managing director employees. Holders of deferred restricted common units and phantom units are not entitled to any voting rights. Only phantom units are to be settled in cash.

The fair values of deferred restricted common units have been derived based on the closing price of Blackstone’s common units on the date of the grant, multiplied by the number of unvested awards and expensed over the assumed service period, which ranges from 1 to 8 years. Additionally, the calculation of the compensation expense assumes forfeiture rates based upon historical turnover rates, ranging from 1% to 12.5% annually by employee class, and a per unit discount, ranging from $0.01 to $10.33 as a majority of these unvested awards do not contain distribution participation rights. In most cases, the Partnership will not make any distributions with respect to unvested deferred restricted common units. However, there are certain grantees who receive distributions on both vested and unvested deferred restricted common units.

The phantom units vest over the assumed service period, which ranges from 2 to 4 years. On each such vesting date, Blackstone delivered or will deliver cash to the holder in an amount equal to the number of phantom units held multiplied by the then fair market value of the Blackstone common units on such date. Additionally, the calculation of the compensation expense assumes forfeiture rates based upon historical turnover rates, ranging from 4.2% to 12.5% annually by employee class. Blackstone is accounting for these cash settled awards as a liability.

Blackstone paid $0.6 million, $0.4 million and $0.4 million to non-senior managing director employees in settlement of phantom units for the years ended December 31, 2013, 2012 and 2011, respectively.

Blackstone Holdings Partnership Units

At the time of the Reorganization, Blackstone’s predecessor owners and selected advisers received 827,516,625 Blackstone Holdings Partnership Units, of which 387,805,088 were vested and 439,711,537 were to vest over a period of up to 8 years from the IPO date. Subsequent to the Reorganization, the Partnership has granted Blackstone Holdings Partnership Units to newly hired senior managing directors. The Partnership has accounted for the unvested Blackstone Holdings Partnership Units as compensation expense over the vesting period. The fair values have been derived based on the closing price of Blackstone’s common units on the date of the grant, or $31 (based on the initial public offering price per Blackstone common unit) for those units issued at the time of the Reorganization, multiplied by the number of unvested awards and expensed over the assumed service period which ranges from 1 to 9 years. Additionally, the calculation of the compensation expense assumes a forfeiture rate of up to 12.5%, based on historical experience.

In November 2009, the Partnership modified equity awards issued in connection with a deferred compensation plan to, among other things: (a) provide that deferred compensation payments to participating employees and senior managing directors generally would be satisfied by delivery of Blackstone common units instead of delivery of Partnership Units, (b) delay the delivery of common units (following the applicable vesting dates) until anticipated trading window periods, to better facilitate participants’ liquidity to meet tax obligations, and (c) ensure compliance with deferred compensation taxation rules. As the fair value of Partnership Units on grant date is based on the closing price of Blackstone common units, there was no change in the fair value of these awards as a result of the modification. As a result, there was no additional impact to compensation expense.

Equity-Based Awards with Performance Conditions

The Partnership has also granted certain equity-based awards with performance requirements. These awards are based on the performance of certain businesses over a three to five year period beginning January 2012, relative to a predetermined threshold. Blackstone has determined that it is probable that the relevant performance thresholds will be exceeded in future periods and, therefore, has recorded compensation expense since the beginning of the performance period of $61.8 million.