13. Stock-Based Compensation

Nielsen measures the cost of all stock-based payments, including stock options, at fair value on the grant date and recognizes such costs within the consolidated statements of operations; however, no expense is recognized for stock-based payments that do not ultimately vest. Nielsen recognizes the expense of its options that cliff vest using the straight-line method. For those that vest over time, an accelerated graded vesting is used. The Company recorded $51 million, $48 million and $47 million of expense associated with stock-based compensation for the years ended December 31, 2016, 2015 and 2014, respectively.

In connection with the Valcon Acquisition, Nielsen implemented an equity-based, management compensation plan (“Equity Participation Plan” or “EPP”) to align compensation for certain key executives with the performance of the Company. Under this plan, certain of the Company’s executives may be granted stock options, stock appreciation rights, restricted stock and dividend equivalent rights in the shares of the Company or purchase its shares. In connection with the completion of Nielsen’s initial public offering of common stock on January 31, 2011 (and further amended), the Company implemented the Nielsen 2010 Stock Incentive Plan (the “Stock Incentive Plan”) and suspended further grants under the EPP. The Stock Incentive Plan is the source of new equity-based awards permitting the Company to grant to its key employees, directors and other service providers the following types of awards: incentive stock options, non-qualified stock options, stock appreciation rights, restricted stock, restricted stock units and other awards valued in whole or in part by reference to shares of Nielsen’s common stock and performance-based awards denominated in shares or cash.

Under the Stock Incentive Plan, Nielsen granted 1,643,144 and 1,609,170 time-based stock options to purchase shares during the years ended December 31, 2016 and 2015, respectively. As of December 31, 2016, the total number of shares authorized for award of options or other equity-based awards was 44,095,000 under the Stock Incentive Plan. The 2016, 2015 and 2014 time-based awards become exercisable over a four-year vesting period at a rate of 25 % per year on the anniversary day of the award, and are tied to the executives’ continuing employment.

The fair values of the granted time-based awards granted during 2016, 2015 and 2014 were estimated using the Black-Scholes option pricing model with the expected volatility based on the Company’s historical volatility.

The following assumptions were used during 2016, 2015 and 2014:

	Year Ended December 31,
	2016			2015			2014
Expected life (years)		4.50-5.25			4.50-5.25			3.00-5.25
Risk-free interest rate		1.19-1.92	%		1.27-1.58	%		0.87-1.66	%
Expected dividend yield		2.29- 2.90	%		2.18- 2.45	%		1.77- 2.39	%
Expected volatility		20.02-23.44	%		23.44-23.70	%		23.50-25.32	%
Weighted average volatility		20.89	%		23.56	%		23.99	%

The Company recorded stock-based compensation expense of $51 million, $48 million and $47 million for the years ended December 31, 2016, 2015 and 2014, respectively. The tax benefit related to the stock compensation expense was $13 million, $13 million and $15 million, for the respective periods.

Nielsen’s stock option plan activity is summarized below:

	Number of Options (Time Based and Performance Based)			Weighted-Average Exercise Price			Weighted- Average Remaining Contractual Term in Years		Aggregate Intrinsic Value in Millions
Stock Option Plan activity
Outstanding at December 31, 2013		17,096,761			25.78			4.61	$	344
Granted		2,448,100			42.01
Forfeited		(798,279	)		(29.57	)
Exercised		(4,219,122	)		(24.08	)
Outstanding at December 31, 2014		14,527,460		$	28.80			4.29	$	231
Granted		1,609,170			48.24
Forfeited		(1,808,315	)		(30.59	)
Exercised		(3,779,137	)		(21.84	)
Outstanding at December 31, 2015		10,549,178		$	33.96			4.16	$	136
Granted		1,643,144			53.99
Forfeited		(577,618	)		(33.51	)
Exercised		(3,456,536	)		(28.85	)
Outstanding at December 31, 2016		8,158,168		$	40.19			4.43	$	43
Exercisable at December 31, 2016		4,319,125		$	32.92			3.18	$	41

As of December 31, 2016, 2015 and 2014, the weighted-average grant date fair value of the options granted was $7.78, $8.13 and $7.13, respectively, and the aggregate fair value of options vested was $12 million, $21 million and $21 million, respectively.

At December 31, 2016, there is approximately $17 million of unearned stock-based compensation related to stock options which the Company expects to record as stock-based compensation expense over the next four years. The compensation expense related to the time-based awards is amortized over the term of the award using the graded vesting method.

The intrinsic value of the options exercised during the years ended December 31, 2016, 2015 and 2014 was $77 million, $94 million and $94 million, respectively. For the year ended December 31, 2016, cash proceeds from the exercise of options was $103 million.

Activity of Nielsen’s restricted stock units (RSUs) that are ultimately payable in shares of common stock granted under the Stock Incentive Plan is summarized below:

	Number of RSUs			Weighted-Average Grant Date Fair Value
RSU activity
Nonvested at December 31, 2013		1,307,893		$	30.53
Granted		526,857			42.74
Forfeited		(113,903	)		30.55
Vested		(412,845	)		28.53
Nonvested at December 31, 2014		1,308,002		$	35.90
Granted		851,088			47.29
Forfeited		(200,217	)		37.20
Vested		(452,106	)		34.19
Nonvested at December 31, 2015		1,506,767		$	42.48
Granted		512,676			53.94
Forfeited		(104,822	)		43.26
Vested		(558,228	)		39.21
Nonvested at December 31, 2016		1,356,393		$	47.69

The awards vest at a rate of 25% per year over four years on the anniversary day of the award.

As of December 31, 2016, approximately $36 million of unearned stock-based compensation related to unvested RSUs (net of estimated forfeitures) is expected to be recognized over a weighted average period of 3.3 years.

During the years ended December 31, 2016, 2015 and 2014, the Company granted 331,830, 381,576 and 333,700 performance restricted stock units, respectively, representing the target number of performance restricted stock subject to the award. The weighted average grant date fair value of the awards in 2016, 2015 and 2014 were $50.89, $45.37 and $50.50 per share. For the performance restricted stock units granted in 2016, the total number of performance restricted stock units to be earned is subject to achievement of cumulative performance goals for the three year period ending December 31, 2018. For the performance restricted stock units granted in 2015, the total number of performance restricted stock units to be earned is subject to achievement of cumulative performance goals for the three year period ending December 31, 2017. For the performance restricted stock units granted in 2014, the total number of performance restricted stock units to be earned is subject to achievement of cumulative performance goals for the three year period ending December 31, 2016. Forty percent of the target award will be determined based on the Company’s relative total shareholder return and sixty percent of the target award will be determined based on free cash flow achievements. The maximum payout is 200% of target. The fair value of the target award related to free cash flow was the fair value on the date of the grant, and the fair value of the target awards related to relative shareholder return was based on the Monte Carlo model. As of December 31, 2015, there is approximately $16 million of unearned stock-based compensation related to unvested performance restricted stock (net of estimated forfeitures). The compensation expense is amortized over the term of the award, which is 3 years after the grant date.

During the year ended December 31, 2016, 2015 and 2014, the Company granted 66,581, 96,282 and 117,520 bonus restricted share units, respectively, in lieu of a portion of the cash bonus due to certain executives. The awards vest at 50% on the first and second anniversary day of the award. The weighted average grant date fair value of the awards in 2016, 2015 and 2014 was $47.85, $45.28 and $45.13 per share. As of December 31, 2016, there is approximately $1 million of unearned stock-based compensation expense related to unvested bonus restricted share units (net of estimated forfeitures). The compensation expense is amortized over the requisite service periods of two and three years.

In 2016, the Company implemented the Nielsen Holdings plc 2016 Employee Share Purchase Plan (the ESPP) and 2,000,000 shares were authorized for issuance under the ESPP. There were no shares issued under the ESPP in 2016.