8. Compensation

Employees are eligible to receive discretionary incentive cash compensation (the “Bonus Award”) on an annual basis. The amount of the Bonus Award is based on, among other factors, both individual performance and the financial results of ZAIS Group. For certain employees, as documented in an underlying agreement (the “Bonus Agreement”), the Bonus Award may be further subject to a retention-based payout schedule that generally provides for 30% of the Bonus Award to vest and be paid incrementally over a three-year period. The Company expenses all current cash incentive compensation award payments ratably in the first year. All future payments are amortized equally over the required service period over the remaining term of the Bonus Award as defined in the Bonus Award Agreements. In the event an award is forfeited pursuant to the terms of the Bonus Agreement, the corresponding accruals will be reversed.

On March 29, 2016, the Compensation Committee of the Board of Directors of ZAIS adopted a retention payment plan for certain employees of ZAIS Group (the "Retention Payment Plan"). The Retention Payment Plan applies to approximately 60 employees of ZAIS Group who have an annual base salary of less than $300,000. The purpose of the Retention Payment Plan is to enable ZAIS Group to retain the services of its employees in order to ensure that ZAIS Group is not disrupted or adversely affected by the possible loss of personnel or their commitment to ZAIS Group. Under the Retention Payment Plan, the participating employees would become entitled to receive cash retention payments on each of April 15, 2016, August 15, 2016 and November 15, 2016, if the employee remains employed by ZAIS Group on such dates. The aggregate amount of retention payments that may be paid to all participants under the Retention Payment Plan is $4.5 million. All payments under the Retention Payment Plan will be amortized equally over the required service period ending on each of the three payment dates discussed above. In the event an award is forfeited pursuant to the terms of a respective Retention Payment Plan agreement, the corresponding accruals will be reversed. In addition, on March 1, 2016, the Compensation Committee of the Board of Directors of ZAIS approved a retention payment of $900,000 to Howard Steinberg, the Company's General Counsel, which was paid on March 15, 2016 and is included in compensation and benefits in the consolidated statements of comprehensive income (loss) for the three months ended March 31, 2016.

ZAIS Group has entered into agreements with certain of its employees whereby certain employees and former employees have been granted rights to participate in a portion of the incentive income received from certain ZAIS Managed Entities (referred to as “Points”).

In 2013, ZAIS Group established the Income Unit Plan. Under the Income Unit Plan, certain employees were entitled to receive a fixed percentage of ZAIS Group’s distributable income, as defined in the Income Unit Plan agreement. Pursuant to the terms of the Income Unit Plan, a payout of 85% of the estimated award was made in December of the applicable performance year and the remaining balance was payable within 30 days of the issuance of ZAIS Group’s audit report for the prior year. An employee must have been actively employed by ZAIS Group on each scheduled payment date to receive their relevant distribution. The Income Unit Plan was terminated effective December 31, 2014.

On March 8, 2016, the Company commenced a reduction in force which will result in a decrease of 22 employees of ZAIS Group. This includes six employees that will be departing during the three months ended June 30, 2016. The Company expects total severance charges in the amount of approximately $707,000 relating to the reduction in force. The Company immediately recognizes all severance expense for employees who are not required to provide services or those employees who are not being retained beyond the 60 day notification period. Conversely, for all employees who are required to provide services or those who will be retained beyond the 60 day notification period, the related severance expense is amortized equally over the required service period.

The following table presents a detailed breakout of compensation expense recorded for the three months ended March 31, 2016 and March 31, 2015:

	Three Months Ended March 31, 2016		Three Months Ended March 31, 2015
Salaries	$	3,280,000	$	3,592,000
Bonus		3,898,000		1,499,000
Points		—		—
Commissions		—		15,000
Income Unit Plan		—		198,000
Equity-Based Compensation		343,000		261,000
Severance		642,000		—
Payroll taxes and benefits		844,000		1,005,000
Total compensation and benefits	$	9,007,000	$	6,570,000

Equity-Based Compensation

In conjunction with the closing of the Business Combination on March 17, 2015, ZGP authorized 1,600,000 Class B-0 Units eligible to be granted to certain employees of ZAIS Group. The Class B-0 Units are subject to a two year cliff-vesting provision, whereby all Class B-0 Units granted to an employee will be forfeited if the employee resigns or is terminated prior to the two year anniversary of the closing of the Business Combination. Subsequent to the two year anniversary of the Business Combination, an employee will only forfeit vested Class B-0 Units if the employee is terminated for cause. The Class B-0 Units are not entitled to any distributions from ZGP (and thus will not participate in, or be allocated any, income or loss) or other material rights until such Class B-0 Units vest. Upon vesting the Class B-0 Units will have the same rights as Class A Units of ZGP and are exchangeable on a one for one basis for Class A common shares subject to the restrictions set forth in the Exchange Agreement included in the Closing 8-K. In accordance with ASC 718, "Compensation - Stock Compensation”, the Company is measuring the compensation expense associated with these awards based on grant date fair value adjusted for estimated forfeitures. This compensation expense will be amortized equally over the two-year vesting period and will be cumulatively adjusted for changes in estimated forfeitures at each reporting date.

The following table presents the unvested Class B-0 Units’ activity during the three months ended March 31, 2016:

	Number of B-0 Units		Weighted Average Grant Date Fair Value per Unit
Balance at December 31, 2015		1,337,486	$	9.67
Granted		100,000		6.34
Forfeited		(148,708)		9.70
Vested		—		—
Balance at March 31, 2016		1,288,778	$	9.40

The total compensation expense expected to be recognized in all future periods associated with the Class B-0 Units, considering estimated forfeitures of 29.6%, is $5,000,000 at March 31, 2016, which is expected to be recognized over the remaining weighted average period of 0.96 years. The Company recorded compensation expense of $269,000 related to the Class B-0 Units for the three months ended March 31, 2016. During the three months ended March 31, 2016, the Company increased its forfeiture estimate from 8% to 29.6%. This increase includes approximately a 17.2% increase relating to the reduction in force announced in the Company’s Current Report on Form 8-K filed on March 8, 2016 and approximately a 4.4% increase relating to the change in management’s estimated forfeitures based on actual forfeitures since the grant date. The cumulative impact of the increase in estimated forfeitures of $(983,000) was recognized as a reduction in compensation and benefits for the three months ended March 31, 2016. The expense relating to the Class B-0 Units is included in compensation and benefits on the consolidated statements of comprehensive income (loss).

Pursuant to ZAIS’s 2015 Stock Incentive Plan, non-employee directors of ZAIS receive restricted stock units (“RSUs”) as a component of compensation for their service as directors of ZAIS. The awards are unvested at the time they are granted and, as such, are not entitled to any dividends or distributions from ZAIS or other material rights until such RSUs vest. The RSUs vest in full on the one year anniversary of the grant date. Upon vesting ZAIS will issue the recipient shares of Class A Common Stock equal to the number of vested RSUs. In accordance with ASC 718, "Compensation - Stock Compensation”, the Company is measuring the expense associated with these awards based on grant date fair value adjusted for estimated forfeitures. This expense is being amortized equally over the one year vesting period and adjusted on a cumulative basis for changes in estimated forfeitures at each reporting date.

The following table presents the unvested RSU activity during the three months ended March 31, 2016:

	Number of RSUs		Weighted Average Grant Date Fair Value per Unit
Balance at December 31, 2015		30,000	$	9.85
Granted		—		—
Forfeited		—		—
Vested		—		—
Balance at March 31, 2016		30,000	$	9.85

The total expense expected to be recognized in all future periods associated with the RSUs, considering estimated forfeitures of 0%, is $24,000 at March 31, 2016, which is expected to be recognized over the remaining weighted average period of 0.08 years. The Company recorded expense of $74,000 related to the RSUs for the three months ended March 31, 2016. The expense relating to these RSUs is included in compensation and benefits on the consolidated statements of comprehensive income (loss).