9.	STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

On January 1, 2014, we issued restricted shares of common stock (“2014 Restricted Stock”) under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (the “LTIP”) that were subject to either time-based vesting conditions or market-based vesting conditions. Shares of 2014 Restricted Stock with time-based vesting conditions vest based on various schedules through 2018. The market-based vesting conditions were based on our total enterprise value exceeding certain specified thresholds. Compensation expense related to the issuance of 2014 Restricted Stock with time-based vesting conditions was measured based on the fair value of the award on the grant date and is recognized over the requisite service period on a straight-line basis. Compensation expense relating to the issuance of 2014 Restricted Stock with market-based vesting conditions was measured based on the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period based on the probability that the vesting conditions would be met. For 2014 Restricted Stock with market-based vesting conditions, 50% of the shares vested upon reaching a Total Enterprise Value (as defined in the applicable restricted stock award agreement, “TEV”) of $1.4 billion on December 1, 2014 and the remaining 50% of the shares vested upon reaching a TEV of $1.8 billion on March 2, 2015. Our total compensation expense related to 2014 Restricted Stock for the years ended December 31, 2016, 2015 and 2014 was $0.2 million, $0.4 million and $0.7 million, respectively.

There was $0.1 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested shares of 2014 Restricted Stock with time-based vesting conditions outstanding as of December 31, 2016. The unrecognized compensation cost is expected to be recognized over a weighted average period of 1.2 years as of December 31, 2016.

On July 8, 2015, we issued an aggregate of 741,931 restricted shares of common stock under the LTIP (“2015 Restricted Stock”) to each of our executive officers and certain non-executive employees. On April 15, 2016, we issued an aggregate of 847,928 restricted shares of common stock under the LTIP (“April 2016 Restricted Stock”) to each of our executive officers and certain non-executive employees. On October 4, 2016, we issued an aggregate of 721,100 restricted shares of common stock under the LTIP (“October 2016 Restricted Stock”) to each of our executive officers and certain non-executive employees. On May 2, 2016 and November 10, 2016, we issued an aggregate of 5,132 and 1,269 restricted shares of common stock, respectively, under the LTIP to certain members of our Board of Directors (“2016 Director Restricted Stock” and, collectively with all shares of 2015 Restricted Stock, April 2016 Restricted Stock and October 2016 Restricted Stock, the “Post-IPO Restricted Stock”). Certain shares of Post-IPO Restricted Stock are subject to market-based vesting conditions and certain shares of Post-IPO Restricted Stock (including all shares of 2016 Director Restricted Stock) are subject to time-based vesting conditions. Shares of Post-IPO Restricted Stock subject to time-based vesting conditions will vest over periods ranging from approximately one to six years. Shares subject to market-based vesting conditions have vested when, or will vest if, the Company’s TEV equals or exceeds certain predetermined thresholds. All shares of April 2016 Restricted Stock with market-based vesting conditions vested on July 28, 2016, when the Company’s TEV reached $2.65 billion. With respect to shares of 2015 Restricted Stock with market-based vesting conditions, 50% of the shares vested on August 1, 2016, when the Company’s TEV reached $2.65 billion, and the remaining 50% of the shares will vest if the Company’s TEV equals or exceeds $3.5 billion. There was a two-trading-day gap between the vesting of April 2016 Restricted Stock and the applicable portion of the 2015 Restricted Stock when the Company’s TEV reached $2.65 billion due to differences in the number of shares outstanding at the respective grant dates, which affected the TEV calculations. With respect to shares of October 2016 Restricted Stock subject to market-based vesting conditions, 50% of the shares will vest if the Company’s TEV equals or exceeds $3.9 billion and 50% of the shares will vest if the Company’s TEV equals or exceeds $4.2 billion. Shares of October 2016 Restricted Stock subject to market-based vesting conditions will be forfeited if they do not vest within six years of the date of grant while the remaining shares of 2015 Restricted Stock subject to market-based vesting conditions are eligible for vesting indefinitely.

The following table presents a summary of the grant-date fair values of Post-IPO Restricted Stock granted during the years ended December 31, 2016 and 2015 and the related assumptions:

Years Ended December 31,	2016		2015
Grant-date fair value of restricted stock	$23.15 - $49.34		$21.76 - $33.33
Risk-free interest rates (based on U.S. Treasury Securities from 5 to 10 years maturity)	1.28% - 1.36%			2.2%
Estimated volatility	21.0% - 23.0%			26.0%
Expected life (in years)		2.7		3.6
Dividend yield	0%		0%

Compensation expense for the shares of Post-IPO Restricted Stock with time-based vesting conditions was measured based on the fair value of the underlying shares on the grant date (which was equal to the closing price of our common stock on such grant date) and will be recognized over the requisite service periods on a straight-line basis. Compensation expense for shares of Post-IPO Restricted Stock with market-based vesting conditions was measured based on the fair value of the underlying shares on the grant date, which ranged from $21.76 to $33.62. The fair value of each share of Post-IPO Restricted Stock with market-based vesting conditions was estimated on the grant date using a Monte Carlo simulation model. This model considers a range of assumptions related to volatility, risk-free interest rate, expected life and expected dividend yield. Expected volatilities used in the model are based on historical volatilities of comparable guideline companies until a sufficient trading history in our common stock exists. We are required to estimate forfeitures and only record compensation costs for those awards that are expected to vest.

The Company recognized $9.9 million of compensation cost in connection with the vesting of 490,700 shares of April 2016 Restricted Stock on July 28, 2016 and $3.8 million of compensation cost in connection with the vesting of 234,350 shares of 2015 Restricted Stock on August 1, 2016. To satisfy tax withholding obligations with respect to the delivery of vested shares to certain employees, the Company withheld 199,128 shares of April 2016 Restricted Stock that vested on July 28, 2016 and 90,703 shares of 2015 Restricted Stock that vested on August 1, 2016, as well as 12,593 of the 37,047 shares of 2015 Restricted Stock with time-based vesting conditions that vested on July 8, 2016. All shares withheld to satisfy tax withholding obligations are held as treasury stock.

Our total compensation expense related to Post-IPO Restricted Stock was $22.4 million and $2.6 million for the years ended December 31, 2016 and 2015, respectively. There was $39.6 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested shares of Post-IPO Restricted Stock outstanding as of December 31, 2016. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.1 years as of December 31, 2016.

We capitalized stock-based compensation costs related to software developed for internal use of $1.8 million, $0.2 million and $4 thousand for the years ended December 31, 2016, 2015 and 2014, respectively.

The following table presents non-cash stock-based compensation expense resulting from employee restricted common stock agreements and is presented in the following line items in the accompanying consolidated statements of income for the years ended December 31, 2016, 2015 and 2014 (dollars in thousands):

Years Ended December 31,	2016		2015		2014
Operating expense	$	2,217	$	235	$	32
Sales and marketing		3,656	559		166
Research and development		836	104		16
General and administrative		15,837	2,112		498
Total non-cash stock-based compensation expense	$	22,546	$	3,010	$	712

The following table presents a summary of the activity related to restricted stock for the years ended December 31, 2016 and 2015:

Year ended December 31, 2015	Number of shares			Weighted average grant- date fair value (in dollars)
Unvested shares of restricted stock outstanding at January 1, 2015		4,540,020		$	0.24
2015 Restricted Stock granted		741,931			27.65
2014 Restricted Stock vested		(3,287,091	)		0.20
2015 Restricted Stock forfeited		(7,805	)		30.95
2014 Restricted Stock forfeited		(7,215	)		0.48
Unvested shares of restricted stock outstanding at December 31, 2015		1,979,840			10.45
2016 Restricted Stock granted		1,575,429			32.14
2016 Restricted Stock vested		(490,700	)		23.15
2015 Restricted Stock vested		(271,397	)		28.07
2014 Restricted Stock vested		(571,313	)		0.31
2016 Restricted Stock forfeited		(25,317	)		36.11
2015 Restricted Stock forfeited		(22,449	)		29.43
2014 Restricted Stock forfeited		(6,154	)		0.54
Unvested shares of restricted stock outstanding at December 31, 2016		2,167,939		$	23.33