(12) Employee Incentive Plans

(a) Long-Term Incentive Plans

The Partnership accounts for unit-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”), which requires that compensation related to all unit-based awards, including unit options, be recognized in the consolidated financial statements. Effective April 6, 2016, the unitholders of the Partnership approved the amended and restated EnLink Midstream GP, LLC Long-Term Incentive Plan (the “GP Plan”). This Amendment and restatement to the GP Plan included an increase to the number of common units of the Partnership authorized for issuance under the GP Plan by 5,000,000 common units to an aggregate of 14,070,000 common units and other technical changes.

We and the Partnership each have similar unit-based compensation payment plans for officers and employees, which are described below. Unit-based compensation associated with the Company’s unit-based compensation plan awarded to officers and employees of the Partnership are recorded by the Partnership since the Company has no substantial or managed operating activities other than its interests in the Partnership and EnLink Oklahoma T.O. Amounts recognized in the consolidated financial statements with respect to these plans are as follows (in millions):


	Year Ended December 31,
	2016		2015		2014
Cost of unit-based compensation allocated to Predecessor general and administrative expense (1)	$	—	$	—	$	2.8
Cost of unit-based compensation charged to general and administrative expense		23.7		31.1		16.9
Cost of unit-based compensation charged to operating expense		6.6		5.0		2.7
Total amount charged to income	$	30.3	$	36.1	$	22.4
Interest of non-controlling partners in unit-based compensation	$	11.3	$	14.0	$	8.3
Amount of related income tax expense recognized in net income	$	7.1	$	8.3	$	5.3

(1)

Unit-based compensation expense was treated as a contribution by the Predecessor in the consolidated statements of changes in member’s equity for the year ended December 31, 2014.

(b) EnLink Midstream Partners, LP’s Restricted Incentive Units

The restricted incentive units are valued at their fair value at the date of grant, which is equal to the market value of common units on such date. A summary of the restricted incentive unit activity for the year ended December 31, 2016 is provided below:


	Year Ended
	December 31, 2016
			Weighted
			Average
	Number of		Grant-Date
EnLink Midstream Partners, LP Restricted Incentive Units:	Units		Fair Value
Non-vested, beginning of period		1,253,729	$	29.59
Granted		1,149,105		10.71
Vested (1)		(316,677)		30.08
Forfeited		(61,337)		21.23
Non-vested, end of period		2,024,820	$	19.05
Aggregate intrinsic value, end of period (in millions)	$	37.3

(1)

Vested units include 91,110 units withheld for payroll taxes paid on behalf of employees.

A summary of the restricted incentive units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) during the years ended December 31, 2016 and 2015 are provided below (in millions):


	Year Ended December 31,
EnLink Midstream Partners, LP Restricted Incentive Units:	2016		2015
Aggregate intrinsic value of units vested	$	4.1	$	7.5
Fair value of units vested	$	9.5	$	8.1

As of December 31, 2016, there was $13.9 million of unrecognized compensation cost related to Partnership non-vested restricted incentive units. That cost is expected to be recognized over a weighted-average period of 1.7 years.

In 2015 and 2016, the General Partner and our Managing Member granted performance awards under the GP Plan and the EnLink Midstream, LLC 2014 Long-Term Incentive Plan (the “2014 Plan”), respectively. The performance award agreements provide that the vesting of restricted incentive units granted thereunder is dependent on the achievement of certain total shareholder return (“TSR”) performance goals relative to the TSR achievement of a peer group of companies (the “Peer Companies”) over the applicable performance period. The performance award agreements contemplate that the Peer Companies for an individual performance award (the “Subject Award”) are the companies comprising the Alerian MLP Index for Master Limited Partnerships (“AMZ”), excluding the Partnership and the Company (collectively, “EnLink”), on the grant date for the Subject Award. The performance units will vest based on the percentile ranking of the average of the Partnership’s and our TSR achievement (“EnLink TSR”) for the applicable performance period relative to the TSR achievement of the Peer Companies.

At the end of the vesting period, recipients receive distribution equivalents, if any, with respect to the number of performance units vested. The vesting of the Partnership’s performance units range from zero to 200% of the units granted depending on the EnLink TSR as compared to the Peer Companies on the vesting date. The fair value of each performance unit is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all performance unit grants made under the plan: (i) a risk-free interest rate based on United States Treasury rates as of the grant date; (ii) a volatility assumption based on the historical realized price volatility of the Partnership’s common units and the designated peer group securities; (iii) an estimated ranking of the Partnership among the designated peer group; and (iv) the distribution yield. The fair value of the performance unit on the date of grant is expensed over a vesting period of approximately three years. The following table presents a summary of the grant-date fair values of performance units granted and the related assumptions:


EnLink Midstream Partners, LP Performance Units:		Beginning TSR Price	Risk-free interest rate		Volatility factor		Distribution yield
2016
January 2016	$	14.82	1.10	%	39.71	%	12.10	%
February 2016	$	14.82	0.89	%	42.33	%	19.20	%
October 2016	$	17.71	0.91	%	44.62	%	8.80	%

2015
March 2015	$	27.68	0.99	%	33.01	%	5.66	%

The following table presents a summary of the Partnership’s performance units:


	Year Ended
	December 31, 2016
			Weighted
			Average
	Number of		Grant-Date
EnLink Midstream Partners, LP Performance Units:	Units		Fair Value
Non-Vested, beginning of period		118,126	$	35.41
Granted		293,309		11.53
Forfeited		(2,798)		36.18
Non-vested, end of period		408,637	$	11.53
Aggregate intrinsic value, end of period (in millions)	$	7.5

As of December 31, 2016, there was $4.1 million of unrecognized compensation expense that related to non-vested Partnership performance units. That cost is expected to be recognized over a weighted-average period of 1.8 years.

(d) EnLink Midstream, LLC’s Restricted Incentive Units

On February 5, 2014, the Company’s sole unitholder at the time, EnLink Midstream Manager, LLC, approved the EnLink Midstream, LLC 2014 Long-Term Incentive Plan (the “Company Plan”). The Company Plan provides for the issuance of 11,000,000 of the Company’s common units.

On March 7, 2014, effective as of the closing of the Business Combination, the Company (i) assumed the Crosstex Energy, Inc. 2009 Long-Term Incentive Plan (the “2009 Plan”) and all awards thereunder outstanding following the Business Combination and (ii) amended and restated the 2009 Plan to reflect the conversion of the awards under the 2009 Plan relating to EMI’s common stock to awards in respect of common units of the Company.

The Company’s restricted incentive units are valued at their fair value at the date of grant which is equal to the market value of the common units on such date. A summary of the restricted incentive unit activities for the year ended December 31, 2016 is provided below:


	Year Ended
	December 31, 2016
			Weighted
			Average
	Number of		Grant-Date
EnLink Midstream, LLC Restricted Incentive Units:	Units		Fair Value
Non-vested, beginning of period		1,148,893	$	34.78
Granted		1,146,067		10.16
Vested (1)		(340,234)		36.55
Forfeited		(57,428)		22.67
Non-vested, end of period		1,897,298	$	19.96
Aggregate intrinsic value, end of period (in millions)	$	36.1

(1)

Vested units include 97,087 units withheld for payroll taxes paid on behalf of employees.

A summary of the restricted units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) during the years ended December 31, 2016 and 2015 are provided below (in millions):


	Year Ended December 31,
EnLink Midstream LLC Restricted Incentive Units:	2016		2015
Aggregate intrinsic value of units vested	$	4.1	$	9.2
Fair value of units vested	$	12.4	$	9.8

As of December 31, 2016, there was $13.6 million of unrecognized compensation costs related to our non-vested restricted incentive units for directors, officers and employees. The cost is expected to be recognized over a weighted average period of 1.6 years.

(e) EnLink Midstream, LLC’s Performance Units

In 2015 and 2016, the Company granted performance awards under the 2014 Plan discussed in section (c) above. At the end of the vesting period, recipients receive distribution equivalents, if any, with respect to the number of performance units vested. The vesting of units range from zero to 200% of the units granted depending on the EnLink TSR as compared to the TSR of the Peer Companies on the vesting date. The fair value of each performance unit is estimated as of the date of grant using a Monte Carlo simulation with the following assumptions used for all performance unit grants made under the 2014 Plan: (i) a risk-free interest rate based on United States Treasury rates as of the grant date; (ii) a volatility assumption based on the historical realized price volatility of the Company’s common units and the designated peer group securities; (iii) an estimated ranking of the Company among the designated peer group and (iv) the distribution yield. The fair value of the unit on the date of grant is expensed over a vesting period of three years. The following table presents a summary of the grant-date fair values of performance units granted and the related assumptions:


EnLink Midstream, LLC Performance Units:		Beginning TSR Price	Risk-free interest rate		Volatility factor		Distribution yield
2016
January 2016	$	15.38	1.10	%	46.02	%	8.60	%
February 2016	$	15.38	0.89	%	52.05	%	14.00	%
October 2016	$	16.75	0.91	%	52.89	%	6.10	%

2015
March 2015	$	34.24	0.99	%	33.02	%	2.98	%

The following table presents a summary of the Company’s performance units:


	Year Ended
	December 31, 2016
			Weighted
			Average
	Number of		Grant-Date
EnLink Midstream, LLC Performance Units:	Units		Fair Value
Non-Vested, beginning of period		105,080	$	40.50
Granted		281,709		11.58
Forfeited		(2,525)		41.31
Non-vested, end of period		384,264	$	19.30
Aggregate intrinsic value, end of period (in millions)	$	7.3

As of December 31, 2016, there was $4.1 million of unrecognized compensation expense that related to the Company’s non-vested performance units. That cost is expected to be recognized over a weighted-average period of 1.8 years.

(f) Benefit Plan

The Partnership sponsors a single employer 401(k) plan whereby it matches 100% of every dollar contributed up to 8% of an employee’s salary. Contributions of $7.4 million and $7.0 million were made to the plan for the years ended December 31, 2016 and 2015, respectively.