(11) Employee Incentive Plans

(a) Long-Term Incentive Plans

ENLC and ENLK each have similar unit-based compensation payment plans for officers and employees. ENLC grants unit-based awards under the EnLink Midstream, LLC 2014 Long-Term Incentive Plan (the “2014 Plan”), and ENLK granted unit-based awards under the amended and restated EnLink Midstream GP, LLC Long-Term Incentive Plan (the “GP Plan”). As of the effective time of the Merger, (i) ENLC assumed all obligations in respect of the GP Plan and the outstanding awards granted thereunder (the “Legacy ENLK Awards”) and (ii) the common units representing limited partner interests in ENLK subject to such Legacy ENLK Awards will convert into common units representing limited liability company interests in ENLC using the exchange ratio (as defined in the Merger Agreement) as the conversion rate. In connection with the consummation of the Merger, no additional awards will be granted under the GP Plan.

We account for unit-based compensation in accordance with ASC 718, Stock Compensation (“ASC 718”), which requires that compensation related to all unit-based awards be recognized in the consolidated financial statements. Unit-based compensation cost is valued at fair value at the date of grant, and that grant date fair value is recognized as expense over each award’s requisite service period with a corresponding increase to equity or liability based on the terms of each award and the appropriate accounting treatment under ASC 718. Unit-based compensation associated with ENLC unit-based compensation plan awarded to ENLC’s officers and employees is recorded by ENLK since ENLC has no substantial or managed operating activities other than its interests in ENLK. Amounts recognized on the consolidated financial statements with respect to these plans are as follows (in millions):



	Year Ended December 31,
	2018		2017		2016
Cost of unit-based compensation charged to general and administrative expense	$	30.3	$	37.4	$	23.7
Cost of unit-based compensation charged to operating expense	10.8		10.7		6.6
Total unit-based compensation expense	$	41.1	$	48.1	$	30.3
Non-controlling interest in unit-based compensation	$	15.7	$	18.0	$	11.3
Amount of related income tax benefit recognized in net income (1)	$	5.3	$	11.3	$	7.1

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(1)	For the years ended December 31, 2018 and 2017, the amount of related income tax benefit recognized in net income excluded $0.7 million and $2.9 million, respectively, of income tax expense related to tax deficiencies recorded on vested units.

All unit-based awards issued and outstanding immediately prior to the effective time of the Merger under the GP Plan have been converted into an award with respect to ENLC common units with substantially similar terms as were in effect immediately prior to the effective time, with certain adjustments to the performance-based vesting of terms of applicable awards related to the performance of ENLC.

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

ENLK restricted incentive units are valued at their fair value at the date of grant, which is equal to the market value of ENLK common units on such date. A summary of the restricted incentive unit activity for the year ended December 31, 2018 is provided below:



	Year Ended December 31, 2018
EnLink Midstream Partners, LP Restricted Incentive Units:	Number of Units			Weighted Average Grant-Date Fair Value
Non-vested, beginning of period	1,980,224			$	15.81
Granted (1)	1,590,100			15.27
Vested (1)(2)	(835,115		)	19.68
Forfeited	(178,939		)	12.75
Non-vested, end of period	2,556,270			$	14.43
Aggregate intrinsic value, end of period (in millions)	$	28.1

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(1)	Restricted incentive units typically vest at the end of three years. In March 2018, the General Partner granted 200,753 restricted incentive units with a fair value of $3.0 million to officers and certain employees as bonus payments for 2017, and these restricted incentive units vested immediately and are included in the restricted incentive units granted and vested line items.


(2)	Vested units include 261,063 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) for the years ended December 31, 2018, 2017, and 2016 is provided below (in millions):



	Year Ended December 31,
EnLink Midstream Partners, LP Restricted Incentive Units:	2018		2017		2016
Aggregate intrinsic value of units vested	$	13.1	$	16.6	$	4.1
Fair value of units vested	$	16.4	$	22.6	$	9.5

As of December 31, 2018, there was $18.4 million of unrecognized compensation cost related to non-vested ENLK restricted incentive units. That cost is expected to be recognized over a weighted-average period of 1.8 years.

The General Partner has granted performance awards under the GP Plan. The performance award agreements provided that the vesting of restricted incentive units granted thereunder was 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 contemplated 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 ENLK and ENLC, on the grant date for the Subject Award. The performance units vested based on the percentile ranking of the average of ENLK’s and ENLC’s 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 received distribution equivalents, if any, with respect to the number of performance units vested. The vesting of units ranged 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. As of the effective time of the Merger, the performance metric for such performance awards was modified such that the performance metric will, on a weighted average basis, (i) continue to relate to the EnLink TSR relative to the TSR performance of the Peer Companies in respect of periods preceding the effective time of the Merger; and (ii) relate solely to the TSR performance of ENLC relative to the TSR performance of such Peer Companies in respect of periods after the effective time of the Merger. The fair value of each performance unit was 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 our common units and the designated Peer Companies’ securities; (iii) an estimated ranking of us among the designated Peer Companies; and (iv) the distribution yield. The fair value of the performance unit on the date of grant was expensed over a vesting period of approximately three years.

The following table presents a summary of the grant-date fair value of performance units granted and the related assumptions by performance unit grant date:



EnLink Midstream Partners, LP Performance Units:	March 2018		March 2017		October 2016		February 2016		January 2016
TSR price	$15.44		$17.55		$17.71		$14.82		$14.82
Risk-free interest rate	2.38	%	1.62	%	0.91	%	0.89	%	1.10	%
Volatility factor	43.85	%	43.94	%	44.62	%	42.33	%	39.71	%
Distribution yield	10.50	%	8.70	%	8.80	%	19.20	%	12.10	%

The following table presents a summary of the performance units:



	Year Ended December 31, 2018
EnLink Midstream Partners, LP Performance Units:	Number of Units			Weighted Average Grant-Date Fair Value
Non-vested, beginning of period	585,285			$	20.52
Granted	256,345			19.24
Vested (1)	(313,610		)	24.43
Forfeited	(76,351		)	16.62
Non-vested, end of period	451,669			$	17.74
Aggregate intrinsic value, end of period (in millions)	$	5.0

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(1)	Vested units included 112,101 units withheld for payroll taxes paid on behalf of employees and 120,250 units that vested as a result of the GIP Transaction, net of units withheld for payroll taxes.

A summary of the performance units’ aggregate intrinsic value (market value at vesting date) and fair value of units vested (market value at date of grant) for the year ended December 31, 2018 is provided below (in millions). No performance units vested for the years ended 2017 and 2016.



EnLink Midstream Partners, LP Performance Units:	Year Ended December 31, 2018
Aggregate intrinsic value of units vested	$	5.0
Fair value of units vested	$	7.7

As of December 31, 2018, there was $6.1 million of unrecognized compensation expense that related to non-vested performance units. That cost is expected to be recognized over a weighted-average period of 1.7 years.

In connection with the GIP Transaction, certain outstanding performance unit agreements were modified to, among other things: (i) provide that the awards granted thereunder did not vest due to the closing of the GIP Transaction and (ii) increase the minimum vesting of units from zero to 100% as described in our Current Report on Form 8-K filed with the Securities and Exchange Commission (the “Commission”) on July 23, 2018. The modified performance units retained the original vesting schedules. As a result of the modifications, we will recognize an additional $2.3 million compensation cost over the life of these ENLK performance units.

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

ENLC restricted incentive units are valued at their fair value at the date of grant, which is equal to the market value of ENLC common units on such date. A summary of the restricted incentive unit activity for the year ended December 31, 2018 is provided below:



	Year Ended December 31, 2018
EnLink Midstream, LLC Restricted Incentive Units:	Number of Units			Weighted Average Grant-Date Fair Value
Non-vested, beginning of period	1,889,310			$	16.33
Granted (1)	1,473,195			15.76
Vested (1)(2)	(769,848		)	21.40
Forfeited	(166,790		)	12.74
Non-vested, end of period	2,425,867			$	14.62
Aggregate intrinsic value, end of period (in millions)	$	23.0

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(1)	Restricted incentive units typically vest at the end of three years. In March 2018, ENLC granted 194,185 restricted incentive units with a fair value of $3.0 million to officers and certain employees as bonus payments for 2017, and these restricted incentive units vested immediately and are included in the restricted incentive units granted and vested line items.


(2)	Vested units include 244,123 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, 2018, 2017, and 2016 is provided below (in millions):



	Year Ended December 31,
EnLink Midstream, LLC Restricted Incentive Units:	2018		2017		2016
Aggregate intrinsic value of units vested	$	12.8	$	15.3	$	4.1
Fair value of units vested	$	16.5	$	22.2	$	12.4

As of December 31, 2018, there was $17.9 million of unrecognized compensation costs related to non-vested ENLC restricted incentive units. That cost is expected to be recognized over a weighted average period of 1.8 years.

(e) EnLink Midstream, LLC’s Performance Units

ENLC grants performance awards under the 2014 Plan. The performance award agreements provide that the vesting of performance units (i.e., performance-based restricted incentive units) granted thereunder is dependent on the achievement of certain TSR performance goals relative to the TSR achievement of the Peer Companies over the applicable performance period. 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 ranges 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. As of the effective time of the Merger, the performance metric for such performance awards was modified such that the performance metric will, on a weighted average basis, (i) continue to relate to the EnLink TSR relative to the TSR performance of the Peer Companies in respect of periods preceding the effective time of the Merger; and (ii) relate solely to the TSR performance of ENLC relative to the TSR performance of such Peer Companies in respect of periods after the effective time of the Merger. 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 ENLC’s common units and the designated Peer Companies’ securities; (iii) an estimated ranking of ENLC among the designated Peer Companies, 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 value assumptions by performance unit grant date:



EnLink Midstream, LLC Performance Units:	March 2018			March 2017			October 2016			February 2016			January 2016
TSR price	$	16.55		$	18.29		$	16.75		$	15.38		$	15.38
Risk-free interest rate	2.38		%	1.62		%	0.91		%	0.89		%	1.10		%
Volatility factor	51.36		%	52.07		%	52.89		%	52.05		%	46.02		%
Distribution yield	6.70		%	5.40		%	6.10		%	14.00		%	8.60		%

The following table presents a summary of the performance units:



	Year Ended December 31, 2018
EnLink Midstream, LLC Performance Units:	Number of Units			Weighted Average Grant-Date Fair Value
Non-vested, beginning of period	548,839			$	22.14
Granted	223,865			21.63
Vested (1)	(283,637		)	27.25
Forfeited	(70,918		)	17.75
Non-vested, end of period	418,149			$	19.15
Aggregate intrinsic value, end of period (in millions)	$	4.0

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(1)	Vested units included 100,109 units withheld for payroll taxes paid on behalf of employees and 109,819 units that vested as a result of the GIP Transaction, net of units withheld for payroll taxes.



EnLink Midstream, LLC Performance Units:	Year Ended December 31, 2018
Aggregate intrinsic value of units vested	$	4.7
Fair value of units vested	$	7.7

As of December 31, 2018, there was $5.9 million of unrecognized compensation expense that related to non-vested performance units. That cost is expected to be recognized over a weighted-average period of 1.6 years.

In connection with the GIP Transaction, certain outstanding performance unit agreements were modified to among other things, (i) provide that the awards granted thereunder did not vest due to the closing of the GIP Transaction and (ii) increase the minimum vesting of units from zero to 100% as described in our Current Report on Form 8-K filed with the Commission on July 23, 2018. The modified performance units retained the original vesting schedules. As a result of the modifications, we will recognize an additional $2.1 million compensation cost over the life of these ENLC performance units.

(f) Benefit Plan

ENLK maintains a tax-qualified 401(k) plan whereby it matches 100% of every dollar contributed up to 6% of an employee’s eligible compensation plus a 2% non-discretionary contribution (not to exceed the maximum amount permitted by law). Contributions of $8.3 million, $7.6 million, and $7.4 million were made to the plan for the years ended December 31, 2018, 2017, and 2016, respectively.