7. Equity-Based Compensation

The Parent's ownership structure is comprised of common partners holding units ("Common Units") and employees holding units ("Management Units"), which collectively represent the partnership interests in the Parent and evidence the right to receive distributions and allocations of net profit and losses (and items thereof) as defined in the Parent Limited Partnership Agreement, as amended and restated from time to time. Substantially all of these units participate equally in distributions and allocations of profit and losses. There is no expressed limit to the number of units which may be issued by the Parent. Each new unit issued has the effect of diluting each incumbent equity holder's interest. As of March 31, 2014, the total number of Parent units outstanding was 1,099,502, of which 880,794 related to Management Units provided to partner and non-partner employees of the Company, as described further below.

The common partners contributed capital to the Parent and are not subject to vesting. Upon joining the Parent, certain partners were granted Management Units. Management Units provided upon joining the Company generally vest based on service over eight years beginning on the grant date as follows:


Years 1 through 4	0	%
End of year 5	50	%
End of year 6	66²/3	%
End of year 7	83¹/3	%
End of year 8	100	%

In addition, Management Units are granted as part of certain partner's incentive arrangements. Management Units granted as part of a partner's incentive arrangements generally vest based on service over five years as follows:


Years 1 and 2	0	%
End of year 3	33¹/3	%
End of year 4	66²/3	%
End of year 5	100	%

Certain non-partner employees are granted Management Units as part of their incentive arrangements. These units generally vest based on service ratably over four years.

Management Units granted to partners and non-partner employees identified as working for the Company are treated as a form of equity-based compensation and reported on the condensed combined statements of operations in compensation and benefits and on the condensed combined statements of financial condition in parent company equity. Compensation expenses on unvested units are calculated based on the grant date fair value of a Management Unit amortized over the vesting period.

The measurement of the grant-date fair value requires the Company's Parent to make estimates about its future operating results and the appropriate risk-adjusted discount rates. The methods used to estimate the fair value of equity-based compensation include the market approach and the income approach, each of which involve a significant degree of judgment. Under the market approach, fair value is determined by multiplying net income and revenues of comparable public companies by the relevant valuation multiple—adjusted for differences between the Company's Parent and the referenced comparable. Under the income approach, fair value is determined by converting future cash flows to a single present amount (discounted) using current expectations about those future amounts. The significant assumptions used to develop the fair value estimates include the discount rate used under the income approach and the net income and revenue multiples used under the market approach.

Additionally, the calculation of compensation expenses on unvested Management Units assumes a forfeiture rate of 3% annually for partners and 5% annually for non-partner employees based upon expected turnover. For the three months ended March 31, 2014 and 2013, the Company recognized compensation expenses of $11,010 and $12,526, respectively in relation to equity-based awards. As of March 31, 2014, there was $98,305 of unrecognized compensation expense related to unvested awards, approximately $87,600 of this unrecognized compensation expense has been accelerated following the Company's IPO in April. The Company expects to recognize the remaining $10,705 of unrecognized compensation expense over a weighted-average period of 3.5 years, using the graded vesting method, which treats each vesting portion as a separate award.

The activity related to the Management Units provided to partner and non-partner employees for the three months ended March 31, 2014 and 2013 is set forth below:

			Weighted average fair value at grant date

Outstanding at January 1, 2014	882,080		$	270.05
Granted	1,609			1,224.00
Forfeited	(2,895	)		836.19


Outstanding at March 31, 2014	880,794		$	269.94




Outstanding at January 1, 2013	855,003			242.55
Granted	2,495			791.16
Forfeited	(1,272	)		101.75


Outstanding at March 31, 2013	856,226		$	244.72

The activity related to the unvested Management Units provided to partner and non-partner employees for the three months ended March 31, 2014 is set forth below:

			Weighted Average Grant Date Fair Value

Unvested Balance at January 1, 2014	452,957		$	485.44
Granted	1,609			1,224.00
Forfeited	(2,894	)		836.19
Vested	(6,352	)		501.22


Unvested Balance at March 31, 2014	445,320		$	485.61

The Company has provided employees with the opportunity to participate in the increased value of the Parent's equity, contingent upon a sale of the Parent or other defined liquidity event ("Rights"). Rights have been provided to enhance the Company's ability to attract and retain certain employees. Employees forfeit their Rights upon termination of employment for any reason. Rights outstanding totaled 11,832 and 11,634 as of March 31, 2014 and December 31, 2013, respectively. As of March 31, 2014, the Company determined that it was not probable that the contingency would occur. Subsequent to March 31, 2014, the Company completed its IPO and the Rights were settled by issuing 88,802 fully vested shares of Class A common stock. This resulted in an expense of $2,220 which will be recorded in the second quarter of 2014.