Share-based compensation

Prior to the Separation, share-based compensation expense was allocated to Ingevity based on the portion of WestRock's incentive share-based compensation program in which Ingevity employees participated. Share-based compensation expense allocated by WestRock to Ingevity was zero, $0.5 million, and $2.3 million for the years ended December 31, 2017, 2016 and 2015, respectively. This allocated share-based compensation expense is included in the overall allocations from WestRock discussed further in Note 12.

Equity Incentive Plan

Adopted at Separation, the Ingevity Corporation 2016 Omnibus Incentive Plan grants certain corporate officers, key employees and non-employee directors of Ingevity and subsidiaries different forms of benefits, including stock options, RSUs, DSUs and PSUs. The Ingevity Corporation 2016 Omnibus Incentive Plan has maximum shares reserve of 4,000,000 for the grant of equity awards. As of December 31, 2017, 3,265,453 shares under the Ingevity Corporation 2016 Omnibus Incentive Plan are still available for grants, assuming that Ingevity performs at the target performance level in each year of the three-year performance period for PSU awards. Ingevity's Compensation Committee determines the long-term incentive mix, including stock options, RSUs and PSUs, and may authorize new grants annually.

Employee Stock Purchase Plan

On December 9, 2016, our Compensation Committee and Board of Directors approved the 2017 Ingevity Corporation Employee Stock Purchase Plan ("ESPP"), which was approved by Ingevity’ stockholders on April 27, 2017. The ESPP allows eligible employee participants to purchase no more than 5,000 shares of our common stock at a discount through payroll deductions up to 15% of their compensation deducted during the purchase period. However, no participant shall be permitted to purchase common stock with a value greater than $25,000 in any calendar year. The ESPP is a tax-qualified plan under Section 423 of the Internal Revenue Code. The ESPP consists of a one month enrollment period preceding the three-month purchase period. Employees purchase shares in each purchase period at 85% of the market value of our common stock at either the beginning of the offering period or the end of the purchase period, whichever price is lower.

Under the ESPP, a total of 250,000 shares of Ingevity's common stock are reserved and authorized for issuance to participating U.S. employees, as defined by the ESPP, which excludes certain officers of Ingevity. As of December 31, 2017, 243,261 shares under the ESPP are still available for issuance. The initial offering period under the ESPP began on July 1, 2017. During fiscal 2017, there were 6,739 shares purchased under the ESPP at an average price of $48.09.

Our share-based compensation expense recognized post Separation associated with Ingevity's incentive plan and the ESPP is included in the table below.



	Years Ended December 31,
In millions	2017			2016
Stock option expense	$	1.5		$	0.7
ESPP expense	0.2			—
RSU, DSU and PSU expense	8.4			4.0
Total share-based compensation expense ⁽¹⁾	10.1			4.7
Income tax benefit	(3.8		)	(1.9		)
Total share-based compensation expense, net of tax	$	6.3		$	2.8

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(1)	Amounts reflected in "Selling, general and administrative expenses" on the Consolidated Statements of Operations.

Stock Options

All stock options vest in accordance with vesting conditions set by the compensation committee of Ingevity's Board of Directors. Stock options granted to date have vesting periods of one to three years from the date of grant. Incentive and non-qualified options granted under the Plan expire no later than 10 years from the grant date. Expense related to stock options granted from the Separation through December 31, 2017 was based on the assumptions shown in the table below:



	Years Ended December 31,
Weighted-average assumptions used to calculate expense for stock options	2017			2016
Risk-free interest rate	2.1		%	1.6		%
Average life of options (years)	6.5			6.5
Volatility	35.0		%	35.0		%
Dividend yield	—			—
Fair value per stock option	$	20.71		$	10.61

The following table summarizes Ingevity's stock option activity for the period from the Separation through December 31, 2017, as there was no Ingevity stock option activity prior to Separation.



	Number of shares (in thousands)		Weighted-average exercise price (per share)		Weighted-average remaining contractual term (years)	Aggregate intrinsic value (in thousands)
Outstanding, May 16, 2016	—		$	—
Granted	208		28.03
Exercised	—		—
Forfeited	—		—
Canceled	—		—
Outstanding, December 31, 2016	208		28.03		9.4	$	5,573
Granted	109		53.11
Exercised	(7	)	27.38
Forfeited	(7	)	31.97
Canceled	—		—
Outstanding, December 31, 2017	303		36.72		8.7	10,022
Exercisable, December 31, 2017	5		$	27.90	8.4	$	213

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between Ingevity's closing stock price on the last trading day of December 31, 2017 and 2016 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at year end. The amount changes based on the fair market value of Ingevity's stock.

As of December 31, 2017 and 2016, $2.3 million and $1.4 million, respectively, of total unrecognized compensation cost related to stock options is expected to be recognized over a weighted-average period of 1.4 and 2.2 years, respectively.

Restricted Stock Units, Deferred Stock Units and Performance-based Restricted Stock Units

All RSUs, DSUs and PSUs vest in accordance with vesting conditions set by the Compensation Committee of Ingevity’s Board of Directors. RSUs and DSUs granted to date have vesting periods ranging from less than one year to three years from the date of grant. PSUs granted to date have vesting periods of three years from the date of grant, including grants that have a cumulative three-year performance period, subject to satisfaction of the applicable performance goals established for the respective grant. We periodically assess the probability of achievement of the performance criteria and adjust the amount of compensation expense accordingly. Compensation expense is recognized over the vesting period and adjusted for the probability of achievement of the performance criteria.

The following table summarizes Ingevity's RSUs, DSUs and PSUs activity for the period from the Separation through December 31, 2017, as there was no Ingevity stock option activity prior to Separation.



	RSUs and DSUs				PSUs
	Number of shares (in thousands) ⁽¹⁾		Weighted average grant date fair value (per share)		Number of shares (in thousands) ⁽¹⁾		Weighted average grant date fair value (per share)
Nonvested, May 15, 2016	—		—		—		—
Granted	190		28.08		127		28.06
Vested	(23	)	27.90		—		—
Forfeited	—		—		—		—
Nonvested, December 31, 2016	167		28.08		127		28.06
Granted	61		57.21		66		53.11
Vested	(75	)	28.47		—		—
Forfeited	(4	)	31.00		(9	)	27.90
Nonvested, December 31, 2017⁽²⁾	149		$	39.67	184		$	37.10

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(1)	The number granted represents the number of shares issuable upon vesting of RSUs and DSUs. For PSUs the number granted represents the number of shares issuable upon vesting assuming that Ingevity performs at the target performance level in each year of the three-year performance period.


(2)	The nonvested RSU and DSU number of shares at December 31, 2017 and 2016, includes 8 thousand and zero DSUs, respectively.

As of December 31, 2017 and December 31, 2016, there was $12.6 million and $8.2 million, respectively, of unrecognized share-based compensation expense related to nonvested awards. Those costs are expected to be recognized over a weighted-average period of 1.2 and 1.6 years, respectively.