The 2011 Omnibus Incentive Plan (2011 Incentive Plan) was approved by shareholders and established in May of 2011 to provide for the awarding of options on common shares and full value restricted common shares or units to employees and non-employee directors. The number of shares initially available for issuance to participants under the 2011 Incentive Plan was 4.6. The 2011 Incentive Plan replaced the ITT Amended and Restated 2003 Equity Incentive Plan (2003 Incentive Plan) on a prospective basis and no future grants will be made under the 2003 Incentive Plan. However, any shares remaining available for issuance under the 2003 Incentive Plan became available for grant under the 2011 Incentive Plan as of the date the 2011 Incentive Plan was approved by shareholders. As of December 31, 2017, 38.2 shares were available for future grants under the 2011 Incentive Plan. ITT makes shares available for the exercise of stock options or vesting of restricted shares or units by purchasing shares in the open market.

Our long-term incentive plan (LTIP) is comprised of two components: restricted stock units (RSUs) and performance unit awards (PSUs). Prior to 2017, our LTIP also included non-qualified stock options (NQOs). The majority of RSUs settle in shares; however RSUs and PSUs granted to international employees are settled in cash. We account for NQOs and equity-settled RSUs and PSUs as equity-based compensation awards and cash-settled RSUs and PSUs are accounted for as liability-based awards. PSUs granted prior to 2016 were based on both a relative total shareholder return (TSR) metric as well as a return on invested capital (ROIC) metric, equally weighted. In 2017 and 2016, PSUs granted were based on a relative TSR and relative ROIC metric, equally weighted. PSUs settle in shares, dependent upon performance, following a three-year performance period to further align payouts with stock price performance. PSUs are accounted for as two distinct awards, an ROIC award and a TSR award.

LTIP costs are primarily recorded within general and administrative expenses, at fair value over the requisite service period (typically three years) on a straight-line basis and are reduced by forfeitures as they occur. These costs impacted our consolidated results of operations as follows:



	2017		2016		2015
Share-based compensation expense, equity-based awards	$	18.1	$	12.6	$	15.7
Share-based compensation expense, liability-based awards	2.8		1.8		1.1
Total share-based compensation expense in operating income	$	20.9	$	14.4	$	16.8

At December 31, 2017, there was $17.1 of total unrecognized compensation cost related to non-vested equity awards. This cost is expected to be recognized ratably over a weighted-average period of 1.8 years. Additionally, unrecognized compensation cost related to liability-based awards was $2.9, which is expected to be recognized ratably over a weighted-average period of 1.8 years.

Options generally vest over or at the conclusion of a 3-year period and are exercisable over 10 years, except in certain instances of death, retirement or disability. The exercise price per share is the fair market value of the underlying common stock on the date each option is granted.



	2017				2016				2015
Stock Options	Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
Outstanding – January 1	1.4		$	30.57	1.7		$	27.10	1.9		$	24.20
Granted	—		—		0.4		33.01		0.2		41.52
Exercised	(0.5	)	22.95		(0.6	)	20.88		(0.3	)	19.87
Canceled or expired	—		—		(0.1	)	39.03		(0.1	)	35.95
Outstanding – December 31	0.9		$	34.07	1.4		$	30.57	1.7		$	27.10
Options exercisable – December 31	0.5		$	32.24	0.8		$	24.41	1.1		$	21.75

The aggregate intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during 2017, 2016 and 2015 was $10.6, $9.6 and $6.6, respectively.

The amount of cash received from the exercise of stock options was $11.2, $12.3 and $6.2 for 2017, 2016 and 2015, respectively. The income tax benefit realized during 2017, 2016 and 2015 associated with stock option exercises and lapses of restricted stock was $7.0, $10.5 and $6.3, respectively. In 2017, we adopted new guidance prospectively which classifies cash flows attributable to excess tax benefits arising from stock option exercises and restricted stock lapses as an operating activity. In 2016 and 2015, we classified the cash flows attributable to excess tax benefits as a financing activity. Excess tax benefits arising from stock option exercises and restricted stock lapses were $2.7, $3.2 and $3.4 for 2017, 2016 and 2015, respectively.



	Options Outstanding				Options Exercisable
Exercise Prices	Number	Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value		Number	Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value
Less than $23.00	0.1	3.5	3.4		0.1	3.5	3.4
$26.76	0.1	5.2	4.2		0.1	5.2	4.2
$33.01	0.3	8.1	6.1		0.1	8.1	0.6
$41.52	0.2	7.2	2.2		0.1	7.2	0.4
$43.52	0.2	6.2	1.4		0.1	6.2	1.4
	0.9	6.5	$	17.3	0.5	5.4	$	10.0

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on ITT’s closing stock price of $53.37 as of December 31, 2017, which would have been received by the option holders had all option holders exercised their options as of that date. There were no options "out-of-the-money" as of December 31, 2017. Substantially all options outstanding as of December 31, 2017 are expected to vest.

The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model which incorporates multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends. There were no NQOs granted in 2017. The following are weighted-average assumptions for 2016 and 2015:

Expected volatilities for option grants were based on a peer average of historical and implied volatility. ITT uses historical data to estimate option exercise and employee termination behavior within the valuation model. The expected life assumption represents an estimate of the period of time options are expected to remain outstanding. The expected life provided above represents the weighted average of expected behavior for two separate groups of employees who have historically exhibited different behavior. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of option grant.

The fair value of equity-settled restricted stock units is determined using the closing price of the Company’s common stock on date of grant. The fair value of cash-settled RSUs is remeasured using the closing price of the Company's common stock at the end of each reporting period. Recipients do not have voting rights and do not receive cash dividends during the restriction period. Dividend equivalents on RSUs, which are subject to forfeiture, are accrued and paid in cash upon vesting of the RSU, which typically occurs three years from the date of grant. If an employee retires or is terminated other than for cause, a pro rata portion of the RSU may vest.

The fair value of the ROIC awards was based on the closing price of ITT common stock on the date of grant less the present value of expected dividend payments during the vesting period. A dividend yield of 1.23% was assumed based on ITT's annualized dividend payment of $0.512 per share and the February 23, 2017 closing stock price of $41.68. The fair value of the ROIC award is fixed on the grant date; however, a probability assessment is performed each reporting period to estimate the likelihood of achieving the ROIC targets and the amount of compensation to be recognized. The ROIC award payout is subject to a payout factor which includes a maximum and minimum payout.

The fair value of the TSR award was measured using a Monte Carlo simulation on the date of grant, measuring potential total shareholder return for ITT relative to the other companies in the S&P 400 Capital Goods Index (the TSR Performance Group). The expected volatility of ITT's stock price was based on the historical volatility of a peer group while expected volatility for the other companies in the TSR Performance Group was based on their own stock price history. All volatility and correlation measures were based on three years of daily historical price data through February 22, 2017, corresponding to the three-year performance period of the award. The TSR award payout is subject to a multiplier which includes a maximum and minimum payout. As the grant date occurs after the beginning of the performance period, actual TSR performance between the beginning of the performance period (December average closing stock price) and the grant date was reflected in the valuation. A dividend yield of 1.23% was assumed based on ITT's annualized dividend payment of $0.512 per share and the February 23, 2017 closing stock price of $41.68.



	2017				2016				2015
Restricted Stock and Performance Units	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Outstanding – January 1	1.1		$	38.24	1.3		$	36.56	1.1		$	31.70
Granted	0.5		42.52		0.5		33.28		0.5		41.34
Performance adjustment^(a)	—		—		(0.1	)	45.47		0.1		29.59
Lapsed	(0.2	)	41.42		(0.5	)	29.86		(0.3	)	24.09
Canceled	(0.2	)	41.75		(0.1	)	39.20		(0.1	)	35.89
Outstanding – December 31	1.2		$	38.74	1.1		$	38.24	1.3		$	36.56
Vested pending issuance	0.1		$	42.90	—		$	—	0.3		$	29.59