19. SHARE-BASED COMPENSATION

We have various share-based compensation programs, which include deferred stock units, stock options, and restricted stock. Under all programs, the terms of the awards are fixed at the grant date. We issue shares from treasury stock upon the payout of deferred stock units, the exercise of stock options, and the issuance of restricted stock awards. Share information presented is on a total company basis. As of 30 September 2017, there were 4,922,382 shares available for future grant under our Long-Term Incentive Plan (LTIP), which is shareholder approved.

In connection with the spin-off of Versum, the Company adjusted the number of deferred stock units and stock options pursuant to existing anti-dilution provisions in the LTIP to preserve the intrinsic value of the awards immediately before and after the separation. The outstanding awards will continue to vest over the original vesting period defined at the grant date. Outstanding awards at the time of spin-off were primarily converted into awards of the holders' employer following the separation.

Stock awards held upon separation were adjusted based upon the conversion ratio of Air Products' New York Stock Exchange (“NYSE”) volume weighted-average closing stock price on 30 September 2016 ($150.35) to the NYSE volume weighted-average opening stock price on 3 October 2016 ($140.38), or 1.071. The adjustment to the awards did not result in incremental fair value, and no incremental compensation expense was recorded related to the conversion of these awards.

Share-based compensation cost recognized in the consolidated income statements is summarized below:



	2017			2016			2015
Before-Tax Share-Based Compensation Cost – Total	$	40.7		$	37.6		$	45.7
Before-Tax Share-Based Compensation Cost – Discontinued Operations	.8			6.6			6.2
Before-Tax Share-Based Compensation Cost – Continuing Operations	$	39.9		$	31.0		$	39.5
Income tax benefit – Continuing Operations	(14.0		)	(10.8		)	(13.8		)
After-Tax Share-Based Compensation Cost – Continuing Operations	$	25.9		$	20.2		$	25.7

Before-tax share-based compensation cost is primarily included in selling and administrative expense on our consolidated income statements. The amount of share-based compensation cost capitalized in 2017, 2016, and 2015 was not material.

On a total company basis, before-tax share-based compensation cost by type of program was as follows:



	2017		2016		2015
Deferred stock units	$	34.5	$	29.9	$	28.8
Stock options	1.4		4.2		12.6
Restricted stock	4.8		3.5		4.3
Before-Tax Share-Based Compensation Cost – Total	$	40.7	$	37.6	$	45.7

Deferred Stock Units

We have granted deferred stock units to executives, selected employees, and outside directors. These deferred stock units entitle the recipient to one share of common stock upon vesting, which is conditioned, for employee recipients, on continued employment during the deferral period and may be conditioned on achieving certain performance targets. We grant deferred stock unit awards with a two- to five-year deferral period that is subject to payout upon death, disability, or retirement. Deferred stock units issued to outside directors are paid after service on the Board of Directors ends at the time elected by the director (not to exceed 10 years after service ends). We generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period; however, expense recognition is accelerated for retirement eligible individuals who meet the requirements for vesting upon retirement.

Market-based deferred stock units vest as long as the employee continues to be employed by the Company and upon the achievement of the performance target. The performance target, which is approved by the Compensation Committee, is the Company’s total shareholder return (share price appreciation and dividends paid) in relation to a defined peer group over a three‑year performance period. In 2017, we granted 117,692 market-based deferred stock units that are earned out at the end of the three-year performance period beginning 1 October 2016 and ending 30 September 2019. In 2016, we granted 130,167 market-based deferred stock units that are earned out at the end of the three-year performance period beginning 1 October 2015 and ending 30 September 2018.

The fair value of market-based deferred stock units was estimated using a Monte Carlo simulation model as these equity awards are tied to a market condition. The model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the grant and calculates the fair value of the awards. We generally expense the grant-date fair value of these awards on a straight-line basis over the vesting period. The calculation of the fair value of market-based deferred stock units used the following assumptions:



	2017		2016
Expected volatility	20.6	%	20.5	%
Risk-free interest rate	1.4	%	1.2	%
Expected dividend yield	2.5	%	2.2	%

The estimated grant-date fair value of market-based deferred stock units was $156.87 and $135.49 per unit in 2017 and 2016, respectively.

In addition, during 2017, we granted 165,121 time-based deferred stock units at a weighted average grant-date fair value of $143.75.



Deferred Stock Units	Shares (000)		Weighted Average Grant-Date Fair Value
Outstanding at 30 September 2016	1,001		$	119.44
Equitable adjustment upon separation^(A)	65		—
Surrender upon separation^(B)	(89	)	132.88
Granted	283		148.89
Paid out	(235	)	83.65
Forfeited/adjustments	(50	)	121.99
Outstanding at 30 September 2017	975		$	127.29


^(A)	Applicable deferred stock units have been adjusted by the conversion ratio of 1.071 to preserve the intrinsic value immediately before and after the spin-off of Versum.


^(B)	In connection with the spin-off of Versum, EMD employees surrendered their outstanding Air Products equity awards, which were converted into Versum equity awards of equivalent fair value.

Cash payments made for deferred stock units were $2.1, $2.9, and $9.6 in 2017, 2016, and 2015, respectively. As of 30 September 2017, there was $39.0 of unrecognized compensation cost related to deferred stock units. The cost is expected to be recognized over a weighted average period of 2.0 years. The total fair value of deferred stock units paid out during 2017, 2016, and 2015, including shares vested in prior periods, was $36.6, $41.6, and $35.5, respectively.

Stock Options

We have granted awards of options to purchase common stock to executives and selected employees. The exercise price of stock options equals the market price of our stock on the date of the grant. Options generally vest incrementally over three years, and remain exercisable for ten years from the date of grant. In 2017 and 2016, no stock options were awarded.

Fair values of stock options were estimated using a Black Scholes model that used the assumptions noted in the table below. Expected volatility and expected dividend yield are based on actual historical experience of our stock and dividends over the historical period equal to the expected life. The expected life represents the period of time that options granted are expected to be outstanding based on an analysis of Company-specific historical exercise data. Ranges are used when certain groups of employees exhibit different behavior, such as timing of exercise. The risk-free rate is based on the U.S. Treasury Strips with terms equal to the expected time of exercise as of the grant date.



	2015
Expected volatility	30.3	%
Expected dividend yield	2.6	%
Expected life (in years)	7.5
Risk-free interest rate	2.2	%

The weighted average grant-date fair value of options granted during 2015 was $37.19 per option.

A summary of stock option activity is presented below:



Stock Options	Shares (000)		Weighted Average Exercise Price
Outstanding at 30 September 2016	3,916		$	90.28
Equitable adjustment upon separation^(A)	277		—
Surrender upon separation^(B)	(102	)	97.63
Exercised	(886	)	80.76
Forfeited	(3	)	105.28
Outstanding at 30 September 2017	3,202		$	84.85
Exercisable at 30 September 2017	3,149		$	84.00



Stock Options	Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding at 30 September 2017	4.3	$	213
Exercisable at 30 September 2017	4.3	$	212


^(A)	Applicable deferred stock units have been adjusted by the conversion ratio of 1.071 to preserve the intrinsic value immediately before and after the spin-off of Versum.


^(B)	In connection with the spin-off of Versum, EMD employees surrendered their outstanding Air Products equity awards, which were converted into Versum equity awards of equivalent fair value.

The aggregate intrinsic value represents the amount by which our closing stock price of $151.22 as of 30 September 2017 exceeds the exercise price multiplied by the number of in-the-money options outstanding or exercisable.

On a total company basis, the intrinsic value of stock options exercised during 2017, 2016, and 2015 was $57.3, $115.3, and $115.5, respectively.

Compensation cost is generally recognized over the stated vesting period consistent with the terms of the arrangement (i.e., either on a straight-line or graded-vesting basis). Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement. As of 30 September 2017, there was $.1 of unrecognized compensation cost related to nonvested stock options, which is expected to be recognized over a weighted average period of 0.2 years.

Cash received from option exercises during 2017 was $68.4. The total tax benefit realized from stock option exercises in 2017 was $19.9, of which $13.9 was the excess tax benefit.

Restricted Stock

The grant-date fair value of restricted stock is estimated on the date of grant based on the closing price of the stock, and compensation cost is generally amortized to expense on a straight-line basis over the vesting period during which employees perform related services. Expense recognition is accelerated for retirement-eligible individuals who would meet the requirements for vesting of awards upon their retirement.

We have issued shares of restricted stock to certain officers. Participants are entitled to cash dividends and to vote their respective shares. Restrictions on shares lift in one to four years or upon the earlier of retirement, death, or disability. The shares are nontransferable while subject to forfeiture.

A summary of restricted stock activity is presented below:



Restricted Stock	Shares (000)		Weighted Average Grant-Date Fair Value
Outstanding at 30 September 2016	85		$	128.16
Vested	(29	)	113.50
Outstanding at 30 September 2017	56		$	135.74

As of 30 September 2017, there was $.4 of unrecognized compensation cost related to restricted stock awards. The cost is expected to be recognized over a weighted average period of 1.4 years. The total fair value of restricted stock vested during 2017, 2016, and 2015 was $4.1, $4.3, and $1.4, respectively.