Equity Incentive Program

6 Months Ended

Jun. 30, 2015

12. Equity Incentive Program

The Company typically grants equity awards annually at its regularly scheduled first quarter Compensation Committee meeting. In the first quarter of 2015, the Company issued stock-settled appreciation rights ("SARs") covering 1,144,529 shares, performance share awards of 61,611 and restricted stock units of 145,545.

The Company uses the Black-Scholes option pricing model to determine the fair value of each SAR on the date of grant. Expected volatilities are based on Dover's stock price history, including implied volatilities from traded options on Dover stock. The Company uses historical data to estimate SAR exercise and employee termination patterns within the valuation model. The expected life of SARs granted is derived from the output of the option valuation model and represents the average period of time that SARs granted are expected to be outstanding. The interest rate for periods within the contractual life of the SARs is based on the U.S. Treasury yield curve in effect at the time of grant.

The assumptions used in determining the fair value of the SARs awarded during the respective periods are as follows:



	SARs
	2015			2014
Risk-free interest rate	1.51		%	1.70		%
Dividend yield	2.24		%	1.98		%
Expected life (years)	5.1			5.3
Volatility	27.19		%	30.81		%

Grant price	$	73.28		$	82.51
Fair value per share at date of grant	$	14.55		$	19.84

The performance share awards granted in 2014 and 2015 are considered performance condition awards as attainment is based on Dover's performance relative to established internal metrics. The fair value of these awards was determined using Dover's closing stock price on the date of grant. The expected attainment of the internal metrics for these awards is analyzed each reporting period, and the related expense is adjusted based on expected attainment, if that attainment differs from previous estimates. The cumulative effect on current and prior periods of a change in attainment is recognized in compensation cost in the period of change.

The fair value and average attainment used in determining compensation cost for the performance shares issued in 2014 and 2015 is as follows for the six months ended June 30, 2015:



	Performance shares
	2015			2014
Fair value per share at date of grant	$	73.28		$	82.51
Average attainment rate reflected in expense	24.87		%	42.49		%

Stock-based compensation is reported within selling and administrative expenses in the accompanying unaudited Condensed Consolidated Statements of Earnings. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:



	Three Months Ended June 30,						Six Months Ended June 30,
	2015			2014			2015			2014
Pre-tax compensation expense ⁽¹⁾	$	5,464		$	7,912		$	18,851		$	16,413
Tax benefit	(1,917		)	(2,835		)	(6,681		)	(5,835		)
Total stock-based compensation expense, net of tax	$	3,547		$	5,077		$	12,170		$	10,578

(1)

The increase in share-based compensation expense for the six months ended June 30, 2015 relative to the prior year period is due to the acceleration of expense for awards granted in 2015 to certain employees that have satisfied the terms of retirement eligibility under the 2012 Equity and Cash Incentive Plan. As these individuals are guaranteed the right to vest in these awards, regardless of future service, the related expense was recognized immediately upon grant.