(13) STOCK-BASED COMPENSATION PLANS

Stock-Based Awards

Stock options represent the right to purchase shares of stock in the future at the fair value of the stock on the date of grant. Most stock options granted under our stock option plans vest over a three-year period and expire five years from the date they are granted. In 2005, we began granting SARs to reduce the dilutive impact of our equity plans. Similar to stock options, SARs represent the right to receive a payment equal to the excess of the fair market value of shares of common stock on the date the right is exercised over the value of the stock on the date of grant. All SARs granted under our Amended and Restated 2005 Equity-Based Incentive Compensation Plan (the “2005 Plan”) will be settled in shares of stock, vest over a three-year period and have a maximum term of five years from the date they are granted. Beginning in first quarter 2011, the Compensation Committee of the Board of Directors also began granting restricted stock units under our equity-based stock compensation plans. These restricted stock units, which we refer to as restricted stock Equity Awards, vest over a three-year period. All awards granted have been issued at prevailing market prices at the time of grant and the vesting of these shares is based upon an employee’s continued employment with us.

In first quarter 2014, the Compensation Committee of the Board of Directors began granting performance share unit awards (“PSUs”) under our 2005 Plan. The number of shares to be issued is determined by our total shareholder return compared to the total shareholder return of a predetermined group of peer companies over the performance period. The performance unit awards vest at the end of three years. The grant date fair value of the PSUs is determined using a Monte Carlo simulation and is recognized as stock-based compensation expense over the three-year performance period.

The Compensation Committee also grants restricted stock to certain employees and non-employee directors of the Board of Directors as part of their compensation. Upon grant of these restricted shares, which we refer to as restricted stock Liability Awards, the shares generally are placed in our deferred compensation plan and, upon vesting, employees are allowed to take withdrawals either in cash or in stock. Compensation expense is recognized over the balance of the vesting period, which is typically three years for employee grants and immediate vesting for non-employee directors. All restricted stock awards are issued at prevailing market prices at the time of the grant and vesting is based upon an employee’s continued employment with us. Prior to vesting, all restricted stock awards have the right to vote such shares and receive dividends thereon. These Liability Awards are classified as a liability and are remeasured at fair value each reporting period. This mark-to-market adjustment is reported as deferred compensation plan expense in the accompanying consolidated statements of operations.

Total Stock-Based Compensation Expense

Stock-based compensation represents amortization of restricted stock, PSUs and SARs expense. Unlike the other forms of stock-based compensation, the mark-to-market adjustment of the liability related to the vested restricted stock held in our deferred compensation plans is directly tied to the change in our stock price and not directly related to the functional expenses and therefore, is not allocated to the functional categories. The following table details the allocation of stock-based compensation that is allocated to functional expense categories (in thousands):

	Three Months Ended March 31,
	2014		2013
Operating expense	$	852	$	661
Brokered natural gas and marketing expense		528		249
Exploration expense		1,153		1,070
General and administrative expense		11,604		10,306
Total	$	14,137	$	12,286

Stock Appreciation Right Awards

We have two active equity-based stock plans, the 2005 Plan and the 2004 Non-Employee Director Stock Option Plan. Under these plans, incentive and non-qualified stock options, SARs, restricted stock units and various other awards may be issued to non-employee directors and employees pursuant to decisions of the Compensation Committee, which is comprised of only non-employee, independent directors. Of the 2.4 million grants outstanding at March 31, 2014, all are grants relating to SARs. Information with respect to SARs activity is summarized below:

	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2013		2,582,074		$	56.36
Granted		1,104			81.74
Exercised		(137,271	)		45.45
Expired/forfeited		—			—
Outstanding at March 31, 2014		2,445,907		$	56.98

During first three months 2014, we granted SARs to our non-executive chairman in conjunction with his retirement from Range as an employee. The weighted average grant date fair value of these SARs, based on our Black-Scholes-Merton assumptions, is shown below:

	Three Months Ended March 31, 2014
Weighted average exercise price per share	$	81.74
Expected annual dividends per share		0.20	%
Expected life in years		4.3
Expected volatility		33	%
Risk-free interest rate		1.4	%
Weighted average grant date fair value	$	23.17

Performance Share Unit Awards

A summary of our performance share unit awards (“PSUs”) outstanding at March 31, 2014 is summarized below:

	Number of Units ^(a)		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2013		—	$	—
Units granted		57,421		82.60
Outstanding at March 31, 2014		57,421	$	82.60

^(a)	These amounts reflect the number of performance units granted. The actual payout of shares may be between zero percent and 150% of the performance units granted depending on the total shareholder return ranking compared to the peer companies at the vesting date.

The following assumptions were used to estimate the fair value of PSUs granted during the first three months 2014:

	Three Months Ended March 31, 2014
Risk-free interest rate		0.71	%
Expected annual volatility		34	%
Grant date fair value per unit	$	82.60

We recorded PSU compensation expense of $533,000 in the first three months 2014 compared to none in the same period of 2013.

Restricted Stock Awards

Equity Awards

In first three months 2014, we granted 351,000 restricted stock Equity Awards to employees at an average grant price of $84.89 compared to 386,000 restricted stock Equity Awards granted to employees at an average grant price of $71.02 in the same period of 2013. These awards generally vest over a three-year period. We recorded compensation expense for these Equity Awards of $6.5 million in the first three months 2014 compared to $4.3 million in the same period of 2013. Equity Awards are not issued to employees until they are vested. Employees do not have the option to receive cash.

Liability Awards

In first three months 2014, we granted 76,000 shares of restricted stock Liability Awards as compensation to employees at an average price of $85.02 with vesting generally over a three-year period. We also granted 950 shares at an average price of $81.74 to a director, which vested immediately. In the same period of 2013, we granted 125,000 shares of Liability Awards as compensation to employees at an average price of $71.40 with vesting generally over a three-year period. We recorded compensation expense for Liability Awards of $4.7 million in first three months 2014 compared to $4.5 million in the same period of 2013. Substantially all of these awards are held in our deferred compensation plan, are classified as a liability and are remeasured at fair value each reporting period. This mark-to-market adjustment is reported as deferred compensation expense in our consolidated statements of operations (see additional discussion below).

A summary of the status of our non-vested restricted stock and restricted stock units outstanding at March 31, 2014 is summarized below:

	Equity Awards					Liability Awards
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Outstanding at December 31, 2013		385,063		$	68.24		389,013		$	71.02
Granted		350,594			84.89		77,435			84.98
Vested		(93,241	)		69.86		(77,142	)		69.55
Forfeited		(1,418	)		79.41		(90	)		71.03
Outstanding at March 31, 2014		640,998		$	77.09		389,216		$	74.09

Deferred Compensation Plan

Our deferred compensation plan gives non-employee directors, officers and key employees the ability to defer all or a portion of their salaries and bonuses and invest in Range common stock or make other investments at the individual’s discretion. Range provides a partial matching contribution which vests over three years. The assets of the plans are held in a grantor trust, which we refer to as the Rabbi Trust, and are therefore available to satisfy the claims of our general creditors in the event of bankruptcy or insolvency. Our stock held in the Rabbi Trust is treated as a liability award as employees are allowed to take withdrawals from the Rabbi Trust either in cash or in Range stock. The liability for the vested portion of the stock held in the Rabbi Trust is reflected as deferred compensation liability in the accompanying consolidated balance sheets and is adjusted to fair value each reporting period by a charge or credit to deferred compensation plan expense on our consolidated statements of operations. The assets of the Rabbi Trust, other than our common stock, are invested in marketable securities and reported at their market value as other assets in the accompanying consolidated balance sheets. The deferred compensation liability reflects the vested market value of the marketable securities and Range stock held in the Rabbi Trust. Changes in the market value of the marketable securities and changes in the fair value of the deferred compensation plan liability are charged or credited to deferred compensation plan expense each quarter. We recorded mark-to-market income of $2.0 million in first quarter 2014 compared to mark-to-market loss of $42.4 million in first quarter 2013. The Rabbi Trust held 2.8 million shares (2.4 million of vested shares) of Range stock at March 31, 2014 compared to 2.8 million shares (2.4 million of vested shares) at December 31, 2013.