Share-Based Compensation Plans

Share-based compensation expense recorded by the Company was as follows:



	Years Ended December 31,
	2016		2015			2014
	(Thousands)
2012 Executive Performance Incentive Program	$	—	$	—		$	7,743
2013 Executive Performance Incentive Program	—		6,834			8,208
2014 Executive Performance Incentive Program	9,494		12,865			9,104
2015 Executive Performance Incentive Program	12,456		12,051			—
2016 Incentive Performance Share Unit Program	7,166		—			—
2013 EQT Value Driver Award Program	—		—			4,403
2014 EQT Value Driver Award Program	—		1,116			11,510
2014 EQM Value Driver Award Program	—		622			2,378
2015 EQT Value Driver Award Program	3,174		14,574			—
2016 EQT Value Driver Performance Share Unit Award Program	15,694		—			—
Restricted stock awards	9,407		7,031			4,688
Non-qualified stock options	3,119		1,938			3,002
Other programs, including non-employee director awards	5,459		(2,339		)	(409		)
Total share-based compensation expense	$	65,969	$	54,692		$	50,627

A portion of the expense related to share-based compensation plans is included as an unallocated expense in deriving total operating income for segment reporting purposes. See Note 5. When an award has graduated vesting, the Company records expense equal to the vesting percentage on the vesting date.

The Company typically uses treasury stock to fund awards that are paid in stock, but the awards may be funded by stock acquired by the Company in the open market or from any other person, issued directly by the Company or any combination of the foregoing.

Cash received from exercises under all share-based payment arrangements for employees and directors for the years ended December 31, 2016, 2015 and 2014 was $5.0 million, $14.0 million and $19.2 million, respectively. During the years ended December 31, 2016, 2015 and 2014, share-based payment arrangements paid in stock generated tax benefits of $22.2 million, $43.1 million and $45.9 million, respectively.

Executive Performance Incentive Programs

The Management Development and Compensation Committee of the Company's Board of Directors (the Compensation Committee) adopted:


•	the 2012 Executive Performance Incentive Plan (2012 Incentive PSU Program) under the 2009 Long-Term Incentive Plan (2009 LTIP);


•	the 2013 Executive Performance Incentive Plan (2013 Incentive PSU Program) under the 2009 LTIP;


•	the 2014 Executive Performance Incentive Plan (2014 Incentive PSU Program) under the 2009 LTIP;


•	the 2015 Executive Performance Incentive Plan (2015 Incentive PSU Program) under the 2014 Long-Term Incentive Plan (2014 LTIP); and


•	the 2016 Incentive Performance Share Unit Program (2016 Incentive PSU Program) under the 2014 LTIP.

The 2012 Incentive PSU Program, the 2013 Incentive PSU Program, the 2014 Incentive PSU Program, the 2015 Incentive PSU Program, and the 2016 Incentive PSU Program are collectively referred to as the Incentive PSU Programs.

The Incentive PSU Programs were established to provide long-term incentive opportunities to key employees to further align their interests with those of the Company’s shareholders and with the strategic objectives of the Company. The performance period for each of the awards under the Incentive PSU Programs is 36 months, with vesting occurring upon payment following the expiration of the performance period. Awards granted were/will be earned based upon:


•	the level of total shareholder return relative to a predefined peer group; and


•	with respect to the 2012 Incentive PSU Program and the 2013 Incentive PSU Program, the level of cumulative operating cash flow per share, and with respect to the other Incentive PSU Programs, the cumulative total sales volume growth, in each case, over the performance period.

The payout factor varies between zero and 300% of the number of outstanding units contingent upon the performance metrics listed above. The Company accounted for these awards as equity awards using a grant date fair value determined through a Monte Carlo simulation which projected the share price for the Company and its peers at the ending point of the performance period. The expected share prices were generated using each company's annual volatility for the expected term and the commensurate three-year risk-free rate shown in the chart below. As the Incentive PSU Programs include a performance condition that affects the number of shares that will ultimately vest (the level of cumulative operating cash flow per share with respect to the 2012 Incentive PSU Program and the 2013 Incentive PSU Program and the cumulative total sales volume growth performance condition with respect to the other Incentive PSU Programs), in accordance with ASC Topic 718, the Monte Carlo simulation computed the grant date fair value for each possible performance condition outcome on the grant date. The Company reevaluates the then-probable outcome at the end of each reporting period, in order to record expense at the probable outcome grant date fair value. The vesting of the units under each Incentive PSU Program occurs upon payment after the end of the performance period. More detailed information about each award is set forth in the table below:



Incentive PSU Program	Grant Date Fair Value¹		Risk Free Rate		Vested/Payment Date	Awards Paid	Value (in millions)		Unvested/Expected Payment Date²	Awards Outstanding as of December 31, 2016³
2012	$	123.37	0.36	%	February 2015	307,323	$	37.9	N/A	N/A
2013	$	140.00	0.36	%	February 2016	261,073	$	36.6	N/A	N/A
2014⁴	$	189.68	0.78	%	N/A	N/A	N/A		First Quarter of 2017	238,060
2015⁵	$	160.13	1.10	%	N/A	N/A	N/A		First Quarter of 2018	341,103
2016⁶	$	70.60	1.31	%	N/A	N/A	N/A		First Quarter of 2019	482,030

¹ Grant date fair value determined using a Monte Carlo simulation. For unvested Incentive PSU Programs the grant date fair value is as of December 31, 2016. The Company recorded compensation expense as of December 31, 2016 using the grant date fair value computed for the outcome which management estimated to be most probable.

² Vesting of the units will occur upon payment, following the expiration of the performance period.

³ Represents the number of outstanding units as of December 31, 2016 adjusted for forfeitures.

⁴ Based on the Company's performance relative to the conditions discussed above, 238,060 shares of common stock, valued at $45.2 million using the grant date fair value, are expected to be distributed during the first quarter of 2017.

⁵As of January 1, 2016, a total of 356,400 units were outstanding under the 2015 Incentive PSU Program. Adjusting for 15,297 forfeitures, there were 341,103 outstanding units as of December 31, 2016.

⁶A total of 504,240 units were granted under the 2016 Incentive PSU Program in 2016 and no additional units may be granted. Adjusting for 22,210 forfeitures, there were 482,030 outstanding units as of December 31, 2016.

The following table sets forth the total compensation costs capitalized related to each of the Incentive PSU Programs:



	For the Years Ended December 31,
	(millions)
Award	2016		2015		2014
2012 Incentive PSU Program	$	—	$	—	$	2.6
2013 Incentive PSU Program	$	—	$	4.4	$	5.5
2014 Incentive PSU Program	$	4.2	$	4.9	$	4.6
2015 Incentive PSU Program	$	4.9	$	4.9	$	—
2016 Incentive PSU Program	$	3.3	$	—	$	—

As of December 31, 2016, $16.5 million and $20.2 million of unrecognized compensation cost (assuming no changes to the performance condition achievement level) related to the 2015 Incentive PSU Program and the 2016 Incentive PSU Program, respectively, was expected to be realized over the remainder of the performance periods.

Value Driver Award Programs

The Compensation Committee has also adopted:


•	the 2013 Value Driver Award Program (2013 EQT VDPSU Program) under the 2009 LTIP;


•	the 2014 Value Driver Award Program (2014 EQT VDPSU Program) under the 2009 LTIP;


•	the 2015 Value Driver Award Program (2015 EQT VDPSU Program) under the 2014 LTIP; and


•	the 2016 Value Driver Performance Share Unit Award Program (2016 EQT VDPSU Program) under the 2014 LTIP.

The 2013 EQT VDPSU Program, the 2014 EQT VDPSU Program, the 2015 EQT VDPSU Program and the 2016 EQT VDPSU Program are collectively referred to as the VDPSU Programs.

The VDPSU Programs were established to align the interests of key employees with the interests of shareholders and customers and the strategic objectives of the Company. Under each VDPSU Program, 50% of the awards confirmed vest upon payment following the first anniversary of the grant date; the remaining 50% of the awards confirmed vest upon payment following the second anniversary of the grant date. Due to the graded vesting of each award under the VDPSU Programs, the Company recognized compensation cost over the requisite service period for each separately vesting tranche of the award as though each award was, in substance, multiple awards. The payments are contingent upon adjusted earnings before interest, income taxes, depreciation and amortization performance as compared to the Company's annual business plan and individual, business unit and Company value driver performance over the respective one-year periods. More detailed information about each award is set forth in the table below:

EQT VDPSU Program

Settled In

Accounting Treatment

Fair Value per Unit¹

Vested/Payment Date

Number of awards (including accrued dividends) or cash (millions) paid

Unvested/Expected Payment Date

Awards Outstanding (including accrued dividends) as of December 31, 2016²

2013

Stock

Equity

58.98

February 2014

306,076

N/A

February 2015

279,475

2014

Cash

Liability

75.70

February 2015

14.2

N/A

52.13

February 2016

9.4

2015³

Stock

Equity

75.70

February 2016

222,751

Second tranche first quarter of 2017

208,734

2016⁴

Cash

Liability

65.40

N/A

First tranche first quarter of 2017

325,664

N/A

Second tranche first quarter of 2018

325,664

¹ For equity awards, the fair value per unit is equal to the Company's closing common stock price on the business day prior to the

grant date. For liability awards, the fair value per unit is equal to the Company's common stock price on the measurement date.

² As of January 1, 2016, 448,487 awards including accrued dividends were outstanding under the 2015 EQT VDPSU Program.

³In addition to the 222,751 awards paid in February 2016, 6,631 awards were paid in 2016 in accordance with the employee separation agreements.

⁴The total liability recorded for the 2016 EQT VDPSU Program was $31.9 million as of December 31, 2016.

The following table sets forth the total compensation costs capitalized related to each of the VDPSU Programs:



	For the Years Ended December 31,
	(millions)
Award	2016		2015		2014
2013 EQT VDPSU Program	$	—	$	—	$	2.9
2014 EQT VDPSU Program	$	—	$	1.3	$	9.8
2015 EQT VDPSU Program	$	4.1	$	10.9	$	—
2016 EQT VDPSU Program	$	16.3	$	—	$	—

Restricted Stock Awards - Equity

The Company granted 158,360 and 89,500 restricted stock equity awards during the years ended December 31, 2015 and 2014, respectively, to key employees of the Company. The restricted stock granted will be fully vested at the end of the three-year period commencing with the date of grant, assuming continued service. The weighted average fair value of these restricted stock grants, based on the grant date fair value of the Company’s common stock, was approximately $75 and $95 for the years ended December 31, 2015 and 2014, respectively.

The Company granted 7,900 restricted stock equity awards during the year ended December 31, 2016 to its new Chief Financial Officer. The restricted shares granted will be fully vested at the end of the one-year period commencing on the date of grant, assuming continued service. The fair value of this restricted stock grant, based on the Company's closing common stock price on the grant date, is $63.33 per share.

The total fair value of restricted stock awards vested during the years ended December 31, 2016, 2015 and 2014 was $5.1 million, $3.8 million and $1.5 million, respectively.

As of December 31, 2016, $5.9 million of unrecognized compensation cost related to nonvested restricted stock equity awards was expected to be recognized over a remaining weighted average vesting term of approximately 1.0 years.

A summary of restricted stock equity award activity as of December 31, 2016, and changes during the year then ended, is presented below:



Restricted Stock	Non- Vested Shares		Weighted Average Fair Value		Aggregate Fair Value
Outstanding at January 1, 2016	300,120		$	79.90	$	23,980,627
Granted	7,900		$	63.33	500,307
Vested	(69,880	)	$	72.76	(5,084,759		)
Forfeited	(13,800	)	$	78.74	(1,086,637		)
Outstanding at December 31, 2016	224,340		$	81.61	$	18,309,538

Restricted Stock Unit Awards - Liability

The Company granted 148,860 restricted stock unit liability awards that will be paid in cash during the year ended December 31, 2016 to key employees of the Company. There were no restricted stock unit liability awards outstanding as of December 31, 2015. Adjusting for forfeitures, there were 141,490 awards outstanding as of December 31, 2016. Because these awards are liability awards, the Company records compensation expense based upon of the fair value of the awards as remeasured at the end of each reporting period. The restricted units granted will be fully vested at the end of the three-year period commencing with the date of grant, assuming continued service. The total liability recorded for these restricted units was $2.7 million as of December 31, 2016.

Non-Qualified Stock Options

The fair value of the Company’s option grants was estimated at the dates of grant using a Black-Scholes option-pricing model with the assumptions indicated in the table below for the years ended December 31, 2016, 2015 and 2014. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the date of grant. The dividend yield is based on the dividend yield of the Company’s common stock at the time of grant. Expected volatilities are based on historical volatility of the Company’s common stock. The expected term represents the period of time that options granted are expected to be outstanding based on historical option exercise experience.



	For the Years Ended December 31,
	2016 ¹		2015		2014
Risk-free interest rate	1.67	%	1.61	%	1.72	%
Dividend yield	0.16	%	0.12	%	0.15	%
Volatility factor	28.59	%	26.80	%	24.80	%
Expected term	5 years		5 years		5 years



	For the Years Ended December 31,
	2016 ¹		2015		2014
Number of Options Granted	228,500		158,200		133,500
Weighted Average Grant Date Fair Value	$	15.10	$	19.90	$	22.25
Total Intrinsic Value of Options Exercised (millions)	$	3.5	$	15.1	$	14.4

¹ There were two grant dates for the 2016 options. Amounts represent weighted average.

As of December 31, 2016, $3.1 million of unrecognized compensation cost related to outstanding nonvested stock options was expected to be recognized by December 31, 2018.

A summary of option activity as of December 31, 2016, and changes during the year then ended, is presented below:



Non-qualified Stock Options	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2016	1,080,242		$	60.33
Granted	228,500		$	54.09
Exercised	(134,542	)	$	43.92
Forfeited	—		$	—
Expired	—		$	—
Outstanding at December 31, 2016	1,174,200		$	60.99	6.50 years	$	10,060,848
Exercisable at December 31, 2016	668,400		$	54.24	5.21 years	$	7,461,562

EQM Awards

At the closing of EQM’s IPO in July 2012, the Compensation Committee and the Board of Directors of EQM's general partner granted certain key Company employees performance awards under the EQM Total Return Program representing 146,490 common units of EQM. The performance condition related to the performance awards was satisfied on December 31, 2015 as the total unitholder return realized on EQM’s common units from the date of grant was at least 10%.

The Company accounted for the EQM Total Return Program awards as equity awards using a $20.02 grant date fair value per unit as determined using a fair value model. The model projected the unit price for EQM common units at the ending point of the performance period. The price was generated using annual historical volatilities of peer group companies for the expected term of the awards, which was based upon the performance period. The range of expected volatilities calculated by the valuation model was 27% - 72%, and the weighted-average expected volatility was approximately 38%. Additional assumptions included the risk-free rate for the period within the contractual life of the awards based on the U.S. Treasury yield curve in effect at the time of grant and the expected EQM distribution growth rate of 10%. The confirmed awards vested and 153,367 awards including accrued distributions were distributed in EQM common units in February 2016.

Effective in 2014, the Compensation Committee and the Board of Directors of EQM’s general partner adopted the 2014 EQM Value Driver Award Program (2014 EQM VDPSU Program) under the 2009 LTIP and EQM’s 2012 Long-Term Incentive Plan. The 2014 EQM VDPSU Program was established to align the interests of key employees with the interests of EQM unitholders and customers and the strategic objectives of EQM. Under the 2014 EQM VDPSU Program, 50% of the units confirmed vested upon payment following the first anniversary of the grant date; the remaining 50% of the units confirmed vested upon payment following the second anniversary of the grant date. The performance metrics were EQM’s 2014 adjusted earnings before interest, income taxes, depreciation and amortization performance as compared to EQM’s annual business plan and individual, business unit and value driver performance over the period of January 1, 2014 through December 31, 2014. The awards vested and 31,629 awards including accrued distributions were distributed in EQM common units in February 2015 and 28,998 awards including accrued distributions were distributed in EQM common units in February 2016. EQM accounted for these awards as equity awards using the $58.79 grant date fair value per unit which was equal to EQM’s closing common unit price on the business day prior to the date of grant. Due to the graded vesting of the awards, EQM recognized compensation cost over the requisite service period for each separately vesting tranche of the award as though the award was, in substance, multiple awards. The total compensation cost capitalized related to the 2014 EQM VDPSU Program was less than $0.1 million and $0.3 million in 2015 and 2014, respectively.

Non-employee Directors’ Share-Based Awards

The Company has historically granted to EQT non-employee directors share-based awards which vest upon grant of the awards. The share-based awards will be paid in cash or Company common stock following the directors’ termination of service on the Company’s Board of Directors. Awards that will be paid in cash are accounted for as liability awards and as such compensation expense is recorded based upon the fair value of the awards as remeasured at the end of each reporting period. Awards that will be settled in Company common stock are accounted for as equity awards and as such the Company recorded compensation expense for the fair value of the awards at the grant date fair value. A total of 191,541 non-employee director share-based awards including accrued dividends were outstanding as of December 31, 2016. A total of 37,620, 24,110 and 17,900 share-based awards were granted to non-employee directors during the years ended December 31, 2016, 2015 and 2014, respectively. The weighted average fair value of these grants, based on the Company’s closing common stock price on the business day prior to the grant date, was $52.13, $75.52 and $89.78 for the years ended December 31, 2016, 2015 and 2014, respectively.

The general partner of EQM has granted EQM common unit-based phantom awards to its independent directors, which vested upon grant. The value of the phantom awards will be paid in EQM common units upon the director’s termination of service on the general partner’s Board of Directors. The Company accounts for these awards as equity awards and as such recorded compensation expense for the fair value of the awards at the grant date fair value. A total of 17,760 independent director unit-based awards including accrued distributions were outstanding as of December 31, 2016. A total of 2,610, 2,220 and 2,580 unit-based awards were granted to independent directors during the years ended December 31, 2016, 2015 and 2014, respectively. The weighted average fair value of these grants, based on EQM’s closing common unit price on the business day prior to the grant date, was $75.46, $88.00 and $58.79 for the years ended December 31, 2016, 2015 and 2014, respectively.

The general partner of EQGP has granted EQGP common unit-based phantom awards to its independent directors, which vested upon grant. The value of the phantom awards will be paid in EQGP common units upon the director’s termination of service on the general partner’s Board of Directors. The Company accounts for these awards as equity awards and as such recorded compensation expense for the fair value of the awards at the grant date fair value. A total of 11,449 independent director unit-based awards including accrued distributions were outstanding as of December 31, 2016. A total of 8,270 and 2,910 unit-based awards were granted to independent directors during the years ended December 31, 2016 and 2015, respectively. The weighted average fair value of these grants, based on EQGP’s closing common unit price on the business day prior to the grant date, was $21.57 and $28.77 for the years ended December 31, 2016 and 2015, respectively.

2017 Value Driver Performance Share Unit Award Program and 2017 Incentive Performance Share Unit Program

Effective in 2017, the Compensation Committee adopted the 2017 EQT Value Driver Performance Share Unit Award Program (2017 EQT VDPSU Program) and the 2017 Incentive Performance Share Unit Program (2017 Incentive PSU Program) under the 2014 LTIP. The 2017 EQT VDPSU Program and 2017 Incentive PSU Program were established to align the interests of key employees with the interests of shareholders and customers and the strategic objectives of the Company.

A total of 319,610 units were granted under the 2017 EQT VDPSU Program. Fifty percent of the units confirmed under the 2017 EQT VDPSU will vest upon payment following the first anniversary of the grant date; the remaining 50% of the confirmed units under the 2017 EQT VDPSU Program will vest upon payment following the second anniversary of the grant date. The payout will vary between zero and 300% of the number of outstanding units contingent upon adjusted 2017 earnings before interest, income taxes, depreciation and amortization performance as compared to the Company’s annual business plan and individual, business unit and Company value driver performance over the period January 1, 2017 through December 31, 2017. If earned, the 2017 EQT VDPSU Program units are expected to be paid in cash.

A total of 197,960 units were granted under the 2017 Incentive PSU Program. The vesting of the units under the 2017 Incentive PSU Program will occur upon payment after December 31, 2019 (the end of the three-year performance period). The payout will vary between zero and 300% of the number of outstanding units contingent upon a combination of the level of total shareholder return relative to a predefined peer group and the level of production sales volume growth over the period January 1, 2017 through December 31, 2019. If earned, 67,290 of the 2017 Incentive PSU Program units are expected to be distributed in Company common stock and 130,670 of the 2017 Incentive PSU Program units are expected to be paid in cash.

2017 Stock Options

Effective January 1, 2017, the Compensation Committee granted 113,800 non-qualified stock options to key employees of the Company. The 2017 options are ten-year options, with an exercise price of $65.40, and are subject to three-year cliff vesting.

2017 Restricted Stock and Restricted Stock Unit Awards

Effective January 1, 2017, the Compensation Committee granted 33,650 restricted stock equity and 224,820 restricted stock unit liability awards. The restricted stock equity awards and restricted stock unit liability awards will be fully vested at the end of the three-year period commencing with the date of grant, assuming continued employment.