Stock-Based Compensation

Under the Corporation’s 2007 Stock-Based Compensation Plan (the “Plan”), effective May 8, 2007, as amended, the Corporation may award options to purchase shares of the Corporation’s common stock and grant other stock awards to executives, managers and key personnel. Upon shareholder approval of the Plan in May 2007, no future awards were granted under the Corporation’s 1995 Stock-Based Compensation Plan, but all outstanding awards previously granted under that plan shall remain outstanding in accordance with their terms. As of December 31, 2016, there were approximately 2.8 million shares available for future issuance under the Plan. The Plan is administered by the Human Resources and Compensation Committee of the Board. Restricted stock units awarded under the Plan are expensed ratably over the vesting period of the awards. Stock options awarded to members under the Plan must be at exercise prices equal to or exceeding the fair market value of the Corporation’s common stock on the date of grant. Stock options are generally subject to four-year cliff vesting and must be exercised within 10 years from the date of grant.

The Corporation measures the cost of employee services in exchange for an award of equity instruments based on the grant-date fair value of the award and recognizes cost over the requisite service period.

Compensation cost charged against operations for the Plan and Purchase Plan described in Note 13 of the consolidated financial statements was $8.1 million, $9.1 million and $8.6 million for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, respectively. The total income tax benefit recognized in the income statement for share-based compensation arrangements was $2.8 million, $3.1 million and $3.1 million for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, respectively.

The stock compensation expense for the years ended December 31, 2016, January 2, 2016 and January 3, 2015, was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions by grant year:



	Year Ended Dec 31, 2016		Year Ended Jan 2, 2016		Year Ended Jan 3, 2015
Expected term	6 years		6 years		5 years
Expected volatility:
Weighted-average	38.96	%	43.54	%	42.49	%
Expected dividend yield:
Weighted-average	3.30	%	1.94	%	2.76	%
Risk-free interest rate:
Range used	1.41	%	1.69	%	1.54	%

Expected volatilities were based on historical volatility as the Corporation does not feel that future volatility over the expected term of the options is likely to differ from the past. The Corporation used a calculation method based on daily frequency for the prior six years for 2016 and 2015 and a simple-average calculation method based on monthly frequency points for the prior five years for 2014. The Corporation used the current dividend yield in all years as there are no plans to substantially increase or decrease its dividends. The Corporation used historical exercise experience in all years to determine the expected term. The risk-free interest rate was selected based on yields from treasury securities as published by the Federal Reserve equal to the expected term of the options being valued for 2016 and 2015 and yields from U.S. Treasury zero-coupon issues with a remaining term equal to the expected term of the options being valued for 2014.

The following table summarizes the changes in outstanding stock options since the beginning of fiscal 2014.



	Number of Shares		Weighted-Average Exercise Price
Outstanding at December 28, 2013	3,630,567			$29.94
Granted	536,275		34.78
Exercised	(542,837	)	28.53
Forfeited or Expired	(288,560	)	38.55
Outstanding at January 3, 2015	3,335,445			$29.93
Granted	350,038		51.54
Exercised	(302,635	)	30.22
Forfeited or Expired	(24,525	)	39.14
Outstanding at January 2, 2016	3,358,323			$32.09
Granted	877,277		32.18
Exercised	(609,663	)	30.52
Forfeited or Expired	(121,602	)	52.24
Outstanding at December 31, 2016	3,504,335			$31.68

A summary of the Corporation’s non-vested stock options as of December 31, 2016 and changes during the year are presented below:



Non-vested Stock Options	Shares		Weighted-Average Grant-Date Fair Value
Non-vested at January 2, 2016	2,138,724			$11.18
Granted	877,277		8.80
Vested	(820,915	)	8.78
Forfeited	(32,929	)	11.74
Non-vested at December 31, 2016	2,162,157			$11.12

At December 31, 2016, there was $3.3 million of unrecognized compensation cost related to non-vested stock option awards, which the Corporation expects to recognize over a weighted-average period of 1.3 years. Information about stock options expected to vest or currently exercisable at December 31, 2016, is as follows:



Options	Number	Weighted-Average Exercise Price		Weighted-Average Remaining Life in Years	Aggregate Intrinsic Value ($000s)
Expected to vest	2,049,938		$35.48	7.7		$41,893
Exercisable	1,342,178		$25.50	4.0		$40,827

The weighted-average grant-date fair value of options granted was $8.80, $18.45 and $10.48, for 2016, 2015 and 2014, respectively. Other information for the last three years is as follows:



(In thousands)	Dec. 31, 2016		Jan. 2, 2016		Jan. 3, 2015
Total fair value of shares vested		$7,206		$5,554		$5,735
Total intrinsic value of options exercised	11,985		6,412		8,389
Cash received from exercise of stock options	18,609		9,145		15,489
Tax benefit realized from exercise of stock options	4,142		2,111		2,982

The Corporation has occasionally issued restricted stock units (“RSUs”) to executives, managers and key personnel. The RSUs vest at the end of three years after the grant date. No dividends are accrued on the RSUs. The share-based compensation expense associated with the RSUs is based on the quoted market price of HNI Corporation shares on the date of grant less the discounted present value of dividends not received on the shares and is amortized using the straight-line method from the grant date through the vesting date.

The following table summarizes the changes in outstanding RSUs since the beginning of fiscal 2014:



	Number of Shares		Weighted-Average Grant Date Fair Value
Outstanding at December 28, 2013	24,526			$23.01
Granted	15,500		32.23
Vested	(14,000	)	21.47
Forfeited	—		—
Outstanding at January 3, 2015	26,026			$27.76
Granted	23,000		51.54
Vested	(10,526	)	21.19
Forfeited	—		—
Outstanding at January 2, 2016	38,500			$43.77
Granted	25,000		32.06
Vested	—		—
Forfeited	(3,000	)	51.54
Outstanding at December 31, 2016	60,500			$38.54

At December 31, 2016, there was $1.0 million of unrecognized compensation cost related to RSUs which the Corporation expects to recognize over a weighted-average period of 1.0 year. The total value of shares vested in 2016, 2015 and 2014 was $0.0 million, $0.2 million and $0.3 million, respectively.

As of December 31, 2016 the Corporation had $16.0 million of deferred compensation of which $0.9 million was recorded in "Current maturities of other long-term obligations" and $15.1 million was recorded in "Other long-term liabilities" in the Consolidated Balance Sheets, with $10.6 million of the total fair-market valued based on the price increase or decrease of common stock on a quarterly basis. As of January 2, 2016 the Corporation had $13.2 million of deferred compensation of which $0.4 million was recorded in "Current maturities of other long-term obligations" and $12.8 million was recorded in "Other long-term liabilities" in the Consolidated Balance Sheets, with $9.1 million of the total fair-market valued based on the price increase or decrease of common stock on a quarterly basis.