L. STOCK-BASED COMPENSATION

Our 2014 Long Term Stock Incentive Plan (the "2014 Plan") replaced the 2005 Long Term Stock Incentive Plan in May 2014 and provides for the issuance of stock-based incentives in various forms to employees and non-employee Directors of the Company. At December 31, 2015, outstanding stock-based incentives were in the form of long-term stock awards, stock options, phantom stock awards and stock appreciation rights.

Pre-tax compensation expense and the related income tax benefit for these stock-based incentives were as follows, in millions:

	2015		2014		2013
Long-term stock awards	$	23	$	33	$	31
Stock options		5		4		12
Phantom stock awards and stock appreciation rights		11		6		7

Total	$	39	$	43	$	50


Income tax benefit (37 percent tax rate)	$	14	$	16	$	19

At December 31, 2015, a total of 17.1 million shares of our common stock were available under the 2014 Plan for the granting of stock options and other long-term stock incentive awards.

Long-Term Stock Awards. Long-term stock awards are granted to our key employees and non-employee Directors and do not cause net share dilution inasmuch as we continue the practice of repurchasing and retiring an equal number of shares in the open market. We granted 741,040 shares of long-term stock awards during 2015.

Our long-term stock award activity was as follows, shares in millions:

	2015		2014		2013
Unvested stock award shares at January 1		6		8		8
Weighted average grant date fair value	$	18	$	17	$	16
Stock award shares granted		1		1		2
Weighted average grant date fair value	$	26	$	22	$	20
Stock award shares vested		2		2		2
Weighted average grant date fair value	$	17	$	17	$	17
Stock award shares forfeited		—		1		—
Weighted average grant date fair value	$	18	$	19	$	16
Forfeitures upon spin off (A)		1		—		—
Weighted average grant date fair value	$	20	$	—	$	—
Modification upon spin off (B)		1		—		—
Unvested stock award shares at December 31		5		6		8
Weighted average grant date fair value	$	17	$	18	$	17


(A)	In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards.
(B)	Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee directors such that all individuals received an equivalent fair value both before and after the separation. The modification to the outstanding stock awards was made pursuant to existing anti-dilution provisions in our 2014 Plan and 2005 Long Term Incentive Plan.

At December 31, 2015, 2014 and 2013, there was $42 million, $60 million and $69 million, respectively, of total unrecognized compensation expense related to unvested stock awards; such awards had a weighted average remaining vesting period of three years at December 31, 2015, 2014 and 2013.

The total market value (at the vesting date) of stock award shares which vested during 2015, 2014 and 2013 was $54 million, $50 million and $38 million, respectively.

Stock Options. Stock options are granted to our key employees. The exercise price equals the market price of our common stock at the grant date. These options generally become exercisable (vest ratably) over five years beginning on the first anniversary from the date of grant and expire no later than 10 years after the grant date.

We granted 452,380 shares of stock options during 2015 with a grant date weighted-average exercise price of approximately $26 per share. During 2015, 3.2 million stock option shares were forfeited (including options that expired unexercised).

Our stock option activity was as follows, shares in millions:

	2015		2014		2013
Option shares outstanding, January 1		18		24		30
Weighted average exercise price	$	21	$	22	$	21
Option shares granted		—		—		1
Weighted average exercise price	$	26	$	22	$	20
Option shares exercised		5		2		3
Aggregate intrinsic value on date of exercise (A)	$	50 million	$	22 million	$	23 million
Weighted average exercise price	$	17	$	16	$	12
Option shares forfeited		3		4		4
Weighted average exercise price	$	29	$	28	$	26
Forfeitures upon spin off (B)		—		—		—
Weighted average exercise price	$	19	$	—	$	—
Modifications upon spin off (C)		2		—		—
Option shares outstanding, December 31		12		18		24
Weighted average exercise price	$	17	$	21	$	22
Weighted average remaining option term (in years)		3		4		4
Option shares vested and expected to vest, December 31		12		18		24
Weighted average exercise price	$	17	$	21	$	22
Aggregate intrinsic value (A)	$	133 million	$	110 million	$	109 million
Weighted average remaining option term (in years)		3		4		4
Option shares exercisable (vested), December 31		10		15		20
Weighted average exercise price	$	18	$	22	$	24
Aggregate intrinsic value (A)	$	113 million	$	84 million	$	62 million
Weighted average remaining option term (in years)		3		3		3


(A)	Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.
(B)	In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards.
(C)	Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee directors such that all individuals received an equivalent fair value both before and after the separation. The modification to the outstanding options was made pursuant to existing anti-dilution provisions in our 2014 Plan and 2005 Long Term Incentive Plan.

At December 31, 2015, 2014 and 2013, there was $6 million, $6 million and $9 million, respectively, of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of two years at December 31, 2015, 2014 and 2013.

The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:

	2015			2014			2013
Weighted average grant date fair value	$	9.67		$	9.53		$	8.35
Risk-free interest rate		1.75	%		1.91	%		1.22	%
Dividend yield		1.32	%		1.34	%		1.47	%
Volatility factor		42.00	%		49.00	%		49.07	%
Expected option life		6 years			6 years			6 years

The following table summarizes information for stock option shares outstanding and exercisable at December 31, 2015, shares in millions:

Option Shares Outstanding							Option Shares Exercisable
Range of Prices		Number of Shares		Weighted Average Remaining Option Term	Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$	7 - 18		7	4 Years	$	12		6	$	12
$	20 - 23		2	3 Years	$	23		1	$	23
$	25 - 27		3	1 Years	$	27		3	$	27
$	28 - 29		—	- Years	$	29		—	$	29

$	7 - 29		12	3 Years	$	17		10	$	18

Phantom Stock Awards and Stock Appreciation Rights ("SARs"). We grant phantom stock awards and SARs to certain non-U.S. employees.

Phantom stock awards are linked to the value of our common stock on the date of grant and are settled in cash upon vesting, typically over 5 to 10 years. We account for phantom stock awards as liability-based awards; the compensation expense is initially measured as the market price of our common stock at the grant date and is recognized over the vesting period. The liability is remeasured and adjusted at the end of each reporting period until the awards are fully-vested and paid to the employees. We recognized expense of $5 million related to the valuation of phantom stock awards in 2015, 2014 and 2013. In 2015, 2014 and 2013, we granted 134,560 shares, 183,530 shares and 165,180 shares, respectively, of phantom stock awards with an aggregate fair value of $4 million, $4 million and $3 million, respectively, and paid $6 million, $5 million and $4 million of cash in 2015, 2014 and 2013, respectively, to settle phantom stock awards.

SARs are linked to the value of our common stock on the date of grant and are settled in cash upon exercise. We account for SARs using the fair value method, which requires outstanding SARs to be classified as liability-based awards and valued using a Black-Scholes option pricing model at the grant date; such fair value is recognized as compensation expense over the vesting period, typically five years. The liability is remeasured and adjusted at the end of each reporting period until the SARs are exercised and payment is made to the employees or the SARs expire. We recognized expense of $6 million, $1 million and $2 million related to the valuation of SARs for 2015, 2014 and 2013, respectively. During 2015, 2014 and 2013, we did not grant any SARs.

Information related to phantom stock awards and SARs was as follows, in millions:

	Phantom Stock Awards				Stock Appreciation Rights
	At December 31,				At December 31,
	2015		2014		2015		2014
Accrued compensation cost liability	$	13	$	13	$	10	$	7
Unrecognized compensation cost	$	4	$	4	$	—	$	—
Equivalent common shares		1		1		1		1