Stock Plans

The 2008 Management Equity Incentive Plan provides for various forms of stock-based compensation for eligible employees through May 2018. Management stock-based compensation includes stock options, restricted stock, restricted stock units, and performance stock units. The 2008 Non-Employee Directors’ Equity Incentive Plan provides for grants of stock options and restricted stock to non-employee directors through May 2018. We issue treasury shares for stock option exercises, restricted stock grants, restricted stock unit grants, and performance stock unit grants. Please refer to Note 7 for further information regarding stock compensation share issuance.

Stock compensation expense is as follows:



	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands)	2016		2015		2016		2015
Stock compensation expense	$	1,453	$	1,806	$	6,951	$	6,787
Income tax benefit	563		684		2,695		2,596
Stock compensation expense, net of income tax benefit	$	890	$	1,122	$	4,256	$	4,191

Stock options are granted at market value and expire after ten years. Stock options are exercisable beginning three years after the grant date. Stock option expense is based on the fair value of stock option grants estimated on the grant dates using the Black-Scholes option pricing model and the following weighted average assumptions for options granted in 2016.



Fair value per option	$11.69
Risk-free interest rate	1.64	%
Expected dividend yield	2.81	%
Expected volatility	33.71	%
Expected life (years)	7.01

The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date converted into an implied spot rate yield curve. Expected dividend yield is based on the most recent annualized dividend divided by the 1 year average closing share price. Expected volatility is based on the historical volatility using daily stock prices. Expected life is based on historical stock option exercise data.

A summary of stock option activity for the six months ended June 30, 2016 follows:



	Shares		Weighted Average Exercise Price
Outstanding at January 1, 2016	1,694,675		$	36.69
Granted	235,233		44.50
Exercised	(111,990	)	39.17
Forfeited	(6,173	)	46.95
Outstanding at June 30, 2016	1,811,745		37.51
Exercisable at June 30, 2016	1,316,322		$	33.79

Restricted stock and restricted stock units are valued at the market value of the stock on the grant date. A summary of restricted stock and unit activity for the six months ended June 30, 2016 follows:



	Shares		Weighted Average Grant Date Fair Value
Unvested at January 1, 2016	217,709		$	49.70
Granted	80,456		45.12
Vested	(64,570	)	48.97
Forfeited	(3,978	)	49.33
Unvested at June 30, 2016	229,617		$	48.20

Performance stock units have a market condition modifier and are valued on the grant date using a Monte Carlo valuation model to determine fair value. The final number of shares to be issued for performance stock units may range from zero to 200% of the target award based on achieving the specified performance targets over the performance period. The following weighted average assumptions were used in the Monte Carlo model for units granted in 2016 with a market condition modifier.



Fair value per unit	$43.77
Risk-free interest rate	0.96	%
Expected dividend yield	2.81	%
Expected volatility	29.00	%
MSA stock beta	1.202

The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date converted into an implied spot rate yield curve. Expected dividend yield is based on the most recent annualized dividend divided by the 1 year average closing share price. Expected volatility is based on the historical volatility using daily stock prices. Stock beta is calculated with three years of daily price data.

A summary of performance stock unit activity for the six months ended June 30, 2016 follows:



	Shares		Weighted Average Grant Date Fair Value
Unvested at January 1, 2016	171,644		$	50.24
Granted	64,800		44.08
Performance adjustments	(15,594	)	58.54
Vested	(31,181	)	58.54
Forfeited	(1,903	)	46.67
Unvested at June 30, 2016	187,766		$	46.08

The performance adjustments above relate to the final number of shares issued for the 2013 Management Performance Units, which were 66.6% of the target award based on Total Shareholder Return during the three year performance period, and vested in the first quarter of 2016.