Share-Based Compensation

Equity Awards

Lifeco, of which the Company is an indirect wholly-owned subsidiary, maintains the Great-West Lifeco Inc. Stock Option Plan (the “Lifeco plan”) that provides for the granting of options on its common shares to certain of its officers and employees and those of its subsidiaries, including the Company. Options are granted with exercise prices not less than the average market price of the shares on the five days preceding the date of the grant. The Lifeco plan provides for the granting of options with varying terms and vesting requirements with vesting commencing on the first anniversary of the grant, exercisable within 10 years from the date of grant.

Termination of employment prior to the vesting of the options results in the forfeiture of the unvested options, unless otherwise determined by Human Resources Committee. At its discretion the Human Resources Committee may vest the unvested options of retiring option holders, with the options exercisable within five years from the date of retirement. In such event, the Company accelerates the recognition period to the date of retirement for any unrecognized share-based compensation cost related thereto and recognizes it in its earnings at that time.

Liability Awards

The Company maintains a Performance Share Unit Plan (“PSU plan”) for senior executives of the Company. Under the PSU plan, “performance share units” are granted to certain senior executives of the Company. Each performance unit has a value equal to one share of Lifeco common stock and is subject to adjustment for cash dividends paid to Lifeco stockholders, Company earnings results as well as stock dividends and splits, consolidations and the like that affect shares of Lifeco common stock outstanding.

If the performance share units vest, they are payable in cash equal to the average closing price of Lifeco common stock for the 20 trading days prior to the date following the last day of the three-year performance period. The estimated fair value of the performance unit is based on the average closing price of Lifeco common stock for the twenty trading days prior to the grant. The performance share units generally vest in their entirety at the end of the three years performance period based on continued service. The PSU plan contains a provision that permits all unvested performance share units to become vested upon death or retirement.

Performance share units are settled in cash and are recorded as liabilities until payout is made. Unlike share-settled awards, which have a fixed grant-date fair value, the fair value of unsettled or unvested liabilities awards is remeasured at the end of each reporting period based on the change in fair value of one share of Lifeco common stock. The liability and corresponding expense are adjusted accordingly until the award is settled.

Compensation Expense Related to Share-Based Compensation

The compensation expense related to share-based compensation was as follows:



	Year Ended December 31,
	2016		2015		2014
Lifeco Stock Plan	$	2,190	$	1,655	$	3,384
Performance Share Unit Plan	5,318		2,320		6,263
Total compensation expense	$	7,508	$	3,975	$	9,647
Income tax benefits	$	2,458	$	1,143	$	2,404

The following table presents the total unrecognized compensation expense related to share-based compensation at December 31, 2016, and the expected weighted average period over which these expenses will be recognized:

Equity Award Activity

During the year ended December 31, 2016, Lifeco granted 973,100 stock options to employees of the Company. These stock options vest over five - year periods ending in 2021. Compensation expense of $2,664 will be recognized in the Company’s financial statements over the vesting period of these stock options using the accelerated method of recognition.

The following table summarizes the status of, and changes in, the Lifeco plan options granted to Company employees which are outstanding. The options granted relate to underlying stock traded in Canadian dollars on the Toronto Stock Exchange; therefore, the amounts, which are presented in United States dollars, will fluctuate as a result of exchange rate fluctuations.



			Weighted average
	Shares under option		Exercise price (Whole dollars)		Remaining contractual term (Years)	Intrinsic value ⁽¹⁾
Outstanding, January 1, 2016	3,633,343		$	21.68
Granted	973,100		25.88
Exercised	(359,345	)	20.03
Cancelled and expired	(185,097	)	25.87
Outstanding, December 31, 2016	4,062,001		23.25		6.1	$	12,814
Vested and expected to vest, December 31, 2016	4,062,001		$	23.25	6.1	$	12,814
Exercisable, December 31, 2016	2,292,059		$	21.81	4.3	$	10,654

⁽¹⁾ The aggregate intrinsic value is calculated as the difference between the market price of Lifeco common shares on December 31, 2016, and the exercise price of the option (only if the result is positive) multiplied by the number of options.

The following table presents additional information regarding stock options under the Lifeco plan:



	Year Ended December 31,
	2016		2015		2014
Weighted average fair value of options granted	$	2.74	$	3.33	$	5.53
Intrinsic value of options exercised ⁽¹⁾	2,102		4,234		401
Fair value of options vested	1,605		1,670		4,491

⁽¹⁾ The intrinsic value of options exercised is calculated as the difference between the market price of Lifeco common shares on the date of exercise and the exercise price of the option multiplied by the number of options exercised.

The fair value of the options granted during the years ended December 31, 2016, 2015, and 2014 was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted average assumptions:



	Year Ended December 31,
	2016		2015		2014
Dividend yield	3.99	%	3.66	%	3.95	%
Expected volatility	19.03	%	19.10	%	26.63	%
Risk free interest rate	0.80	%	0.90	%	1.75	%
Expected duration (years)	6.0		6.0		6.0

Liability Award Activity

The following table summarizes the status of, and changes in, the Performance Share Unit Plan units granted to Company employees which are outstanding:



	Performance Units
Outstanding, January 1, 2016	440,089
Granted	313,837
Forfeited	(3,158	)
Exercised	(151,857	)
Outstanding, December 31, 2016	598,911

Vested and expected to vest, December 31, 2016	598,911

The cash payment in settlement of the Performance Share Unit Plan units was $3,988 and $6,375 for the years ended December 31, 2016, and 2015, respectively.

Weighted
average
period
(years)

Lifeco Stock Plan

Performance Share Unit Plan