STOCK-BASED COMPENSATION

The Company grants stock-based compensation awards as an incentive for employees and directors to contribute to the Company’s long-term success. The Company currently awards stock-settled stock appreciation rights, service-based and performance-based restricted stock units, and common stock equivalents. At December 31, 2014, the Company had 8.0 million shares of Common Stock available for awards of stock-based compensation under its 2014 Long-Term Incentive Plan.

The Company accounts for stock-based compensation awards in accordance with FASB ASC Topics 505 and 718, as interpreted by SEC Staff Accounting Bulletins No. 107 (“SAB No. 107”) and No. 110 (“SAB No. 110”). Stock-based compensation expense is based on the fair value of the award on the date of grant, which is then recognized as expense over the related service period, net of estimated forfeitures. The service period is the period over which the related service is performed, which is generally the same as the vesting period. Currently the Company issues treasury shares upon the exercise, release or settlement of stock-based compensation awards.

Determining the appropriate fair value model and calculating the fair value of stock-based compensation awards requires the input of certain complex and subjective assumptions, including the expected life of the stock-based compensation awards and the Common Stock price volatility. In addition, determining the appropriate amount of associated periodic expense requires management to estimate the amount of employee forfeitures and the likelihood of the achievement of certain performance targets. The assumptions used in calculating the fair value of stock-based compensation awards and the associated periodic expense represent management’s best estimates, which involve inherent uncertainties and the application of judgment. As a result, if factors change and the Company deems it necessary in the future to modify the assumptions it made or to use different assumptions, or if the quantity and nature of the Company’s stock-based compensation awards changes, then the amount of expense may need to be adjusted and future stock-based compensation expense could be materially different from what has been recorded in the current period.

The Company recognized the following amounts of stock-based compensation expense by award type for the years ended December 31 (in millions):



Award type:	2014		2013		2012
Stock appreciation rights	$	5.0	$	5.2	$	6.4
Common stock equivalents	0.6		0.6		0.5
Restricted stock units	33.2		28.9		29.5
Total (1)	$	38.8	$	34.7	$	36.4


(1)	Includes charges of $14.8 million, $12.5 million, and $5.1 million in 2014, 2013 and 2012, respectively, for awards to retirement-eligible employees since these awards vest on an accelerated basis

Stock-based compensation expense was recognized by line item in the Consolidated Statements of Operations for the years ended December 31 (in millions):



Amount recorded in:	2014		2013		2012
Costs of services and product development	$	17.6	$	15.3	$	15.3
Selling, general, and administrative	21.2		19.4		21.1
Total	$	38.8	$	34.7	$	36.4

As of December 31, 2014, the Company had $44.9 million of total unrecognized stock-based compensation cost, which is expected to be recognized as stock-based compensation expense over the remaining weighted-average service period of approximately 2.2 years.

Stock-Based Compensation Awards

The following disclosures provide information regarding the Company’s stock-based compensation awards, all of which are classified as equity awards in accordance with FASB ASC Topic 505:

Stock Appreciation Rights

Stock-settled stock appreciation rights (SARs) permit the holder to participate in the appreciation of the Common Stock. SARs are settled in shares of Common Stock by the employee once the applicable vesting criteria have been met. SARs vest ratably over a four-year service period and expire seven years from the grant date. The fair value of SARs awards is recognized as compensation expense on a straight-line basis over four years. SARs have only been awarded to the Company’s executive officers.

When SARs are exercised, the number of shares of Common Stock issued is calculated as follows: (1) the total proceeds from the SARs exercise (calculated as the closing price of the Common Stock on the date of exercise less the exercise price of the SARs, multiplied by the number of SARs exercised) is divided by (2) the closing price of the Common Stock as reported on the New York Stock Exchange on the exercise date. The Company withholds a portion of the shares of Common Stock issued upon exercise to satisfy minimum statutory tax withholding requirements. SARs recipients do not have any stockholder rights until after actual shares of Common Stock are issued in respect of the award, which is subject to the prior satisfaction of the vesting and other criteria relating to such grants.

The following table summarizes changes in SARs outstanding for the year ended December 31, 2014:



	SARs in millions		Per Share Weighted- Average Exercise Price		Per Share Weighted- Average Grant Date Fair Value		Weighted- Average Remaining Contractual Term
Outstanding at December 31, 2013	1.6		$	34.14	$	11.63	4.34 years
Granted	0.4		64.64		14.99		6.11 years
Forfeited	(0.1	)	na		na		na
Exercised	(0.5	)	24.12		8.82		na
Outstanding at December 31, 2014 (1), (2)	1.4		$	44.44	$	13.26	4.34 years
Vested and exercisable at December 31, 2014 (1)	0.6		$	33.36	$	11.62	3.22 years

na = not applicable


(1)	At December 31, 2014, 0.8 million of these SARs were unvested. The Company expects that substantially all of these unvested awards will vest in future periods.


(2)	At December 31, 2014, SARs outstanding had an intrinsic value of $58.5 million. SARs vested and exercisable had an intrinsic value of $30.8 million.

The fair value of the SARs granted was estimated on the date of grant using the Black-Scholes-Merton valuation model with the following weighted-average assumptions for the years ended December 31:



	2014		2013		2012
Expected dividend yield (1)	—	%	—	%	—	%
Expected stock price volatility (2)	25	%	35	%	40	%
Risk-free interest rate (3)	1.3	%	0.8	%	0.8	%
Expected life in years (4)	4.43		4.49		4.61


(1)	The dividend yield assumption is based on both the history and expectation of the Company’s dividend payouts. Historically the Company has not paid cash dividends on its Common Stock.


(2)	The determination of expected stock price volatility was based on both historical Common Stock prices and the implied volatility from publicly traded options in Common Stock.


(3)	The risk-free interest rate is based on the yield of a U.S. Treasury security with a maturity similar to the expected life of the award.


(4)	The expected life represents the Company’s weighted-average estimate of the period of time the SARs are expected to be outstanding (that is, the period between the service inception date and the expected exercise date).

Restricted Stock Units

Restricted stock units (RSUs) give the awardee the right to receive shares of Common Stock when the vesting conditions are met and the restrictions lapse, and each RSU that vests entitles the awardee to one common share. RSU awardees do not have any of the right of a Gartner stockholder, including voting rights and the right to receive dividends and distributions, until the shares are released.

The fair value of RSUs is determined on the date of grant based on the closing price of the Common Stock as reported by the New York Stock Exchange on that date. Service-based RSUs vest ratably over four years and are expensed on a straight-line basis over four years. Performance-based RSUs are subject to both performance and service conditions, vest ratably over four years, and are expensed on an accelerated basis.

The following table summarizes the changes in RSUs outstanding during the year ended December 31, 2014:



	Restricted Stock Units (RSUs) (in millions)		Per Share Weighted Average Grant Date Fair Value
Outstanding at December 31, 2013	1.8		$	38.83
Granted (1)	0.6		65.48
Vested and released	(0.9	)	34.17
Forfeited	(0.1	)	—
Outstanding at December 31, 2014 (2), (3)	1.4		$	50.76

(1)

The 0.6 million RSUs granted in 2014 consisted of 0.3 million performance-based RSUs awarded to executives and 0.3 million service-based RSUs awarded to non-executive employees and non-management board members. The aggregate target number of performance-based RSUs awarded in 2014 was 0.2 million, subject to adjustment from 0% to 200% of the target number depending upon the increase in the Company's subscription-based contract value ("CV') measured on December 31, 2014 compared to December 31, 2013. The actual CV increase achieved for 2014 was 172.6%, which resulted in the final grant of approximately 0.3 million performance-based RSUs to the executives.


(2)	The Company expects that substantially all of the outstanding awards at December 31, 2014 will vest in future periods.


(3)	The weighted-average remaining contractual term of the outstanding RSUs is approximately 1 year.

Common Stock Equivalents

Common stock equivalents (CSEs) are convertible into Common Stock and each CSE entitles the holder to one common share. Members of our Board of Directors receive directors’ fees payable in CSEs unless they opt to receive up to 50% of the fees in cash. Generally, the CSEs have no defined term and are converted into common shares when service as the director terminates unless the director has elected an accelerated release. The fair value of the CSEs is determined on the date of grant based on the closing price of the Common Stock as reported by the New York Stock Exchange on that date. CSEs vest immediately and as a result are recorded as expense on the date of grant.

The following table summarizes the changes in CSEs outstanding for the year ended December 31, 2014:



	Common Stock Equivalents (CSEs)		Per Share Weighted Average Grant Date Fair Value
Outstanding at December 31, 2013	102,479		$	17.71
Granted	8,509		74.48
Converted to common shares	(6,785	)	74.48
Outstanding at December 31, 2014	104,203		$	18.65

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (the “ESP Plan”) under which eligible employees are permitted to purchase Common Stock through payroll deductions, which may not exceed 10% of an employee’s compensation (or $23,750 in any calendar year), at a price equal to 95% of the closing price of the Common Stock as reported by the New York Stock Exchange at the end of each offering period. At December 31, 2014, the Company had approximately 1.1 million shares available for purchase under the ESP Plan. The ESP Plan is considered non-compensatory under FASB ASC Topic 718, and as a result the Company does not record stock-based compensation expense for employee share purchases. The Company received $7.8 million, $6.0 million, and $12.4 million in cash from share purchases under the ESP Plan and exercises of stock options during 2014, 2013, and 2012, respectively.