SHARE-BASED COMPENSATION

Equity Grants Prior to the IPO

Prior to the Company's IPO, RBS Group granted share-based compensation awards to employees of the Company pursuant to its various long-term incentive plans, which are administered by the RBS Group Performance and Remuneration Committee. Below is a summary of those awards. All share-based compensation awards granted to Company employees have been historically settled in RBSG shares. Effective as of the IPO, no share-based compensation awards in respect of RBSG shares will be granted to Company employees.

Restricted Stock Units

A restricted stock unit is the right to receive shares of stock on a future date, which may be subject to time-based vesting conditions and/or performance-based vesting conditions. Time-based restricted stock units granted historically have generally become vested ratably over a three-year period. Performance-based restricted stock units granted historically have generally become vested at the end of a three-year performance period, depending on the level of performance achieved during such period as compared to specified RBS Group, divisional and/or functional performance guideposts and subject to the further adjustment at the discretion of the RBS Group Performance and Remuneration Committee.

The fair value of each award is determined on the grant date. All awards (whether they become vested in one increment or ratable increments) are expensed on a straight-line basis over the requisite service period. With respect to performance-based awards, over the performance and requisite service period (i.e., vesting period) of the award, the compensation expense and the number of shares of stock expected to be issued are adjusted upward or downward based upon the probability of achievement of performance. Once vesting has occurred, the related compensation cost recognized as expense is based on actual performance and the number of shares actually issued.

Special IPO Awards

In March 2014, RBS Group granted special IPO awards to certain Citizens employees. These awards were granted half in the form of restricted stock units in respect of RBSG shares and half as a fixed convertible bond. The special IPO awards are scheduled to vest 50% in March 2016 and 50% in March 2017, subject to certain conditions. Pursuant to their terms, upon the closing of the Company's IPO, these awards were converted into Company restricted stock units and the performance condition was met; however, following the IPO, these awards remain subject to the original vesting schedule (50% in March 2016 and 50% in March 2017) and other original terms and conditions.

Equity Award Conversion

In conjunction with the Company's IPO, any restricted stock units granted by RBS Group to Company employees that were unvested at the time of the IPO and the bond portion of special IPO awards were converted into equity-based awards in respect of CFG common stock. Converted awards are governed by the Citizens Financial Group, Inc. Converted Equity 2010 Deferral Plan and the Citizens Financial Group, Inc. Converted Equity 2010 Long Term Incentive Plan (collectively, the “Converted Equity Plans”) and are generally subject to the same terms and conditions as prior to conversion. However, when the awards become vested and are settled in accordance with their terms, grantees will receive shares of CFG common stock. Following the IPO, no additional awards were granted under the Converted Equity Plans.

The number of shares of CFG common stock underlying converted awards was determined by dividing (A) the product of (x) the maximum number of RBSG shares underlying the awards outstanding as of the closing of the IPO and (y) the average of the closing prices of RBSG shares on each of the 30 London Stock Exchange dealing days immediately prior to the pricing date of the IPO (such 30-day period, the “Conversion Period”), converted into U.S. Dollars using the average British Pound to U.S. Dollar currency rate over the Conversion Period, by (B) the price per share of CFG common stock on the pricing date of the IPO. The bond portion of the special IPO awards was converted by dividing the bond value by the price per share of CFG common stock on the pricing date of the IPO. During 2014, the Company converted 19,390,752 RBSG share awards to 5,249,721 CFG share awards. The difference between the fair value of RBSG restricted share units immediately preceding the conversion and the fair value of the CFG equity-based awards granted was not material. The bond portions of the Special IPO awards were converted to 524,783 CFG share awards.

Employee Share Plans Following the IPO

Omnibus Incentive Plan

In connection with the IPO, the Company adopted the Citizens Financial Group, Inc. 2014 Omnibus Incentive Plan (the “Omnibus Plan”). This plan permits the Company to grant a variety of awards to employees and service providers. In 2014, certain employees received share grants under this plan as an element of fixed compensation for service in a “Material Risk Taker” role (as defined by the European Banking Authority). These shares were fully vested at grant, but are subject to a retention period which lapses ratably over three to five years. The Company has also granted time-based restricted stock units under this plan. If a dividend is paid on shares underlying the restricted stock units prior to the date such shares are distributed, those dividends will be distributed following vesting in the same form as the dividend that has been paid to stockholders generally.

Director Compensation Plan

In connection with the IPO, the Company adopted the 2014 Non-Employee Directors Compensation Plan (the “Directors Plan”). Effective upon the closing of the IPO, restricted stock units were granted by the Company to its non-employee directors under the Directors Plan. These grants are scheduled to vest on the earlier to occur of September 29, 2015 or the date of the 2015 annual stockholders meeting. If a dividend is paid on shares underlying the stock units prior to the date such shares are distributed, those dividends will be distributed following vesting in the same form as the dividend that has been paid to stockholders generally. In the event that a director ceases to serve on the Board of Directors prior to the vesting date for any reason other than under circumstances which would constitute cause, the restricted stock units will fully vest on the date of the director's cessation from service.

Employee Stock Purchase Plan

In connection with the IPO, the Company adopted the 2014 Employee Stock Purchase Plan, which provides eligible employees an opportunity to purchase its common stock at a 10% discount, through accumulated payroll deductions. Beginning in the fourth quarter of 2014 eligible employees may contribute up to 10% of eligible compensation to the ESPP, except that this limit is increased to 50% of eligible compensation for the first offering period during the fourth quarter of 2014; in each case, no participant may purchase shares in any year with a value exceeding $25,000. Offering periods under the ESPP are quarterly.

Shares of CFG common stock are purchased by a participant on the last day of each quarter at a 10% discount from the fair market value (fair market value under the plan is defined as the closing price on the day of purchase). Prior to the date the shares are purchased, participants do not have any rights or privileges as a stockholder with respect to shares to be purchased at the end of the offering period. The first purchase of 103,247 shares under the ESPP was on December 31, 2014.

Summary of Share-Based Plans Activity

The following tables summarize the activity related to our share-based plans (excluding the ESPP):



	Year Ended December 31,
	2014				2013				2012
RBS Share Awards	Shares Underlying Awards		Weighted Average Grant Price		Shares Underlying Awards		Weighted Average Grant Price		Shares Underlying Awards		Weighted Average Grant Price
Nonvested, January 1	19,778,967			$5.31	22,865,810			$6.14	23,490,759			$6.49
Granted	9,627,635		5.48		6,363,919		4.66		9,477,611		4.41
Vested	(6,040,806	)	6.14		(4,208,789	)	6.68		(8,379,848	)	5.22
Forfeited	(3,975,044	)	6.73		(5,241,973	)	7.03		(1,722,712	)	5.93
Conversion to CFG Shares	(19,390,752	)	4.84		—		—		—		—
Nonvested, December 31	—			$—	19,778,967			$5.31	22,865,810			$6.14



	Year Ended December 31, 2014
CFG Share Awards	Shares Underlying Awards		Weighted Average Grant Price
Nonvested, January 1	—			$—
Conversion to CFG Shares	5,774,504		21.50
Granted	209,099		24.87
Vested	(161,067	)	25.07
Forfeited	(226,654	)	21.50
Nonvested, December 31	5,595,882			$21.52

Approximately 61 million shares of Company common stock are available for awards to be granted under our employee share plans. Upon vesting, the Company generally issues new shares, but may also issue shares from treasury stock.

Compensation Expense

Compensation expense related to the above share-based plans was $53 million, $27 million, and $29 million for the years ended December 31, 2014, 2013, and 2012, respectively. At December 31, 2014, the total unrecognized compensation expense for nonvested equity awards granted was $31 million. This expense is expected to be recognized over a weighted-average period of two years. No share-based compensation costs were capitalized during the years ended December 31, 2014, 2013 and 2012.

The income tax benefit recognized in earnings based on the compensation expense recognized for all share-based compensation arrangements amounted to $17 million in 2014. The excess of actual tax deductions over amounts assumed, which are recognized in stockholders’ equity, were insignificant in 2013 and 2012.