Employee Share-Based Incentive Compensation Plans

White Mountains’s share-based incentive compensation plans are designed to incentivize key employees to maximize shareholder value over long periods of time. White Mountains believes that this is best pursued by utilizing a pay-for-performance program that closely aligns the financial interests of management with those of its shareholders. White Mountains accomplishes this by emphasizing highly variable long-term compensation that is contingent on performance over a number of years rather than entitlements. White Mountains expenses all its share-based compensation. As a result, White Mountains’s calculation of its owners’ returns includes the expense of all outstanding share-based compensation awards.

Incentive Compensation Plans

White Mountains’s Long-Term Incentive Plan provides for grants of various types of share-based and non-share-based incentive awards to key employees and directors of White Mountains. The WTM Incentive Plan was adopted by the Board, was approved by the Company’s sole shareholder in 1985 and was subsequently amended by its shareholders in 1995, 2001, 2003, 2005, 2010 and 2013. Share-based incentive awards that may be granted under the plan include performance shares, restricted shares, incentive stock options and non-qualified stock options (“Non-Qualified Options”).

Performance Shares

Performance shares are designed to reward employees for meeting company-wide performance targets. Performance shares are conditional grants of a specified maximum number of common shares or an equivalent amount of cash. Awards generally vest at the end of a three-year service period, are subject to the attainment of pre-specified performance goals, and are valued based on the market value of common shares at the time awards are paid. Performance shares earned under the WTM Incentive Plan are typically paid in cash but may be paid in common shares. Compensation expense is recognized for the vested portion of the awards over the related service periods. The level of payout ranges from zero to two times the number of shares initially granted, depending on White Mountains’s financial performance. Performance shares become payable at the conclusion of a performance cycle (typically three years) if pre-defined financial targets are met.

The principal performance measures used for determining performance share payouts is growth in White Mountains’s adjusted book value per share and intrinsic value per share. Intrinsic value per share is generally calculated by adjusting adjusted book value per share for differences between the adjusted book value of certain assets and liabilities and White Mountains’s estimate of their underlying intrinsic values.

The following table presents performance share activity for the years ended December 31, 2017, 2016 and 2015 for performance shares granted under the WTM Incentive Plan:



	Year Ended December 31,
	2017					2016					2015
$ in millions	Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense			Target Performance Shares Outstanding		Accrued Expense
Beginning of period	80,353		$	42.4		93,654		$	57.7		111,257		$	44.4
Shares paid or expired ⁽¹⁾	(30,838	)	(21.9		)	(36,294	)	(41.0		)	(42,959	)	(30.8		)
New grants	17,710		—			22,615		—			29,195		—
Forfeitures ⁽²⁾	(16,710	)	(9.3		)	378		.5			(3,839	)	(.3		)
Expense recognized	—		34.6			—		25.2			—		44.4
End of period ⁽³⁾	50,515		$	45.8		80,353		$	42.4		93,654		$	57.7


⁽¹⁾	WTM performance share payments in 2017 for the 2014-2016 performance cycle, which were paid in March 2017 ranged from 34% to 76% of target. WTM performance shares payments in 2016 for the 2013-2015 performance cycle ranged from 140% to 142% of target. WTM performance shares payments in 2015 for the 2012-2014 performance cycle ranged from 91% to 145.5% of target.


⁽²⁾	Amounts include changes in assumed forfeitures, as required under GAAP.


⁽³⁾	Outstanding performance share awards as of December 31, 2017, 2016 and 2015 exclude 2,195, 7,315 and 10,826 unvested performance shares awards for employees of Sirius Group.

For the 2014-2016 performance cycle, all performance shares earned were settled in cash. For the performance shares earned in the 2013-2015 performance cycle, the Company issued 5,000 common shares and settled the remainder in cash. For the 2012-2014 performance cycle, all performance shares earned were settled in cash. If the outstanding WTM performance shares had vested on December 31, 2017, the total additional compensation cost to be recognized would have been $20.2 million, based on accrual factors as of December 31, 2017 (common share price and payout assumptions).

The following table presents performance shares outstanding and accrued expense for performance shares awarded under the WTM Incentive Plan as of December 31, 2017 for each performance cycle:



$ in millions	Target WTM Performance Shares Outstanding		Accrued Expense
Performance cycle:
2017 – 2019	16,680		$	8.3
2016 – 2018	16,235		14.7
2015 – 2017	18,370		23.6
Sub-total	51,285		46.6
Assumed forfeitures	(770	)	(.8		)
Total	50,515		$	45.8

For the 2017-2019 performance cycle, the targeted performance goal for full payment of outstanding performance shares granted under the WTM Incentive Plan to non-investment personnel is a 5% average growth in adjusted book value per share and intrinsic value per share. Average growth of 1% or less would result in no payout and average growth of 9% or more would result in a payout of 200%.

For the 2016-2018 performance cycle, the targeted performance goal for full payment of outstanding performance shares granted under the WTM Incentive Plan to non-investment personnel is a 4% average growth in adjusted book value per share and intrinsic value per share. Average growth of 0% or less would result in no payout and average growth of 8% or more would result in a payout of 200%.

For the 2015-2017 performance cycle, the targeted performance goal for full payment of outstanding performance shares granted under the WTM Incentive Plan to non-investment personnel is an 8% average growth in adjusted book value per share and intrinsic value per share. Average growth of 2% or less would result in no payout and average growth of 14% or more would result in a payout of 200%.

For investment personnel for the 2016-2018 and 2017-2019 performance cycles, the targeted performance goal for full payment of outstanding performance shares granted under the WTM Incentive Plan is based one-third on average growth in adjusted book value per share and intrinsic value per share (as described above) and two-thirds on achieving a total return on invested assets as measured against metrics based on U.S. Treasury Note.

For investment personnel for the 2015-2017 performance cycle, the targeted performance goal for full payment of outstanding performance shares granted under the WTM Incentive Plan is based one-third on average growth in adjusted book value per share and intrinsic value per share, one-third on achieving a total return on invested assets as measured against metrics based on U.S. Treasury Note returns and one-third on achieving a total return on invested fixed income assets as measured against metrics based on the Bloomberg Barclays U.S. Intermediate Aggregate Index returns.

Restricted Shares

The following table presents the unrecognized compensation cost associated with the outstanding restricted share awards under the WTM Incentive Plan for the years ended December 31, 2017, 2016 and 2015:



	Year Ended December 31,
	2017					2016					2015
$ in millions	Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value			Restricted Shares		Unamortized Issue Date Fair Value
Non-vested,
Beginning of period	70,620		$	19.7		70,675		$	15.7		83,314		$	14.3
Issued	17,985		16.3			25,365		20.2			23,640		15.7
Vested	(28,846	)	—			(24,620	)	—			(36,279	)	—
Forfeited	(6,004	)	(3.5		)	(800	)	(.3		)	—		—
Expense recognized	—		(18.2		)	—		(15.9		)	—		(14.3		)
End of period ⁽¹⁾	53,755		$	14.3		70,620		$	19.7		70,675		$	15.7


⁽¹⁾	Outstanding restricted share awards as of December 31, 2017, 2016 and 2015 include 2,195, 5,235, and 9,205 unvested restricted shares for employees of Sirius Group.

During 2017, White Mountains issued 17,485 restricted shares that vest on January 1, 2020, 250 restricted shares that vest on January 1, 2019 and 250 restricted shares that vest on January 1, 2018. During 2016, White Mountains issued 24,615 restricted shares that vest on January 1, 2019 and 750 restricted shares that vest on January 1, 2018. During 2015, White Mountains issued 23,640 restricted shares that vest on January 1, 2018. The unrecognized compensation cost as of December 31, 2017 is expected to be recognized ratably over the remaining vesting periods.

Non-Qualified Options

As of January 20, 2017, the 125,000 Non-Qualified Options issued to the Company’s former Chairman and CEO had been exercised. During the first quarter of 2017, 40,000 Non-Qualified Options, with an intrinsic value of $4.4 million, were exercised in exchange for 5,142 common shares with an equal total market value. During 2016, 5,000 Non-Qualified Options, with an intrinsic value of $0.4 million, were exercised at $742 per common share and 80,000 Non-Qualified Options, with an intrinsic value of $8.4 million, were exercised in exchange for 9,930 common shares with an equal total market value. Intrinsic value represents the difference between the market price of the Company’s common shares at the date of exercise and the fixed strike price of $742 per common share. The Non-Qualified Options were fully amortized as of 2011.