STOCK-BASED COMPENSATION

Accounting standards require, among other things, that (i) the fair value of all stock awards be expensed over their respective vesting periods; (ii) the amount of cumulative compensation cost recognized at any date must at least be equal to the portion of the grant-date value of the award that is vested at that date and (iii) compensation expense include a forfeiture estimate for those shares not expected to vest. Also in accordance with these provisions, for awards that only have a service requirement with multiple vest dates, the Company is required to recognize compensation cost on a straight-line basis over the requisite service period for the entire award.

The Company has granted time vesting stock awards ("Deferred Awards") and performance-based stock awards ("Performance Awards") to employees at management levels and above. Deferred Awards were granted in the form of restricted stock units that only require each recipient to complete a service period. Deferred Awards generally vest ratably over three years or in full after a three year period. Performance Awards were granted in the form of restricted stock units which have, in addition to a service requirement, performance criteria that must be achieved for the awards to be earned. Performance Awards have annual vesting, but due to the performance criteria, are not eligible for straight-line expensing. Therefore, Performance Awards are amortized using a graded expense process. The fair value of all awards is based on the closing price of the Company’s common stock on the grant date. Compensation expense is reduced for estimated forfeitures of those awards not expected to vest due to employee turnover.

The following table summarizes the Company’s stock-based compensation expense, which is included in Selling and administrative expense in the Consolidated and Combined Statements of Comprehensive Operations:



(in thousands)	Fiscal 2015		Fiscal 2014
Performance Awards	$	861	$	1,883
Deferred Awards	1,534		235
Total stock-based compensation expense	$	2,395	$	2,118

Stock-based compensation costs for certain executives participating in stock-based compensation plans administered by Sears Holdings were included in Selling and administrative expenses and were not material for Fiscal 2013.

Awards Granted

In Fiscal 2015 the Company granted Deferred Awards and Performance Awards to various employees. In general Deferred Awards granted during Fiscal 2015 have a three year vesting period with 25% of the award vesting in both the first and second years and 50% vesting in the third year. The Performance Awards granted to executives vest over a four year service period and have a performance measure at the end of the second year of service. If earned, 25% of the awards vest in the second and third years and 50% vests in the fourth year.

In general Deferred Awards granted during Fiscal 2014 have a three year vesting period with 25% of the award vesting in both the first and second years and 50% vesting in the third year. In general, the Performance Awards granted to executives vest over a three year service period and have a performance measure at the end of the first year of service. If earned, 25% of the awards vest in the first and second years and 50% vests in the third year.

Changes in the Company’s Unvested Stock Awards

Deferred Awards



(in thousands, except per share amounts)	Number of Shares		Weighted Average Grant Date Fair Value
Unvested Deferred Awards, as of January 31, 2014	—		$	—
Granted	47		27.86
Forfeited	(3	)	27.58
Unvested Deferred Awards, as of January 30, 2015	44		$	28.01
Granted	165		31.20
Vested	(9	)	28.02
Forfeited	(25	)	28.74
Unvested Deferred Awards, as of January 29, 2016	175		$	30.87

Total unrecognized stock-based compensation expense related to unvested Deferred Awards approximated $3.9 million as of January 29, 2016, which will be recognized over a weighted average period of approximately 2.0 years.

Performance Awards



(in thousands, except per share amounts)	Number of Shares		Weighted Average Grant Date Fair Value
Unvested Deferred Awards, as of January 31, 2014	—		$	—
Granted	304		27.56
Forfeited	(107	)	26.73
Unvested Deferred Awards, as of January 30, 2015	197		$	28.01
Granted	19		21.94
Vested	(43	)	27.86
Forfeited	(64	)	28.34
Unvested Performance Awards, as of January 29, 2016	109		$	26.81

Total unrecognized stock-based compensation expense related to unvested Performance Awards approximated $1.4 million as of January 29, 2016, which will be recognized over a weighted average period of approximately 1.8 years.