Share–Based and Other Compensation Programs

On May 14, 2014, our stockholders approved a new equity compensation plan, the 2014 Equity Plan, pursuant to which we grant equity awards. The 2014 Equity Plan replaced our prior equity plan, the 2008 Equity Compensation Plan. We also have awards outstanding under the 1995 Equity Plan, which preceded the 2008 Equity Plan. In adopting the 2014 Equity Plan, we agreed not to grant any new awards under the 2008 Equity Plan. The last awards granted pursuant to the 2008 and 1995 Equity Plans were granted in 2014 and 2008, respectively. All awards granted under the Equity Plans have been in the form of non-qualified stock options, restricted stock, RSUs, SARs, phantom stock and performance share awards. The maximum contractual term for all awards under the Equity Plans is 10 years.

The 2014 Equity Plan authorizes the issuance of up to 6,416,180 shares of our common stock, plus such number of shares of common stock subject to outstanding awards that are payable in shares under the 2008 Equity Plan and which awards subsequently terminate, expire or are cancelled (“Prior Plan Shares”). There were 4,240,002 shares remaining available for grant under the 2014 Equity Plan as of December 31, 2014 (the “share reserve”). Each grant of restricted stock, RSUs, or performance share awards under the 2014 Equity Plan (other than those settled in cash) reduces the reserve available for grant under the 2014 Equity Plan by 1.31 shares for every share subject to such grant. Awards under the 2014 Equity Plan that provide for settlement solely in cash (and not common shares) do not count against the share reserve. Absent this reserve adjustment for restricted stock, RSUs, phantom stock or performance share awards, our shares remaining available for grant under the 2014 Equity Plan would have been 4,728,559 shares as of December 31, 2014.

Unless otherwise described below, awards under the Equity Plans include the following terms:

•

Generally, stock options and SARs vest 50% on each of the third and fourth anniversaries of the grant date, while restricted stock, RSUs and performance share awards vest 100% on the third anniversary of the grant date. All awards require the grantee to remain in service with us through the vesting period, except in the event of the grantee’s death, disability, retirement or upon a change of control.


•	Generally, the awards vest upon a grantee’s death, disability or retirement.

•

Awards granted prior to May 13, 2009 generally vest upon a change of control, defined as: (i) the acquisition by any third party of the beneficial ownership of 40% or more of our outstanding common stock (20% or more of our outstanding common stock for awards under the 1995 Equity Plan); (ii) the purchase by any third party of substantially all of our assets; or (iii) during any 24-month period, a change in 75% of the members of the Board with 75% of the prior members of the Board not approving such change.


•	Awards granted under the Equity Plans provide for “double trigger” vesting in the event of a change of control, meaning that awards will vest in connection with a change of control only in the event the grantee’s employment is terminated by us without cause or the grantee terminates employment for “good reason,” in each case within 90 days before or one year after the change of control.

In the event of a hypothetical change of control as of December 31, 2014, we estimate that the vesting of awards would have resulted in a pretax accounting charge to us of approximately $17.5 million, representing the acceleration of compensation expense assuming all “double trigger” vesting occurred.

We use the Monte Carlo valuation model to determine the fair value of all cash-settled awards where stock price is a factor in determining the vesting, as well as for cash- or equity-settled performance awards where there exists a similar stock price-based market condition (we refer to these awards as “Market Condition Awards”). The Monte Carlo valuation model incorporates multiple input variables, including expected life, volatility, risk-free rate of return and dividend yield for each award to estimate the probability that a vesting condition will be achieved. In determining these assumptions for the Monte Carlo valuations, we consider historic and observable market data.

Depending on certain characteristics of the awards granted under the various Equity Plans noted above, they are accounted for as either liabilities or equity instruments. The following table summarizes awards outstanding and compensation expense recognized for each type of share-based award as of and for the years ended:



	December 31,
($ in thousands)	2014				2013				2012
Share-Based Compensation Programs	Liability Recorded/ Equity Instruments Outstanding		Compensation Cost Recognized (1)		Liability Recorded/ Equity Instruments Outstanding		Compensation Cost Recognized (1)		Liability Recorded/ Equity Instruments Outstanding		Compensation Cost Recognized (1)
Liabilities:
RSUs—Cash-Settled	$	65,157	$	31,834	$	104,114	$	79,322	$	26,164	$	21,301
SARs—Cash-Settled	595		915		8,195		8,544		4,602		3,498
Liabilities	$	65,752	32,749		$	112,309	87,866		$	30,766	24,799
Equity:
Stock Options	3,029,348		2,531		3,989,641		2,488		4,402,344		1,787
Phantom Stock	284,645		3		284,645		3		343,094		4
RSUs—Equity Settled	2,056,596		7,461		1,273,556		4,336		990,881		1,466
Restricted Stock	—		—		—		21		131,374		57
ESPP			267				267				253
Equity			10,262				7,115				3,567
Total all share-based plans			$	43,011			$	94,981			$	28,366

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(1)

For purposes of calculating compensation cost recognized, we generally consider time-vested awards effectively vested (and we recognize the full compensation costs) when grantees become retirement eligible. However, under the terms of our stock option awards granted in 2014, 2013, and 2012, legal vesting for retirement occurs when the grantee actually separates from service, with the exception of certain senior executives for whom vesting remains dependent on the stock price hurdle being met regardless of when the executive separates from service. Performance-based RSU awards granted in 2014, 2013, and 2012 provide that vesting remains dependent on the Company’s performance for the full term of the awards notwithstanding the grantee’s earlier retirement.

The following table reflects additional information regarding all share-based awards for the years indicated:



	Year Ended December 31,
($ in thousands except per-share amounts)	2014		2013		2012
Total compensation cost recognized	$	43,011	$	94,981	$	28,366
Less: Costs deferred as acquisition costs	1,047		1,769		465
Stock-based compensation expense	$	41,964	$	93,212	$	27,901

RSUs (Cash-Settled)

Performance-Based RSUs— In 2012, the Compensation Committee granted a total of 2,211,640 performance-based RSUs (to be settled in cash) to eligible officers under the 2008 Equity Plan. These performance-based RSUs entitle grantees to a cash amount equal to the fair market value of RSUs that have vested at the end of a three-year performance period. There were no cash-settled performance-based RSUs granted in 2014 or 2013.

Vesting of awards granted to executive officers in 2012 is dependent upon (1) Radian Group’s absolute TSR compared to the relative TSR of the companies listed on the NASDAQ 100 Financial Index and our most directly comparable mortgage insurance peer, and (2) Radian Group’s relative TSR (“2012 Relative TSR Measure”), in each case measured over a three-year performance period. The maximum payout at the end of the three-year performance period is 200% of a grantee’s target number of RSUs. If Radian Group’s absolute TSR during the performance period is negative, none of the performance-based RSUs granted to executive officers will vest. If Radian Group’s absolute TSR is positive, the payout will be determined based on an analysis of Radian Group’s relative TSR and absolute TSR.

Vesting of awards granted to non-executive officers in 2012 is subject to the same terms as the executive officer awards, except that the non-executive officer awards are not subject to the 2012 Absolute TSR Measure.

In general, pursuant to the terms of the 2012 award agreement, in the event of a grantee’s retirement, the award will continue to vest and be paid in accordance with the achievement of the Company’s TSR performance goals as of the stated vesting date. Each RSU was granted at full value with no exercise price. The RSUs do not entitle the grantees to voting or dividend rights.

Vesting of awards granted to both non-executives and executives in 2011 was dependent upon the performance of Radian Group’s TSR compared to TSRs of the Peer Groups, and resulted in a maximum payout at the end of the three-year performance period of 200% of a grantee’s target number of RSUs.

Timed-Vested RSUs—In 2014, 2013 and 2012, the Compensation Committee awarded to certain non-executives 1,470, 7,670 and 151,154, respectively, of cash-settled time-vested RSUs under the 2008 Equity Plan. The estimated fair value of the time-vested RSUs is based on the closing price of our common stock on the measurement date. These RSU awards entitle award recipients to a cash amount equal to the closing price of our common stock on the NYSE on the vesting date for employees or the conversion date for non-employee directors (generally defined as a director’s termination of service with us). These RSU awards vest in their entirety three years from the date of grant, or earlier, upon retirement, death or disability.

SARs (Cash-Settled)

In 2010 and 2009, the Compensation Committee awarded 192,100 and 1,623,500, respectively, of cash-settled SARs under the 2008 Equity Plan. The award of SARs entitles grantees to receive a cash amount equal to the excess of the closing share price of our common stock on the date of exercise over the grant price (the closing share price of our common stock on the date of grant). The exercise prices of the SARs awarded in 2010 and 2009 were $10.42 and $2.68 per share, respectively. As of December 31, 2014, the estimated fair value of the SARs awarded in 2010 was $6.30 per share. The SARs have a five-year term and vest 50% on the third and fourth anniversaries of the date of grant. Any SARs remaining at the end of the five-year period will be automatically exercised and paid to the grantee. At December 31, 2014, 102,450 of cash-settled SARs awarded in 2010 remained outstanding.

Non-Qualified Stock Options

Information with regard to stock options for the periods indicated is as follows:



	Number of Shares		Weighted Average Exercise Price Per Share
Outstanding, December 31, 2013	3,989,641		$	10.63
Granted	289,500		15.44
Exercised	(29,765	)	8.69
Forfeited	(47,170	)	9.18
Expired	(1,172,858	)	25.28
Outstanding, December 31, 2014	3,029,348		5.46
Exercisable, December 31, 2014	938,740		4.64
Available for grant, December 31, 2014	4,258,907

In 2014, 2013, and 2012, the Compensation Committee awarded 289,500, 279,650 and 1,312,590, respectively, of non-qualified stock options to executive and certain non-executive officers. The weighted average grant date fair value per share of the stock options granted during 2014, 2013 and 2012 was $12.18, $10.95 and $1.92, respectively. The amount of cash received from the exercise of stock options for the years ended December 31, 2014 and 2013 was approximately $0.26 million and $0.06 million, respectively. The total intrinsic value of options exercised (measured as of the date of exercise) during the years ended December 31, 2014 and 2013 was $0.19 million and $0.17 million, respectively, and the related tax benefits were approximately $0.07 million and $0.06 million, respectively. There were no stock options exercised in 2012. The total intrinsic value of the stock options outstanding at December 31, 2014, 2013 and 2012 was $34.1 million, $27.0 million and $7.8 million, respectively, based on the closing price of our common stock as of such dates relative to the exercise prices for such stock options.

Upon the exercise of stock options, we generally issue shares from the authorized, unissued share reserves when the exercise price is less than the treasury stock repurchase price and from treasury stock when the exercise price is greater than the treasury stock repurchase price.

The table below summarizes information regarding fully vested stock options as of December 31, 2014:



($ in millions, except per share amounts)	Outstanding and Exercisable
Number of options vested	938,740
Fair value of options vested during the year	$	1.8
Weighted-average exercise price per share	$	4.64
Aggregate intrinsic value (excess market price over exercise price)	$	11.3
Weighted-average remaining contractual term of options (in years)	2.1 years

The following table summarizes information concerning outstanding and exercisable options at December 31, 2014:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$2.45 - $3.58	2,228,150	5.18	$	2.73	712,610	$	2.89
$5.76 - $7.06	60,778	3.18	6.89		23,200	6.92
$10.42 - $15.44	740,420	7.16	13.56		202,930	10.49
	3,029,348	4.32			938,740

We use the Monte Carlo valuation model in determining the grant date fair value of performance-based stock options issued to executives and non-executives using the assumptions noted in the following table:



	Year Ended December 31,
	2014		2013		2012
Derived service period (years)	2.99 - 3.96		3.02 - 4.00		3.14 - 4.00
Risk-free interest rate (1)	2.57	%	1.96	%	1.66	%
Volatility (2)	94.26	%	94.63	%	96.97	%
Dividend yield	0.07	%	0.07	%	0.41	%

______________


(1)	The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.


(2)	Volatility is determined at the date of grant using historical share price volatility and expected life of each award.

For stock option awards granted in 2014, 2013 and 2012, in addition to the time-based vesting requirements, the options contain a performance hurdle whereby the options will only vest if the closing price of our common stock on the NYSE exceeds $19.30 (125% of the option exercise price), $17.49 (125% of the option exercise price) and $4.90 (200% of the option exercise price), respectively, for ten consecutive trading days ending on or after the third anniversary of the date of grant.

We elected to apply the short-cut method in accounting for the windfall tax benefits under the accounting standard regarding share-based payment. Should future offsets to the windfall resulting from cancellations, expirations or exercise shortfalls exceed the balance of $17.3 million at December 31, 2014, the excess would be reflected in the consolidated statements of operations.

Phantom Stock

In the past, the Compensation Committee has granted phantom stock awards to non-employee directors under the Equity Plans, which entitle grantees to receive shares of our common stock on the conversion date (generally defined as a grantee’s termination of service with us). The estimated fair value of phantom stock is based on the closing share price of our common stock as reported by the NYSE on the date of grant. All outstanding shares of phantom stock are fully vested. Each share of phantom stock was granted at full value with no exercise price and accrues dividend equivalents until the conversion (as defined above). Upon conversion, all phantom stock will be paid in whole shares of our common stock, with fractional shares paid in cash. At December 31, 2014, there were approximately 4,452 dividend-equivalent phantom shares accrued that were not included in the total number of our outstanding shares. The cost recognized for these awards was recognized on a straight-line basis over the vesting period.

RSUs (Equity Settled)

Performance-Based RSUs—In 2014 and 2013, the Compensation Committee granted to executive and non-executive officers a total of 702,180 and 435,970, respectively, performance-based RSUs to be settled in common stock. No equity-settled performance-based RSUs were awarded in 2012.

Vesting of awards granted to executive officers in 2014 and 2013 is dependent upon (1) Radian Group’s TSR compared to the relative TSR of the companies listed on the NASDAQ Financial Index and our most directly comparable mortgage insurance peers as of the date of grant (the “Relative TSR Measure”), and (2) Radian Group’s absolute TSR (“Absolute TSR Measure”), in each case measured over a three-year performance period. The maximum payout at the end of the three-year performance period is 200% of a grantee’s target number of RSUs, subject to a maximum cap of six times the value of the grantee’s award on the grant date. If Radian Group’s absolute TSR during the performance period is negative, the maximum payout percentage will be 50% of target. If Radian Group’s absolute TSR is positive, the payout will be determined based on an analysis of Radian Group’s Relative TSR Measure and Absolute TSR Measure, with executives only entitled to a 100% vesting if Radian Group’s Absolute TSR is equal to at least 25%. Vesting of awards granted to non-executive officers in 2014 and 2013 is subject to the same terms as the executive officer awards, except that the non-executive officer awards are not subject to the Absolute TSR Measure.

The grant date fair value of performance-based RSUs is determined using the Monte Carlo valuation model. The following are assumptions used in our calculation of the grant date fair value of performance-based RSUs to be settled in common stock:



	2014		2013
Expected life	3 years		3 years
Risk-free interest rate	1.0	%	0.4	%
Volatility	71.9	%	81.8	%
Dividend yield	0.06	%	0.07	%

Time-Vested RSUs—In 2014, the Compensation Committee granted a total of 170,176 shares of time-vested RSUs to be settled in common stock, including 85,133 shares awarded to non-executive officers and 85,043 shares awarded to non-employee directors. In 2013, the Compensation Committee granted a total of 102,618 shares of time-vested RSUs to be settled in common stock, including 13,260 shares awarded to non-executive officers and 89,358 shares awarded to non-employee directors. In 2012, the Compensation Committee granted a total of 558,216 shares of time-vested RSUs to be settled in common stock, including 7,812 shares awarded to non-executive officers and 550,404 shares awarded to non-employee directors. The grant date fair value of the time-vested RSUs was calculated based on the closing price of our common stock on the NYSE on the date of grant and is recognized as compensation expense over the vesting period. All of these awards are subject to three-year cliff vesting.

Information with regard to RSUs to be settled in stock for the periods indicated is as follows:



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested, December 31, 2013	1,273,556		$	7.75
Granted	872,356		14.97
Vested	(31,599	)	6.88
Forfeited	(57,717	)	14.22
Unvested, December 31, 2014	2,056,596		10.65

Restricted Stock

In 2009, the Compensation Committee granted 375,500 shares of restricted stock. No shares of restricted stock were granted during 2014, 2013 or 2012 and all restricted stock issued has vested.

Employee Stock Purchase Plan

We have an ESPP, the 2008 ESPP, under which 2,000,000 shares of our authorized but unissued common stock have been reserved for issuance. Under the 2008 ESPP, we sold 67,743, 95,287 and 204,834 shares to employees during the years ended December 31, 2014, 2013 and 2012, respectively.

The 2008 ESPP is designed to allow eligible employees to purchase shares of our common stock at a discount of 15% off the lower of the fair market value of our common stock at the beginning-of-period or end-of-period (each period being the first and second six calendar months in a calendar year).

The following are assumptions used in our calculation of ESPP compensation expense during 2014:



	January 1, 2014		July 1, 2014
Expected life	6 months		6 months
Risk-free interest rate	0.34	%	0.32	%
Volatility	46.99	%	36.69	%
Dividend yield	0.04	%	0.03	%

Unrecognized Compensation Expense

As of December 31, 2014, 2013 and 2012, unrecognized compensation expense related to the unvested portion of all of our share-based awards was approximately $17.5 million, $31.9 million and $22.4 million, respectively. Absent a change of control under the Equity Plans, this expense is expected to be recognized over a weighted average period of approximately two years.