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. 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 2,803,988 shares remaining available for grant under the 2014 Equity Plan as of December 31, 2015 (the “share reserve”), which includes Prior Plan Shares. 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 4,694,662 shares as of December 31, 2015.

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


•	Generally, 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 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, 2015, we estimate that the vesting of awards would have resulted in a pretax accounting charge to us of approximately $11.7 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)	2015				2014				2013
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	$	3,595	$	10,244	$	65,157	$	31,834	$	104,114	$	79,322
SARs—Cash-Settled	—		159		595		915		8,195		8,544
Liabilities	$	3,595	10,403		$	65,752	32,749		$	112,309	87,866
Equity:
Stock Options	2,692,457		2,984		3,029,348		2,531		3,989,641		2,488
Phantom Stock	230,196		2		284,645		3		284,645		3
RSUs—Equity Settled	2,472,861		9,243		2,056,596		7,461		1,273,556		4,336
Restricted Stock	—		—		—		—		—		21
ESPP			396				267				267
Equity			12,625				10,262				7,115
Total all share-based plans			$	23,028			$	43,011			$	94,981

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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 2015, 2014, and 2013, 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 2015, 2014, and 2013 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)	2015		2014		2013
Total compensation cost recognized	$	23,028	$	43,011	$	94,981
Less: Costs deferred as acquisition costs	500		1,047		1,769
Stock-based compensation expense	$	22,528	$	41,964	$	93,212

RSUs (Cash-Settled)

Performance-Based RSUs— In 2012, a total of 2,211,640 performance-based RSUs (to be settled in cash) were granted to eligible officers under the 2008 Equity Plan. These performance-based RSUs entitled grantees to a cash amount equal to the fair market value of RSUs that vested at the end of a three-year performance period in 2015. There were no cash-settled performance-based RSUs granted in 2015, 2014 or 2013.

Vesting of awards granted to both non-executives and executives in 2011 and 2012 was dependent upon the performance of Radian Group’s TSR 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 and 2013, certain non-executive officers were granted 1,470 and 7,670, 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. There were no cash-settled time-vested RSUs granted in 2015.

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, 2014	3,029,348		$	5.46
Granted	212,230		18.42
Exercised	(496,496	)	2.59
Forfeited	(52,625	)	8.89
Expired	—		—
Outstanding, December 31, 2015	2,692,457		6.94
Exercisable, December 31, 2015	1,435,232		4.44
Available for grant, December 31, 2015	2,803,988

In 2015, 2014 and 2013, 212,230, 289,500 and 279,650, respectively, of non-qualified stock options were granted to executive and certain non-executive officers. The weighted average grant date fair value per share of the stock options granted during 2015, 2014 and 2013 was $14.68, $12.18 and $10.95, respectively. The amount of cash received from the exercise of stock options for the years ended December 31, 2015, 2014 and 2013 was approximately $1.28 million, $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, 2015, 2014 and 2013 was $7.15 million, $0.19 million and $0.17 million, respectively, and the related tax benefits were approximately $2.50 million, $0.07 million and $0.06 million, respectively. The total intrinsic value of the stock options outstanding at December 31, 2015, 2014 and 2013 was $19.1 million, $34.1 million and $27.0 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, 2015:



($ in millions, except share and per share amounts)	Outstanding and Exercisable
Number of options vested	1,435,232
Fair value of options vested during the year	$	3.4
Weighted-average exercise price per share	$	4.44
Aggregate intrinsic value (excess market price over exercise price)	$	12.9
Weighted-average remaining contractual term of options (in years)	4.1 years

The following table summarizes information concerning outstanding and exercisable options at December 31, 2015:



	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	1,718,010	5.2	$	2.80	1,153,515	$	2.98
$5.76 - $7.06	47,967	2.2	6.92		47,967	6.92
$10.42 - $15.44	718,790	6.1	13.53		225,580	10.91
$18.42	207,690	3.0	18.42		8,170	18.42
	2,692,457	4.3			1,435,232

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



	Year Ended December 31,
	2015		2014		2013
Derived service period (years)	3.02 - 4.00		2.99 - 3.96		3.02 - 4.00
Risk-free interest rate (1)	2.32	%	2.57	%	1.96	%
Volatility (2)	93.70	%	94.26	%	94.63	%
Dividend yield	0.05	%	0.07	%	0.07	%

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(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 2015, 2014 and 2013, 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 $23.03 (125% of the option exercise price), $19.30 (125% of the option exercise price) and $17.49 (125% 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 $20.2 million at December 31, 2015, the excess would be reflected in the consolidated statements of operations.

RSUs (Equity Settled)

Performance-Based RSUs—In 2015, 2014 and 2013, executive and non-executive officers were granted a total of 499,740; 702,180; and 435,970; respectively, performance-based RSUs to be settled in common stock.

Vesting of awards granted to executive officers in 2015, 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 and subject to certain conditions. 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.

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:



	2015		2014		2013
Expected life	3 years		3 years		3 years
Risk-free interest rate	1.0	%	1.0	%	0.4	%
Volatility	40.6	%	71.9	%	81.8	%
Dividend yield	0.05	%	0.06	%	0.07	%

Time-Vested RSUs—In 2015, a total of 113,141 shares of time-vested RSUs to be settled in common stock were granted, including 56,970 shares awarded to non-executive officers and 56,171 shares awarded to non-employee directors. In 2014, a total of 170,176 shares of time-vested RSUs to be settled in common stock were granted, including 85,133 shares awarded to non-executive officers and 85,043 shares awarded to non-employee directors. In 2013, a total of 102,618 shares of time-vested RSUs to be settled in common stock were granted, including 13,260 shares awarded to non-executive officers and 89,358 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 generally 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, 2014	2,056,596		$	10.65
Granted	612,881		18.26
Vested	(121,989	)	5.83
Forfeited	(74,627	)	15.55
Unvested, December 31, 2015	2,472,861		12.62

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 94,676; 67,743; and 95,287 shares to employees during the years ended December 31, 2015, 2014 and 2013, 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 2015:



	January 1, 2015		July 1, 2015
Expected life	6 months		6 months
Risk-free interest rate	0.36	%	0.44	%
Volatility	35.03	%	26.83	%
Dividend yield	0.03	%	0.03	%

Unrecognized Compensation Expense

As of December 31, 2015, 2014 and 2013, unrecognized compensation expense related to the unvested portion of all of our share-based awards was approximately $11.7 million, $17.5 million and $31.9 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 2.4 years.