Share-Based and Other Compensation Programs

On May 14, 2014, our stockholders approved our most recent equity compensation plan, the 2014 Equity Plan. The 2014 Equity Plan replaced our prior equity plan, the 2008 Equity Compensation Plan, which replaced our 1995 Equity Plan. We have awards outstanding under all three of these Equity Plans. 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 performance-based or time-vested awards in the form of non-qualified stock options, restricted stock, RSUs, phantom stock, or SARs. The maximum contractual term for all awards under the Equity Plans is 10 years.

The 2014 Equity Plan authorizes the issuance of up to 6,423,163 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 1,004,109 shares remaining available for grant under the 2014 Equity Plan as of December 31, 2016 (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 4,269,701 shares as of December 31, 2016.

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 (subject to certain conditions discussed below).


•	Generally, the awards vest immediately upon a grantee’s death or disability, or at the end of the performance or service period in the event of 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.


•	Generally, effective July 9, 2015, the performance RSUs granted to executive officers include a one-year post-vesting holding period, such that the vested awards will not be convertible into shares (other than shares withheld to pay taxes due at vesting) until the one-year anniversary following the vesting date of the awards, except in the event of death or disability.

In the event of a hypothetical change of control as of December 31, 2016, we estimate that the vesting of awards, assuming for purposes of this hypothetical that “double trigger” vesting occurred, would have resulted in a pretax accounting charge to us of approximately $11.3 million, representing the acceleration of compensation expense.

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. 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)	2016					2015				2014
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	$	18	$	(718	)	$	3,595	$	10,244	$	65,157	$	31,834
SARs—Cash-Settled	—		—			—		159		595		915
Liabilities	$	18	$	(718	)	$	3,595	$	10,403	$	65,752	$	32,749
Equity:
RSUs—Equity Settled	3,208,454		13,285			2,472,861		9,243		2,056,596		7,461
Non-Qualified Stock Options	2,839,738		3,286			2,692,457		2,984		3,029,348		2,531
Phantom Stock	234,174		2			230,196		2		284,645		3
ESPP			449					396				267
Equity			17,022					12,625				10,262
Total all share-based plans			$	16,304				$	23,028			$	43,011

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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 2016, 2015, and 2014, 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 2016, 2015, and 2014 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)	2016		2015		2014
Total compensation cost recognized	$	16,304	$	23,028	$	43,011
Less: Costs deferred as acquisition costs	206		500		1,047
Stock-based compensation expense	$	16,098	$	22,528	$	41,964

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 after 2012.

Vesting of awards granted to both non-executives and executives in 2012 was dependent upon the performance of Radian Group’s TSR relative to the TSR of a performance peer group. Based on performance during the three-year performance period, grantees were entitled to a maximum payout of 200% of their 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 was 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. These RSU awards vest in their entirety three years from the date of grant, or earlier, upon retirement, death or disability. No cash-settled time-vested RSUs were granted subsequent to 2014.

RSUs (Equity Settled)

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, 2015	2,472,861		$	12.62
Granted	1,264,858		$	11.79
Vested	(431,520	)	$	13.47
Forfeited	(97,745	)	$	16.00
Unvested, December 31, 2016	3,208,454		$	12.08

Performance-Based RSUs—In 2016, 2015 and 2014, executive and non-executive officers were granted a total of 701,110; 499,740; and 702,180; respectively, of performance-based RSUs to be settled in common stock. 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 vesting of 50% of the target awards granted to each executive officer in 2016 is dependent upon (i) Radian Group’s TSR compared to the median TSR of a designated peer group of companies as of the date of grant (the “Relative TSR Measure”) and (ii) Radian Group’s absolute TSR (“Absolute TSR Measure,” and together with the Relative TSR Measure, the “TSR Measures”), in each case measured over a three-year performance period and subject to certain conditions. The remaining 50% of each executive officer’s target award will vest based on the cumulative growth in Radian’s book value per share, adjusted for certain defined items, over a three-year performance period. The vesting of performance-based RSUs granted to non-executives in 2016 is entirely based on the Relative TSR Measures described above.

The vesting of 100% of the target awards granted to executive officers and non-executives in 2015 and 2014 is dependent upon Radian Group’s TSR Measures, as described above.

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:



	2016		2015		2014
Expected life	3 years		3 years		3 years
Risk-free interest rate (1)	0.9	%	1.0	%	1.0	%
Volatility of Radian’s stock (2)	29.7	%	40.6	%	71.9	%
Average volatility of peer companies (3)	38.2	%	24.0	%	30.0	%
Dividend yield	0.08	%	0.05	%	0.06	%
Discount rate (4)	10.7	%	13.9	%	—	%

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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 of Radian’s stock is used in the calculation of the grant date fair value of the portion of the awards based on TSR Measures, as described above. Volatility of Radian’s stock is not an applicable assumption for valuing the portion of the awards based on the cumulative growth in Radian’s book value per share. Volatility is determined at the date of grant using the historical share price volatility and the expected life of each award.


(3)	Average volatility of peer companies is used in the calculation of the grant date fair value of the portion of the awards based on the Relative TSR Measures, as described above.


(4)	A discount is applied to executive officer awards to reflect illiquidity during the one-year post-vesting holding period.

Time-Vested RSUs—In 2016, a total of 273,726 shares of time-vested RSUs to be settled in common stock were granted, including 180,380 shares awarded to certain executives and non-executive officers and 93,346 shares awarded to non-employee directors. 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. 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.

Non-Qualified Stock Options

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



($ in thousands, except per-share amounts)	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding, December 31, 2015	2,692,457		$	6.94
Granted	342,090		$	12.18
Exercised	(162,998	)	$	4.40
Forfeited	(31,811	)	$	14.17
Expired	—		$	—
Outstanding, December 31, 2016	2,839,738		$	7.64	5.3	$	29,450
Exercisable, December 31, 2016	1,970,659		$	4.57	3.9	$	26,440
Available for grant, December 31, 2016	1,004,109

The following table summarizes information concerning stock option activity for the periods indicated:



	Years Ended December 31,
($ in thousands, except per-share amounts)	2016		2015		2014
Granted (number of shares)	342,090		212,230		289,500
Weighted average grant date fair value per share (1)	$	9.72	$	14.68	$	12.18
Aggregate intrinsic value of options exercised	$	1,519	$	7,146	$	192
Tax benefit of options exercised	$	532	$	2,501	$	67
Cash received from options exercised	$	717	$	1,285	$	259

______________________


(1)	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,
	2016		2015		2014
Derived service period (years)	3.02 - 4.00		3.02 - 4.00		2.99 - 3.96
Risk-free interest rate (a)	1.72	%	2.32	%	2.57	%
Volatility (b)	94.20	%	93.70	%	94.26	%
Dividend yield	0.08	%	0.05	%	0.06	%

______________________


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


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

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 following table summarizes information concerning outstanding and exercisable options at December 31, 2016:



	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	1,592,785	4.1	$	2.83	1,592,785	$	2.83
$5.76 - $7.06	43,674	1.2	$	6.91	43,674	$	6.91
$10.42 - $15.44	1,006,456	6.7	$	13.17	320,270	$	12.27
$18.42	196,823	8.5	$	18.42	13,930	$	18.42
	2,839,738	5.3	$	7.64	1,970,659	$	4.57

Generally, the stock option awards have a 10-year term, with 50% of the award vesting on or after the third anniversary of the grant date and the remaining 50% of the award vesting on or after the fourth anniversary of the grant date, provided the applicable stock price performance hurdle is met, as described below. The fair value of stock options vested during the year ended December 31, 2016 was $3.8 million.

For stock option awards granted in 2016, 2015 and 2014, 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 approximately $15.20, $23.03 and $19.30 (in each case, 125% of the option exercise price), respectively, for 10 consecutive trading days ending on or after the third anniversary of the date of grant.

We elected to apply the short-cut method, under the accounting standard regarding share-based payment, to account for the windfall tax benefits that may result from the exercise of stock options. Effective January 1, 2017, upon the implementation of the update to the accounting standard regarding stock-based compensation, future windfalls and shortfalls resulting from cancellations, expirations or exercises of stock options will be reflected in the consolidated statements of operations as part of our income tax provision (benefit), as they occur. See Note 2.

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 151,121; 94,676; and 67,743 shares to employees during the years ended December 31, 2016, 2015 and 2014, 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 or end of a six month offering period (each period being the first and second six months in a calendar year).

The following are assumptions used in our calculation of ESPP compensation expense during 2016:



	January 1, 2016		July 1, 2016
Expected life	6 months		6 months
Risk-free interest rate	0.83	%	0.92	%
Volatility	32.99	%	37.52	%
Dividend yield	0.08	%	0.10	%

Unrecognized Compensation Expense

As of December 31, 2016, 2015 and 2014, unrecognized compensation expense related to the unvested portion of all of our share-based awards was $11.3 million, $11.7 million and $17.5 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 2.1 years.