(19)EMPLOYEE COMPENSATION PLANS

Employee Benefit Plan

The Company currently has a 401(k) profit-sharing plan that allows participation by U.S. employees who have completed six months of service, as defined, and are 21 years of age or older. Participants may defer up to 75% of their gross pay, up to a maximum limit determined by U.S. federal law. Participants are also eligible for a matching contribution. The Company may from time to time, at its discretion, make a “matching contribution” based on the amount and rate of the elective deferrals. The Company determines how much, if any, it will contribute for each dollar of elective deferrals. Participants vest in matching contributions over a three-year period. Company matching contributions to the 401(k) plan(s) totaled $5.1 million, $4.6 million and $4.8 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Equity Compensation Plans

In February 1999, the Company adopted the TeleTech Holdings, Inc. 1999 Stock Option and Incentive Plan (the “1999 Plan”). An aggregate of 14.0 million shares of common stock were reserved for issuance under the 1999 Plan, which permitted the award of incentive stock options, non-qualified stock options, stock appreciation rights, shares of restricted common stock and restricted stock units (“RSUs”). The 1999 Plan also provided for annual equity-based compensation grants to members of the Company’s Board of Directors. Options granted to employees generally vested over four to five years and had a contractual life of ten years. Options issued to Directors vested immediately and had a contractual life of ten years. In May 2009, the Company adopted a policy to issue RSUs to Directors, which generally vest over one year.

In May 2010, the Company adopted the 2010 Equity Incentive Plan (the “2010 Plan”). Upon adoption of the 2010 Plan, all authorized and unissued equity in the 1999 Plan was cancelled. An aggregate of 4.0 million shares of common stock has been reserved for issuance under the 2010 Plan, which permits the award of incentive stock options, non-qualified stock options, stock appreciation rights, shares of restricted common stock and RSUs. As of December 31, 2016, a total of 4.0 million shares were authorized and 1.2 million shares were available for issuance under the 2010 Plan.

For the years ended December 31, 2016, 2015, and 2014, the Company recorded total equity-based compensation expense under all equity-based arrangements (stock options and RSUs) of $9.8 million, $11.3 million and $11.3 million, respectively. For 2016, 2015 and 2014, of the total compensation expense, $3.1 million, $2.9 million and $2.3 million was recognized in Cost of services and $6.7 million, $8.4 million and $9.0 million, was recognized in Selling, general and administrative in the Consolidated Statements of Comprehensive Income (Loss), respectively. For the years ended December 31, 2016, 2015, and 2014, the Company recognized a tax benefit under all equity-based arrangements (stock options and RSUs) of $5.0 million, $6.7 million and $6.3 million, respectively.

Restricted Stock Units

2014, 2015 and 2016 RSU Awards: The Company granted RSUs in 2014, 2015 and 2016 to new and existing employees that vest over four or five years. The Company also granted RSUs in 2014, 2015 and 2016 to members of the Board of Directors that vest over one year.

During 2011, the Company granted 100,000 performance-based RSUs to a key employee that vest based on the Company achieving specified revenue and operating income performance in 2014. The Company determined the performance targets were not met; and therefore these RSUs did not vest and were forfeited. During 2014, the Company granted to a different key employee RSUs based on revenue and operating income performance for a reporting segment of the Company; these performance conditions were partially met and therefore 8,394 RSUs were issued. These RSUs vest over a four year period.

During 2015, the Company granted performance-based RSUs to an executive the amount of which is determinable based on a reporting segment of the Company achieving incremental operating income for each year from 2015-2017. During 2015 and 2016, based on operating income performance for a reporting segment of the Company approximately $0.4 million and $0.1 million of RSUs were earned. These RSUs were or will be granted in March 2016 and March 2017, respectively, and will vest 12 months from the grant date.

Summary of RSUs: Settlement of the RSUs shall be made in shares of the Company’s common stock by delivery of one share of common stock for each RSU then being settled. The Company calculates the fair value for RSUs based on the closing price of the Company’s stock on the date of grant and records compensation expense over the vesting period using a straight-line method. The Company factors an estimated forfeiture rate in calculating compensation expense on RSUs and adjusts for actual forfeitures upon the vesting of each tranche of RSUs. The Company also factors in the present value of the estimated dividend payments that will have accrued as these RSUs are vesting.

The weighted average grant-date fair value of RSUs, including performance-based RSUs, granted during the years ended December 31, 2016, 2015, and 2014 was $26.60, $26.52, and $26.92, respectively. The total intrinsic value and fair value of RSUs vested during the years ended December 31, 2016, 2015, and 2014 was $10.8 million, $13.0 million, and $12.4 million, respectively.

A summary of the status of the Company’s non-vested RSUs and performance-based RSUs and activity for the year ended December 31, 2016 is as follows:


		Weighted
		Average
		Grant Date
	Shares	Fair Value

Unvested as of December 31, 2015	1,555,466	$	25.25
Granted	462,694	$	26.60
Vested	(438,931)	$	24.61
Cancellations/expirations	(411,608)	$	26.10
Unvested as of December 31, 2016	1,167,621	$	25.29

All RSUs vested during the year ended December 31, 2016 were issued out of treasury stock. As of December 31, 2016, there was approximately $20.0 million of total unrecognized compensation expense and approximately $35.6 million in total intrinsic value related to non-vested RSU grants. The unrecognized compensation expense will be recognized over the remaining weighted-average vesting period of 1.5 years using the straight-line method.

Stock Options

During the year ended December 31, 2011, the Company granted 150,000 stock options to a key employee. The stock option award is made up of four separate tranches. Each tranche will vest based on certain stock price targets (market conditions). The grant date fair values of each tranche were calculated using a Monte Carlo simulation model in addition to a time-based binomial lattice model. The following table provides the assumptions used in the time-based binomial lattice model for each tranche granted:


	Year Ended December 31,
	2011
Risk-free interest rate			2.1	%
Expected life in years	1.3	-	2.7
Expected volatility			54.4	%
Dividend yield			—	%
Weighted-average volatility			54.4	%

The Company estimated the expected term based on historical averages of option exercises and expirations. The calculation of expected volatility is based on the historical volatility of the Company’s common stock over the expected term. The risk-free interest rate is based on the yield on the grant measurement date of a traded zero-coupon U.S. Treasury bond, as reported by the U.S. Federal Reserve, with a term equal to the expected term of the stock option granted. The Company factored an estimated forfeiture rate and adjusted for actual forfeitures upon the vesting of each tranche of options.

A summary of stock option activity for the year ended December 31, 2016 is as follows:


				Weighted
		Weighted		Average	Aggregate
		Average		Remaining	Intrinsic
		Exercise		Contract	Value
	Shares	Price		Term in Years	(000’s)

Outstanding as of December 31, 2015	241,164	$	21.11
Exercises	(29,031)	$	12.98		$	400
Post-vest cancellations/expirations	(20,467)	$	16.46
Outstanding as of December 31, 2016	191,666	$	22.83	3.23	$

Vested and exercisable as of December 31, 2016	75,000	$	31.42	0.68	$	(69)

During the third quarter of 2015, Mr. Kenneth D. Tuchman, the Chairman and Chief Executive Officer of TeleTech, exercised the option he received from the Company in 2005 to purchase 800,000 shares of TeleTech stock at the strike price of $11.35 per share. To effectuate a “cashless exercise” of the option, on August 24, 2015, Mr. Tuchman entered into a Stock Purchase Agreement with the Company, under the terms of which he exercised the option at the end of business on August 31, 2015 and, upon issuance of the option shares, sold to TeleTech, in a simultaneous transaction, a number of shares necessary to pay the option exercise price plus any tax withholding obligations. The option shares were valued at the market price of the close of business on that date. Mr. Tuchman’s option, granted under TeleTech’s 1999 Stock Option and Incentive Plan, was fully vested and set to expire in November, 2015, The Stock Purchase Agreement was approved by the independent members of TeleTech’s Board of Directors who deemed it to be in the best interest of the Company and all its shareholders.

There were no stock options granted during 2016, 2015 or 2014. The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $400 thousand, $13.9 million and $0.8 million, respectively. The total fair value of stock options vested during the years ended December 31, 2016, 2015 and 2014 was zero, respectively.

As of December 31, 2016, there was approximately $100 thousand of unrecognized compensation expense related to non-vested stock options. The unrecognized compensation expense will be recognized over the remaining weighted-average derived service period of 1.4 years using the straight-line method.

Cash received from option exercises under the Plans for the years ended December 31, 2016, 2015 and 2014 was $0.4 million, $0.8 million and $0.4 million, respectively. The recognized tax benefit from option exercises for the years ended December 31, 2016, 2015 and 2014 was $0.2 million, $1.0 million and $0.3 million, respectively. Shares issued for options exercised during the year ended December 31, 2016 were issued out of treasury stock.