NOTE 13. LONG-TERM COMPENSATION

The 2012 LTIP provides for grants of awards to officers, directors, employees, and consultants of the Parent or its subsidiaries. Awards can be in the form of stock options (non-qualified options and incentive stock options), stock appreciation rights and full value awards (restricted stock, restricted stock units (“RSUs”), Operating Partnership units (“LTIP Units”), special outperformance plan type of LTIP Units and cash incentive awards). An LTIP Unit represents a partnership interest in the Operating Partnership. After vesting and the satisfaction of certain conditions, an LTIP Unit may be exchangeable for a common unit in the Operating Partnership and then redeemable for a share of common stock (or cash at the election of the Operating Partnership). No participant can be granted more than 1.5 million shares of common stock under the 2012 LTIP in any one calendar year. Awards may be made under the 2012 LTIP until it is terminated by the Board or until the ten-year anniversary of the effective date of the plan.

We have 27.2 million shares reserved for issuance, of which 19.4 million shares of common stock were available for future issuance at December 31, 2016. Each LTIP Unit counts as one share of common stock for purposes of calculating the limit on shares that may be issued.

Prologis Outperformance Plan (“POP” formerly “OPP”)

We allocate participation points to participants under our POP corresponding to three-year performance periods beginning January 1. The fair value of the awards are measured at the beginning of the performance period and amortized over the applicable performance period. POP awards are earned to the extent our total stockholder return (“TSR”) for the performance period exceeds the TSR for the Morgan Stanley Capital International (“MSCI”) US REIT Index for the same period plus 100 basis points (the “Index”). If this outperformance hurdle is met, the compensation pool is equal to 3% of the excess value created, subject to a maximum of the greater of $75 million or 0.5% of our equity market capitalization at the start of the performance period. Each participant is eligible to receive a percentage of the total compensation pool based on the number of participation points allocated to the participant. If the performance criteria are met, the participants’ points will generally be paid in the form of common stock or POP LTIP Units (as discussed below). If the performance criteria are not met, the participants’ points will be forfeited. Awards earned cannot be paid to participants unless our absolute TSR, as defined in the plan, is positive for the performance period. If we outperform the Index, but the absolute TSR is not positive, payment will be delayed until such time as our absolute TSR becomes positive. If after seven years our absolute TSR has not become positive, the awards will be forfeited.

The POP was amended in 2016. Starting with the 2016 – 2018 performance period, if the relevant performance thresholds are met, participants can earn POP awards for their share of an aggregate performance pool up to $75 million. If earned, these POP awards will be paid after the end of the initial three-year performance period. If our levels of outperformance warrant an aggregate performance pool greater than $75 million, then participants can earn their share of the additional award amount in excess of $75 million up to the Capitalization Cap (the “Excess Award Amount”) during the course of a three-year period after the end of the initial performance period. One-third of this Excess Award Amount can be earned at the end of each of the three years after the initial performance period, if our performance meets or exceeds the Index in each of such three years. POP continues to include certain positive TSR requirements, which must be met before participants can be paid awards under POP. In addition, participants will not be able to sell or transfer any equity they receive as initial or excess POP awards until three years after the end of the initial performance period. This amendment impacted the 2016 POP awards, but not the previously issued awards.

We use a Monte Carlo valuation model to value the points allocated under the POP. Participants can elect to choose the form of payment of awards earned, if any, in common stock of the Parent or POP LTIP Units. If and as elected by the participant, POP participation points are exchanged for POP LTIP Units. If the performance criteria are not met, the POP LTIP Units will be forfeited. At December 31, 2016, all awards are equity classified.

The following table details the assumptions using a Monte Carlo valuation model of each grant based on the year it was granted (dollars in thousands):

	2016			2015			2014
Risk free interest rate		0.99	%		0.86	%		0.67	%
Expected volatility		20.5	%		28.0	%		38.0	%
Aggregate fair value	$	26,600		$	26,500		$	23,100

The performance criteria was met for the 2014 – 2016 performance period, which resulted in an aggregate performance pool of $62.2 million awarded in January 2017 in the form of either vested RSUs or POP LTIP Units.

The performance criteria were not met for the 2012 – 2014 and 2013 – 2015 performance periods, therefore, no awards were earned and the awards were forfeited for such performance periods. As the POP has market-based performance criteria, there is no adjustment to the expense previously recognized at the completion of the performance period regardless of the outcome.

Prologis Promote Plan (“PPP”)

Under the PPP, we establish a compensation pool equal to 40% of the promotes earned by Prologis that represents the third-party portion of the promotes. The awards may be settled in some combination of cash, RSUs or for certain participants LTIP Units. The RSUs and LTIP Units have a three-year vesting period.

The following table details the equity awards granted under the PPP for the year ended December 31 (in thousands):

	2016		2015		2014
RSUs granted		77		-		57
Grant date fair value of RSUs granted	$	4,126	$	-	$	2,327
LTIP Units granted		197		-		113
Grant date fair value of LTIP Units granted	$	8,984	$	-	$	4,692

Restricted Stock Units (“RSUs”)

In addition to the RSUs granted under the PPP, we grant RSUs to certain employees, generally on an annual basis. Each RSU represents the right to receive one share of common stock of the Parent and generally vests over a continued service period. The RSUs earn cash dividends during the vesting period and are, therefore, considered participating securities. We charge the value of the dividend to retained earnings. The fair value of the RSU is generally based on the market price of the Parent’s common stock on the date the award is granted and is charged to compensation expense over the service period, which is generally three years.

The following table summarizes the activity for RSUs for the year ended December 31, 2016 (units in thousands):

	Number of RSUs			Weighted Average Grant-Date Fair Value		Number of RSUs Vested
Balance at January 1, 2016		1,626		$	42.21		109
Granted		843			38.53
Vested and distributed		(807	)		41.70
Forfeited		(45	)		41.08
Balance at December 31, 2016		1,617		$	40.58		125

Total remaining compensation cost related to RSUs outstanding at December 31, 2016, was $31.4 million, prior to adjustments for capitalized amounts due to our development and leasing activities. The remaining compensation cost will be recognized through 2019, with a weighted average period of 1.4 years.

Operating Partnership Long-Term Incentive Plan Units (“LTIP Units”)

LTIP Units are valued based on the market price of the Parent’s common stock on the date the award is granted and generally vest ratably over three years. Distributions are paid with respect to the LTIP Units during the vesting period and, therefore, such LTIP Units are considered participating securities. The value of the distribution is charged to Net Income Attributable to Noncontrolling Interests in the Operating Partnership.

The following table summarizes the activity for LTIP Units for the year ended December 31, 2016 (units in thousands):

	Number of LTIP Units		Weighted Average Grant-Date Fair Value		Number of LTIP Units Vested
Balance at January 1, 2016		1,244	$	42.21		303
Granted		975		39.01
Balance at December 31, 2016		2,219	$	40.81		743

Total remaining compensation cost related to LTIP Units at December 31, 2016, was $38.6 million, prior to adjustments for capitalized amounts due to our development and leasing activities. The remaining compensation cost will be recognized through 2019, with a weighted average period of 1.4 years.

Prologis Outperformance Plan Operating Partnership Long-Term Incentive Plan Units (“POP LTIP Units” formerly “OPP LTIP Units”)

At December 31, 2016, we had 0.8 million, 1.4 million and 1.3 million POP LTIP Units outstanding for the 2016 – 2018, 2015 – 2017 and 2014 – 2016 performance periods, respectively. The following table summarizes the activity for the POP LTIP Units for the year ended December 31, 2016 (units in thousands):

	Number of POP LTIP Units
Balance at January 1, 2016		3,464
Granted		953
Forfeited		(927	)
Balance at December 31, 2016		3,490

Stock Options

We have 2.1 million stock options outstanding and exercisable at December 31, 2016, with a weighted average exercise price of $36.14 and a weighted average life of 2.5 years. The aggregate intrinsic value of exercised options was $45.6 million, $13.7 million, and $5.8 million for the years ended December 31, 2016, 2015 and 2014, respectively. No stock options were granted in the three-year period ended December 31, 2016.

Other Plans

The Prologis 401(k) Plan (the “401(k) Plan”) provides for matching employer contributions of $0.50 for every dollar contributed by an employee, up to 6% of the employee’s annual compensation (within the statutory compensation limit). In the 401(k) Plan, vesting in the matching employer contributions is based on the employee’s years of service, with 100% vesting at the completion of one year of service. Our contributions under the matching provisions were $2.7 million, $2.5 million and $2.2 million for 2016, 2015 and 2014, respectively.

We have a non-qualified savings plan that allows highly compensated employees the opportunity to defer the receipt and income taxation of a certain portion of their compensation in excess of the amount permitted under the 401(k) Plan. There has been no employer matching in the three-year period ended December 31, 2016.