28. Share-based payments

Share-based payments consist of the following compensation costs:



Year ended December 31,		2017		2016		2015
Stock option compensation expense:
SG&A expenses	$	8,948	$	5,507	$	4,001
Acquisition-related costs		4,752		-		-
Share unit expense:
Equity-classified share units		3,529		1,981		-
Liability-classified share units		670		10,512		5,673
Employee share purchase plan -
employer contributions		1,813		1,597		1,332
	$	19,712	$	19,597	$	11,006

Share unit expense and employer contributions to the employee share purchase plan are recognized in SG&A expenses.

Stock option plans

The Company has three stock option plans that provide for the award of stock options to selected employees, directors and officers of the Company: a) Amended and Restated Stock Option Plan, b) IronPlanet 1999 Stock Plan, and c) IronPlanet 2015 Stock Plan. The IronPlanet 1999 Stock Plan and IronPlanet 2015 Stock Plan were assumed by the Company as part of the acquisition of IronPlanet (note 32).

Stock options are granted with an exercise price equal to the fair market value of the Company‘s common shares at the grant date, with vesting periods ranging from immediate to five years and terms not exceeding 10 years. At December 31, 2017, there were 3,402,481 (December 31, 2016: 4,202,631) shares authorized and available for grants of options under the stock option plans.

28. Share-based payments (continued)

Stock option plans (continued)

Stock option activity for the years ended December 31, 2017, 2016, and 2015 is presented below:



					WA
	Common			WA	remaining			Aggregate
	shares under			exercise	contractual			intrinsic
	option	price			life (in years)	value

Outstanding, December 31, 2014	3,897,791			22.09
Granted	880,706			25.50
Exercised	(1,412,535)			21.11			$	9,426
Forfeited	(89,884)			23.10

Outstanding, December 31, 2015	3,276,078			23.40
Granted	1,268,101			24.34
Exercised	(1,081,531)			22.50			$	9,380
Forfeited	(95,934)			24.32

Outstanding, December 31, 2016	3,366,714		$	24.02
Granted	970,947			31.07
Assumed in acquisition (note 32)	737,358			14.26
Exercised	(444,571)			22.35			$	3,762
Forfeited	(170,704)			19.38
Outstanding, December 31, 2017	4,459,744		$	24.29	7.5		$	17,649
Exercisable, December 31, 2017	1,918,220		$	23.02	6.2		$	10,894

The options outstanding at December 31, 2017 expire on dates ranging to November 16, 2027. The WA share price of options exercised during the year ended December 31, 2017 was $30.81 (2016: $31.18; 2015: $27.78). The WA grant date fair value of options granted during the year ended December 31, 2017 was $7.22 per option (2016: $4.72; 2015: $5.39).

The compensation expense arising from option grants is amortized over the relevant vesting periods of the underlying options. As at December 31, 2017, the unrecognized stock-based compensation cost related to the non-vested stock options was $6,610,000, which is expected to be recognized over a weighted average period of 2.2 years. Cash received from stock-based award exercises for the year ended December 31, 2017 was $9,935,000 (2016: $24,338,000; 2015: $29,816,000). The actual tax benefit realized for the tax deductions from option exercise of the share based payment arrangements totaled $1,017,000 for the year ended December 31, 2017 (2016: $1,464,000; 2015: $1,150,000).

28. Share-based payments (continued)

Stock option plans (continued)

The fair value of the stock option grants was estimated on the date of the grant using the Black-Scholes option pricing model. The significant assumptions used to estimate the fair value of stock options granted during the years ended December 31, 2017, 2016, and 2015 are presented in the following table on a weighted average basis:



Year ended December 31,	2017	2016	2015
Risk free interest rate	2.0%	1.2%	1.8%
Expected dividend yield	2.15%	2.66%	2.18%
Expected lives of the stock options	5 years	5 years	5 years
Expected volatility	27.8%	26.5%	26.4%

The fair value of the assumed stock options is estimated on the IronPlanet acquisition date using the Black-Scholes option pricing model. The weighted average fair value of the assumed options was $16.93. The significant assumptions used to estimate the fair value of these assumed stock options are presented in the following table on a weighted average basis:



Year ended December 31,	2017
Risk free interest rate	0.8%
Expected dividend yield	2.19%
Expected lives of the stock options	0.4 years
Expected volatility	32.1%

28. Share-based payments (continued)

Share unit plans

Share unit activity for the years ended December 31, 2017, 2016, and 2015 is presented below:



	Equity-classified awards						Liability-classified awards
	PSUs			RSUs			PSUs (1)			RSUs			DSUs
		WA grant			WA grant			WA grant			WA grant			WA grant
			date fair			date fair			date fair			date fair			date fair
	Number		value	Number		value	Number		value	Number		value	Number		value

Outstanding, December 31, 2014	-	$	-	-	$	-	238,573	$	23.38	403,587	$	22.32	42,289	$	22.33
Granted	-		-	-		-	218,699		24.57	20,528		26.38	29,072		26.07
Vested and settled	-		-	-		-	(6,870)		22.22	(28,887)		22.53	(13,365)		22.34
Forfeited	-		-	-		-	(28,817)		23.23	(62,274)		21.56	-		-

Outstanding, December 31, 2015	-	$	-	-	$	-	421,585	$	24.03	332,954	$	22.70	57,996	$	24.21
Granted	7,714		31.40	-		-	257,117		23.32	4,543		29.33	17,371		29.41
Transferred to (from) equity
awards on modification	257,934		27.34	-		-	(257,934)		23.86	-		-	-		-
Vested and settled	-		-	-		-	(68,683)		23.08	(162,306)		22.23	(1,847)		25.28
Forfeited	(21,680)		27.43	-		-	(40,756)		22.75	(15,182)		22.68	-		-

Outstanding, December 31, 2016	243,968	$	27.48	-	$	-	311,329	$	23.96	160,009	$	23.37	73,520	$	25.41
Granted	136,073		30.28	125,152		26.93	98,775		31.21	878		32.30	19,967		29.67
Transferred to (from) equity
awards on modification	81,533		24.47	-		-	(81,533)		24.66	-		-	-		-
Vested and settled	(27,326)		26.82	-		-	(49,873)		23.64	(156,221)		23.33	-		-
Forfeited	-		-	-		-	(19,457)		26.39	-		-	-		-
Outstanding, December 31, 2017	434,248	$	27.83	125,152	$	26.93	259,241	$	26.38	4,666	$	26.42	93,487	$	26.32

(1)

Liability-classified PSUs include PSUs awarded under the employee PSU plan and the previous 2013 PSU plan, in place prior to 2015, that are cash-settled and not subject to market vesting conditions.

The total market value of share units vested and released during the year ended December 31, 2017 was $6,521,000 (2016: $4,463,000; 2015: $1,253,000). As at December 31, 2017, the Company had a total share unit liability of $8,274,000 (December 31, 2016: $14,665,000) in respect of share units under the PSU, RSU, and DSU plans described herein. The compensation expense arising from share unit grants is amortized over the relevant vesting periods of the underlying units.

Senior executive and employee PSU plans

The Company grants PSUs under a senior executive PSU plan and an employee PSU plan (the “PSU Plans”). Under the PSU Plans, the number of PSUs that vest is conditional upon specified market, service, and performance vesting conditions being met.

The market vesting condition is based on the relative performance of the Company’s share price in comparison to the performance of a pre-determined portfolio of other companies’ share prices. The non-market vesting conditions are based on the achievement of specific performance measures and can result in participants earning between 0% and 200% of the target number of PSUs granted.

28. Share-based payments (continued)

Share unit plans (continued)

Prior to May 2, 2016, the Company was only able to settle the PSU awards under the PSU Plans in cash, and as such, both new plans were classified as liability awards. On May 2, 2016 (the “modification date”), the shareholders approved amendments to the PSU Plans, allowing the Company to choose whether to settle the awards in cash or in shares. With respect to settling in shares, the Company has the option to either (i) arrange for the purchase shares on the open market on the employee’s behalf based on the cash value that otherwise would be delivered, or (ii) to issue a number of shares equal to the number of units that vest.

Under the first option, the shareholders authorized an unlimited number of open-market purchases of common shares for settlement of the PSUs. Under the second option, the shareholders authorized 1,000,000 shares to be issued for settlement of the PSUs.

On the modification date, the employee PSU plan remained classified as a liability and the senior executive PSU plan awards were reclassified to equity awards, based on the Company’s settlement intentions for each plan which remain unchanged at December 31, 2017. The fair value of the senior executive awards outstanding on the modification date was $27.34. The share unit liability, representing the portion of the fair value attributable to past service, was $2,105,000, which was reclassified to equity on that date. No incremental compensation was recognized as a result of the modification. Unrecognized compensation expense based on the fair value of the senior executive PSU awards on the modification date will be amortized over the remaining service period.

Because the PSUs awarded under the PSU Plans are contingently redeemable in cash in the event of death of the participant, on the modification date, the Company reclassified $2,175,000 to temporary equity, representing the portion of the contingent redemption amount of the senior executive PSU awards as if redeemable on May 2, 2016, to the extent attributable to prior service.

PSUs awarded under the PSU Plans are subject to market vesting conditions. The fair value of the liability-classified PSUs awarded under the employee PSU plan is estimated on the date of grant and at each reporting date using a binomial model.

The significant assumptions used to estimate the fair value of the liability-classified PSUs awarded under the employee PSU plan during 2017 and 2016 are presented in the following table on a weighted average basis:



Year ended December 31,	2017	2016	2015
Risk free interest rate	1.5%	1.2%	1.3%
Expected dividend yield	2.01%	2.40%	2.17%
Expected lives of the PSUs	3 years	3 years	3 years
Expected volatility	28.9%	29.7%	24.4%
Average expected volatility of comparable companies	33.4%	37.0%	32.8%

Risk free interest rate is estimated using Bloomberg’s United States dollar Swap Rate as of the valuation date. Expected dividend yield assumes a continuation of the most recent quarterly dividend payments. Given the limited historical information available for the PSUs, the Company estimated the expected life of PSUs with reference to the expected life of stock options. Stock options have five-year expected lives, whereas PSUs vest after three years. As such, the Company estimates the expected life of the PSUs to equal the three-year vesting period. Expected volatility is estimated from Bloomberg’s volatility surface of the common shares as of the valuation date. The unrecognized share unit expense related to liability-classified PSUs was $3,163,000, which is expected to be recognized over a weighted average period of 1.6 years.

28. Share-based payments (continued)

Share unit plans (continued)

Senior executive and employee PSU plans (continued)

The fair value of the equity-classified PSUs awarded under the senior executive PSU plan is estimated on modification date and on the date of grant using a binomial model. The significant assumptions used to estimate the fair value of the equity-classified PSUs awarded under the senior executive PSU plan during 2017 and 2016 are presented in the following table on a weighted average basis:



Year ended December 31,	2017	2016
Risk free interest rate	1.4%	1.2%
Expected dividend yield	1.92%	2.50%
Expected lives of the PSUs	3 years	3 years
Expected volatility	28.2%	29.9%
Average expected volatility of comparable companies	37.0%	37.0%

As at December 31, 2017, the unrecognized share unit expense related to equity-classified PSUs was $5,280,000, which is expected to be recognized over a weighted average period of 1.7 years.

Sign-on grant PSUs

On August 11, 2014, the Company awarded 102,375 one-time sign-on grant PSUs (the “SOG PSUs”). The SOG PSUs were cash-settled and subject to market vesting conditions related to the Company’s share performance over rolling two, three, four, and five-year periods.

Prior to May 1, 2017, the Company was only able to settle the SOG PSU award in cash, and as such, the plan was classified as a liability award. On May 1, 2017 (the “SOG modification date”), the shareholders approved amendments to the SOG PSU grant, allowing the Company to choose whether to settle the award in cash or in shares. With respect to settling in shares, the new settlement options allow the Company to issue a number of shares equal to the number of units that vest. The shareholders authorized 150,000 shares to be issued for settlement of the PSUs.

On the SOG modification date, the SOG PSU award was reclassified to equity award, based on the Company’s settlement intentions. The weighted average fair value of the SOG PSU award outstanding on the modification date was $24.47. The share unit liability, representing the portion of the fair value attributable to past service, was $1,421,000, which was reclassified to equity on that date. No incremental compensation was recognized as a result of the modification. Unrecognized compensation expense based on the fair value of the SOG PSU award on the modification date will be amortized over the remaining service period.

Because the PSUs awarded under the new plans are contingently redeemable in cash in the event of death of the participant, on the SOG modification date, the Company reclassified $1,803,000 to temporary equity, representing the portion of the contingent redemption amount of the SOG PSUs as if redeemable on May 1, 2017, to the extent attributable to prior service.

28. Share-based payments (continued)

Share unit plans (continued)

Sign-on grant PSUs (continued)

The fair value of the equity-classified SOG PSUs is estimated on SOG modification date and on the date of grant using a binomial model. The significant assumptions used to estimate the fair value of the equity-classified PSUs for the year ended December 31, 2017 are presented in the following table on a weighted average basis:



Year ended December 31,		2017
Risk free interest rate		1.6%
Expected dividend yield		2.54%
Expected lives of the PSU		4 years
Expected volatility		28.6%

RSUs and DSUs

The Company has RSU and DSU plans that were cash-settled and not subject to market vesting conditions.

Prior to November 8, 2017, the Company was only able to settle the RSU awards in cash, and as such, the RSUs were classified as liability awards, which are fair valued on grant date and at each reporting date using the 20-day volume weighted average price of the Company’s common shares listed on the New York Stock Exchange. On November 8, 2017 (the “RSU modification date”), the Board of Directors approved amendments to the RSU plans, allowing the Company to choose whether to settle the awards in cash or in shares for new RSUs granted after the RSU modification date. With respect to settling in shares, the Company has the option to either (i) arrange for the purchase shares on the open market on the employee’s behalf based on the cash value that otherwise would be delivered, or (ii) to issue a number of shares equal to the number of units that vest, net of any applicable withholding, if any. The Company has registered 300,000 shares to be issued for settlement of the RSUs which will be proposed for shareholder approval at the next annual general meeting. As at December 31, 2017, the unrecognized share unit expense related to equity-classified RSUs was $2,980,000, which is expected to be recognized over a weighted average period of 2.9 years, and the unrecognized share unit expense related to liability-classified RSUs was $37,000, which is expected to be recognized over a weighted average period of 0.8 years.

Fair values of DSUs are estimated on grant date and at each reporting date using the 20-day volume weighted average price of the Company’s common shares listed on the New York Stock Exchange. DSUs are granted under the DSU plan to members of the Board of Directors. There is no unrecognized share unit expense related to liability-classified DSUs as they vest immediately and are expensed upon grant.

Employee share purchase plan

The Company has an employee share purchase plan that allows all employees that have completed one year of service to contribute funds to purchase common shares at the current market value at the time of share purchase. Employees may contribute up to 4% of their salary. The Company will match between 50% and 100% of the employee‘s contributions, depending on the employee‘s length of service with the Company.