17. Share-based payments

Share-based payments consist of the following compensation costs:



Three months ended March 31,		2018		2017
Stock option compensation expense:
SG&A expenses	$	2,148	$	1,311
Acquisition-related costs		195		-
Share unit expense (recovery):
Equity-classified share units		3,035		1,012
Liability-classified share units		1,599		(407)
Employee share purchase plan -
employer contributions		537		436
	$	7,514	$	2,352

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

Stock option plan

Stock option activity for the three months ended March 31, 2018 is presented below:

y

					WA
	Common			WA	remaining			Aggregate
	shares under			exercise	contractual			intrinsic
	option	price			life (in years)	value
Outstanding, December 31, 2017	4,459,744		$	24.29	7.5		$	17,649
Granted	889,169			32.16
Exercised	(202,112)			21.34			$	2,215
Forfeited	(19,662)			22.25
Outstanding, March 31, 2018	5,127,139		$	25.78	7.7		$	30,313
Exercisable, March 31, 2018	2,675,935		$	24.13	6.7		$	19,839

The fair value of the stock option grants is estimated on the date of the grant using the Black-Scholes option pricing model. The weighted average grant date fair value of options granted during the three months ended March 31, 2018 was $7.67.

17. Share-based payments (continued)

Stock option plan (continued)

The significant assumptions used to estimate the fair value of stock options granted during the three months ended March 31, 2018 and 2017 are presented in the following table on a weighted average basis:



Three months ended March 31,	2018	2017
Risk free interest rate	2.7%	2.1%
Expected dividend yield	2.11%	2.05%
Expected lives of the stock options	5 years	5 years
Expected volatility	28.1%	27.9%

As at March 31, 2018, the unrecognized stock-based compensation cost related to the non-vested stock options was $10,976,000 which is expected to be recognized over a weighted average period of 2.5 years.

Share unit plans

Share unit activity for the three months ended March 31, 2018 is presented below:



	Equity-classified awards						Liability-classified awards
	PSUs			RSUs			PSUs			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, 2017	434,248	$	27.83	125,152	$	26.93	259,241	$	26.38	4,666	$	26.42	93,487	$	26.32
Granted	223,484		31.37	88,120		31.98	-		-	25		32.26	5,475		32.05
Transferred to (from) equity
awards on modification	257,659		31.30	-		-	(257,659)		26.38	-		-	-		-
Forfeited	(15,519)		31.28	-		-	(1,582)		26.45	-		-	-		-
Outstanding, March 31, 2018 (1)	899,872	$	30.87	213,272	$	29.02	-	$	-	4,691	$	26.45	98,962	$	26.64

(1)

Included in this total are 184,329 equity-classified PSUs that were vested but not settled at March 31, 2018. These vested share units had WA grant date fair values of $31.99 respectively.

As at March 31, 2018, the unrecognized share unit expense related to equity-classified PSUs was $13,656,668, which is expected to be recognized over a weighted average period of 2.2 years. The unrecognized share unit expense related to equity-classified RSUs was $5,696,935, which is expected to be recognized over a weighted average period of 2.8 years. The unrecognized share unit expense related to liability-classified RSUs was $30,024, which is expected to be recognized over a weighted average period of 0.6 years. There is no unrecognized share unit expense related to liability-classified DSUs as they vest immediately upon grant.

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 PSU Plans allow 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.

17. Share-based payments (continued)

Share unit plans (continued)

Senior executive and employee PSU plans (continued)

On March 1, 2018, the Company modified the market and performance vesting conditions for the PSUs. Concurrently, the employee PSU plan were reclassified to equity awards, based on the Company’s settlement intentions. The weighted average fair value of the PSU awards outstanding on the modification date was $31.35. The incremental compensation recognized as a result of the vesting condition modification was $1,400,000. The share unit liability related to the employee PSUs, representing the portion of the fair value attributable to past service, was $6,701,000, which was reclassified to equity on that date. No incremental compensation was recognized as a result of the employee PSU settlement modification. Because the employee PSUs are contingently redeemable in cash in the event of death of the participant, on the modification date, the Company reclassified $6,132,000 to temporary equity, representing the portion of the contingent redemption amount of the PSUs as if redeemable on March 1, 2018, to the extent attributable to prior service.

The fair value of the equity-classified PSUs 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 during the three months ended March 31, 2018 and 2017 are presented in the following table on a weighted average basis:



Three months ended March 31,	2018	2017
Risk free interest rate	1.9%	1.4%
Expected dividend yield	2.09%	1.92%
Expected lives of the PSUs	3 years	3 years
Expected volatility	31.1%	28.2%
Average expected volatility of comparable companies	34.1%	37.0%