18. Share-based payments

Share-based payments consist of the following compensation costs:



	Three months ended				Nine months ended
	September 30,				September 30,
		2018		2017		2018		2017
Stock option compensation expense:
SG&A expenses	$	2,066		2,920	$	6,354	$	6,244
Acquisition-related costs		162		-		357		4,752
Share unit expense (recovery):
Equity-classified share units		2,718		(176)		8,978		1,871
Liability-classified share units		300		821		2,245		246
Employee share purchase plan -
employer contributions		538		468		1,630		1,350
	$	5,784	$	4,033	$	19,564	$	14,463

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 nine months ended September 30, 2018 is presented below:



					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	914,967			32.12
Exercised	(1,154,541)			23.45			$	13,472
Forfeited	(77,644)			27.04
Expired	(1,302)			25.76
Outstanding,September 30, 2018	4,141,224		$	26.20	7.4		$	41,122
Exercisable, September 30, 2018	2,107,984		$	24.08	6.4		$	25,401

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 nine months ended September 30, 2018 was $7.68.

The significant assumptions used to estimate the fair value of stock options granted during the nine months ended September 30, 2018 and 2017 are presented in the following table on a weighted average basis:



Nine months ended September 30,	2018	2017
Risk free interest rate	2.7%	2.0%
Expected dividend yield	2.11%	2.14%
Expected lives of the stock options	5 years	5 years
Expected volatility	28.1%	27.8%

18. Share-based payments (continued)

As at September 30, 2018, the unrecognized stock-based compensation cost related to the unvested stock options was $6,485,000 which is expected to be recognized over a weighted average period of 2.1 years.

Share unit plans

Share unit activity for the nine months ended September 30, 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	235,426		35.70	90,147		32.08	-		-	66		34.70	19,448		33.36
Transferred to equity
awards on modification	257,659		31.30	-		-	(257,659)		26.38	-		-	-		-
Vested and settled	(212,263)		33.78	-		-	-		-	(975)		27.58	(6,605)		23.16
Forfeited	(43,071)		31.42	(5,219)		31.99	(1,582)		26.45	-		-	-		-
Outstanding, September 30, 2018	671,999	$	31.45	210,080	$	29.02	-	$	-	3,757	$	26.27	106,330	$	27.80

At September 30, 2018, the unrecognized share unit expense related to equity-classified PSUs was $9,597,000 which is expected to be recognized over a weighted average period of 1.8 years. The unrecognized share unit expense related to equity-classified RSUs was $4,540,000 which is expected to be recognized over a weighted average period of 2.3 years. The unrecognized share unit expense related to liability-classified RSUs was $6,000, which is expected to be recognized over a weighted average period of 0.1 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.

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.

18. Share-based payments (continued)

Senior executive and employee PSU plans (continued)

The fair value of the equity-classified PSUs is estimated on modification date and on the date of grant using a Monte-Carlo simulation model. The significant assumptions used to estimate the fair value of the equity-classified PSUs during the nine months ended September 30, 2018 are presented in the following table on a weighted average basis:



Nine months ended September 30,		2018
Risk free interest rate		1.9%
Expected dividend yield		2.09%
Expected lives of the PSUs		3 years
Expected volatility		31.1%
Average expected volatility of comparable companies		34.1%

Sign-on grant PSUs

On September 11, 2018, the Company modified the performance vesting conditions for the sign-on grant PSUs which are equity classified PSU awards recorded in temporary equity. The modification impacted the third and fourth tranches of PSUs to vest, and the actual number of units to vest will be determined by the Board of Directors of the Company based on absolute Total Shareholder Return (“TSR”) performance over the period commencing on July 1, 2017, and ending on the fourth and fifth anniversaries of the grant date. Prior to this modification, the absolute TSR performance period commenced on August 11, 2014. The weighted average fair value of the PSU awards outstanding on the modification date was $43.34. The incremental compensation recognized as a result of the vesting condition modification was $838,000.

The incremental compensation recognized is determined based on the change in fair value of the equity-classified sign-on grant PSUs immediately before and after the modification. Significant assumptions used to estimate the fair value of the equity-classified PSUs to determine the incremental compensation cost is as follows:



September 11, 2018
Risk free interest rate		2.7%
Expected dividend yield		1.53%
Expected lives of the PSU		1 year
Expected volatility		29.2%