25. Share-based payments

Share-based payments consist of the following compensation costs:



Year ended December 31,		2018		2017		2016
Stock option compensation expense:
SG&A expenses	$	7,895	$	8,948	$	5,507
Acquisition-related costs		357		4,752		-
Share unit expense:
Equity-classified share units		11,256		3,529		1,981
Liability-classified share units		1,764		670		10,512
Employee share purchase plan -
employer contributions		2,174		1,813		1,597
	$	23,446	$	19,712	$	19,597

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 29).

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, 2018, there were 2,478,321 (December 31, 2017: 3,402,481) shares authorized and available for grants of options under the stock option plans.

25. Share-based payments (continued)

Stock option plans (continued)

Stock option activity for the years ended December 31, 2018, 2017, and 2016 is presented below:



					WA
	Common			WA	remaining			Aggregate
	shares under			exercise	contractual			intrinsic
	option	price			life (in years)	value
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	7.5		$	33,601
Granted	970,947			31.07
Assumed in acquisition	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
Granted	923,199			32.14
Exercised	(1,235,154)			23.10			$	14,808
Forfeited	(132,624)			25.91
Expired	(1,302)			25.76
Outstanding, December 31, 2018	4,013,863		$	26.41	7.2		$	25,374
Exercisable, December 31, 2018	2,074,873		$	24.06	6.2		$	17,963

The options outstanding at December 31, 2018 expire on dates ranging to November 15, 2028. The WA grant date fair value of options granted during the year ended December 31, 2018 was $7.69 per option (2017: $7.22; 2016: $4.72). The WA share price of options exercised during the year ended December 31, 2018 was $35.08 (2017: $30.81; 2016: $31.18).

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, 2018, 2017, and 2016 are presented in the following table on a weighted average basis:



Year ended December 31,	2018	2017	2016
Risk free interest rate	2.7%	2.0%	1.2%
Expected dividend yield	2.11%	2.15%	2.66%
Expected lives of the stock options	5 years	5 years	5 years
Expected volatility	28.1%	27.8%	26.5%

25. Share-based payments (continued)

Stock option plans (continued)

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%

The compensation expense arising from option grants is amortized over the relevant vesting periods of the underlying options. As at December 31, 2018, the unrecognized stock-based compensation cost related to the non-vested stock options was $4,702,000, which is expected to be recognized over a weighted average period of 1.9 years. Cash received from stock-based award exercises for the year ended December 31, 2018 was $28,524,000 (2017: $9,936,000; 2016: $24,338,000). The actual tax benefit realized for the tax deductions from option exercise of the share based payment arrangements totaled $2,793,000 for the year ended December 31, 2018 (2017: $1,017,000; 2016: $1,464,000).

25. Share-based payments (continued)

Share unit plans

Share unit activity for the years ended December 31, 2018, 2017, and 2016 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, 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
Granted	240,803		35.63	91,251		32.10	-		-	66		34.70	26,553		33.42
Transferred to equity
awards on modification	257,659		31.30	-		-	(257,659)		26.38	-		-	-		-
Vested and settled	(212,263)		33.78	-		-	-		-	(4,732)		26.54	(6,605)		23.16
Forfeited	(50,159)		31.41	(8,417)		32.00	(1,582)		26.45	-		-	-		-
Outstanding, December 31, 2018	670,288	$	31.46	207,986	$	28.99	-	$	-	-	$	-	113,435	$	28.16

(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 liability-classified share units vested and released during the year ended December 31, 2018 was $410,000 (2017: $6,521,000; 2016: $4,463,000). The Company modified the employee PSU plans from liability-classified to equity-classified share units prior to the 2018 vesting.

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.

25. Share-based payments (continued)

Share unit plans (continued)

Senior executive and employee PSU 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 the PSU Plans were classified as liability awards. 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
Risk free interest rate	1.5%	1.2%
Expected dividend yield	2.01%	2.40%
Expected lives of the PSUs	3 years	3 years
Expected volatility	28.9%	29.7%
Average expected volatility of comparable companies	33.4%	37.0%

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.

2016 Modification

On May 2, 2016, the shareholders approved amendments to the PSU Plans, allowing the Company to choose whether to settle the awards in cash or in shares.

On May 2, 2016, 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. 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.

2018 Modification

On March 1, 2018, the Company modified the market and performance vesting conditions for the PSUs. Concurrently, the PSUs under 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.

25. Share-based payments (continued)

Share unit plans (continued)

Senior executive and employee PSU plans (continued)

The fair value of the equity-classified PSUs awarded 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 awarded during 2018, 2017 and 2016 are presented in the following table on a weighted average basis:



Year ended December 31,	2018	2017	2016
Risk free interest rate	1.92%	1.4%	1.2%
Expected dividend yield	2.09%	1.92%	2.50%
Expected lives of the PSUs	3 years	3 years	3 years
Expected volatility	31.1%	28.2%	29.9%
Average expected volatility of comparable companies	34.1%	37.0%	37.0%

As at December 31, 2018, the unrecognized share unit expense related to equity-classified PSUs was $7,874,000, 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”) that are subject to market vesting conditions related to the Company’s share performance over rolling two, three, four, and five-year periods. The SOG PSUs were modified in the current and comparative years, as detailed below in chronological order.

2017 modification

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 “2017 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. The Company chose to settle in shares and, accordingly:

The shareholders authorized 150,000 shares to be issued for settlement of the SOG PSUs; and

The share unit liability, representing the portion of the fair value attributable to past service, of $1,421,000 was reclassified to equity.

The weighted average fair value of the SOG PSUs outstanding on the modification date was $24.47. No incremental compensation was recognized as a result of the modification. At the time of this modification, the SOG PSUs were contingently redeemable in cash in the event of death of the participant. Consequently, 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.

2018 modification

On September 11, 2018, the Company modified the performance vesting conditions of the SOG PSUs. The modification impacted the third and fourth tranches of PSUs to vest. As a result of the modification, 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.

25. Share-based payments (continued)

Share unit plans (continued)

Senior executive and employee PSU plans (continued)

Sign-on grant PSUs

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. It was determined based on the change in fair value of the equity-classified SOG PSUs immediately before and after modification. Significant assumptions used to estimate the fair value of the equity-classified SOG PSUs to determine the incremental compensation cost were as follows:



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

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.

RSUs

The Company has RSU plans that are equity-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.

As at December 31, 2018, the unrecognized share unit expense related to equity-classified RSUs was $3,994,000, which is expected to be recognized over a weighted average period of 2.0 years.

DSUs

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

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.

As at December 31, 2018, the Company had a total share unit liability of $3,714,000 (2017: $2,645,000) in respect of share units under the DSU plans.

25. Share-based payments (continued)

Employee share purchase plan

The Company has an employee share purchase plan that allows all employees that have completed two months 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.