Stock-Based Compensation

On May 3, 2016, our shareholders approved the adoption of the West Pharmaceutical Services, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Plan”). All remaining shares available for issuance under the 2011 Omnibus Incentive Compensation Plan (the “2011 Plan”) were extinguished upon adoption of the 2016 Plan. Awards granted under previous plans remain outstanding until expiration or settlement. The 2016 Plan provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to employees and non-employee directors. A committee of the Board of Directors determines the terms and conditions of awards to be granted. Vesting requirements vary by award. At December 31, 2016, there were 5,334,471 shares remaining in the 2016 Plan for future grants.

Stock options and stock appreciation rights reduce the number of shares available by one share for each award granted. All other awards under the 2016 Plan will reduce the total number of shares available for grant by an amount equal to 2.5 times the number of shares awarded. If awards made under previous plans would entitle a plan participant to an amount of West stock in excess of the target amount, the additional shares (up to a maximum threshold amount) will be distributed under the 2016 Plan.

The following table summarizes our stock-based compensation expense recorded within selling, general and administrative expenses for the years ended December 31:



($ in millions)	2016		2015		2014
Stock option and appreciation rights	$	8.6	$	9.2	$	7.6
Performance-vesting shares	6.7		6.0		6.5
Performance-vesting units	0.1		0.7		1.9
Performance-vesting shares/units dividend equivalents	0.2		0.2		0.4
Employee stock purchase plan	0.7		0.6		0.5
Deferred compensation plans	3.2		2.5		1.7
Total stock-based compensation expense	$	19.5	$	19.2	$	18.6

In addition, we recorded a $0.2 million charge during 2016 as part of our restructuring plan, and we recorded a $10.4 million charge during 2015 related to executive retirements. Both charges were recorded within other expense. Please refer to Note 14, Other Expense (Income), for further discussion of these charges.

The amount of unrecognized compensation expense for all non-vested awards as of December 31, 2016, was approximately $16.2 million, which is expected to be recognized over a weighted average period of 1.7 years.

Stock Options

Stock options granted to employees vest in equal annual increments over 4 years of continuous service. All awards expire 10 years from the date of grant. Upon the exercise of stock options, shares are issued in exchange for the exercise price of the options.

The following table summarizes changes in outstanding options:



(in millions, except per share data)	2016		2015		2014
Options outstanding, January 1	5.0		4.6		4.8
Granted	0.7		0.9		0.7
Exercised	(1.1	)	(0.5	)	(0.7	)
Forfeited	(0.1	)	—		(0.2	)
Options outstanding, December 31	4.5		5.0		4.6
Options exercisable, December 31	2.7		2.9		2.6



Weighted Average Exercise Price	2016		2015		2014
Options outstanding, January 1	$	31.77	$	25.49	$	21.99
Granted	61.98		56.06		47.59
Exercised	22.50		21.85		20.17
Forfeited	45.91		—		31.42
Options outstanding, December 31	$	38.11	$	31.77	$	25.49
Options exercisable, December 31	$	27.17	$	22.75	$	20.67

As of December 31, 2016, the weighted average remaining contractual life of options outstanding and of options exercisable was 6.3 years and 4.9 years, respectively.

As of December 31, 2016, the aggregate intrinsic value of total options outstanding was $212.4 million, of which $153.5 million represented vested options.

The fair value of the options was estimated on the date of grant using a Black-Scholes option valuation model that used the following weighted average assumptions in 2016, 2015 and 2014: a risk-free interest rate of 1.4%, 1.7%, and 1.6%, respectively; stock volatility of 20.4%, 21.0%, and 21.9%, respectively; and dividend yields of 0.9%, 0.9%, and 0.8%, respectively. Stock volatility is estimated based on historical data and the impact from expected future trends. Expected lives, which are based on prior experience, averaged 6 years for 2016, 2015 and 2014. The weighted average grant date fair value of options granted in 2016, 2015 and 2014 was $12.12, $10.57 and $10.38, respectively. Stock option expense is recognized over the vesting period, net of forfeitures.

For the years ended December 31, 2016, 2015 and 2014, the intrinsic value of options exercised was $49.4 million, $17.7 million and $16.0 million, respectively. The grant date fair value of options vested during those same periods was $5.8 million, $4.8 million and $4.7 million, respectively.

Stock Appreciation Rights

Stock appreciation rights (“SARs”) granted to eligible international employees vest in equal annual increments over 4 years of continuous service. All awards expire 10 years from the date of grant. The fair value of each cash-settled SAR is adjusted at the end of each reporting period, with the resulting change reflected in expense. As of December 31, 2016, SARs outstanding were 116,087, of which 61,135 were cash-settled and 54,952 were stock-settled. Upon exercise of a cash-settled SAR, the employee receives cash for the difference between the grant date price and the fair market value of the Company's stock on the date of exercise. As a result of the cash settlement feature, cash-settled SARs are recorded within other long-term liabilities. Upon exercise of a stock-settled SAR, shares are issued in exchange for the exercise price of the stock-settled SAR. As a result of the stock settlement feature, stock-settled SARs are recorded within equity.

The following table summarizes changes in outstanding SARs:



	2016		2015		2014
SARs outstanding, January 1	232,930		297,714		375,104
Granted	3,368		12,356		7,733
Exercised	(114,976	)	(77,140	)	(85,123	)
Forfeited	(5,235	)	—		—
SARs outstanding, December 31	116,087		232,930		297,714
SARs exercisable, December 31	71,701		112,295		88,751



Weighted Average Exercise Price	2016		2015		2014
SARs outstanding, January 1	$	27.79	$	25.20	$	24.03
Granted	68.40		57.25		47.74
Exercised	24.95		22.52		22.09
Forfeited	42.28		—		—
SARs outstanding, December 31	$	31.13	$	27.79	$	25.20
SARs exercisable, December 31	$	26.65	$	24.60	$	23.15

Performance Awards

In addition to stock options and SAR awards, we grant performance vesting share (“PVS”) awards and performance vesting unit (“PVU”) awards to eligible employees. These awards are earned based on the Company's performance against pre-established targets, including annual growth rate of revenue and return on invested capital, over a specified performance period. Depending on the achievement of the targets, recipients of PVS awards are entitled to receive a certain number of shares of common stock, whereas recipients of PVU awards are entitled to receive a payment in cash per unit based on the fair market value of a share of our common stock at the end of the performance period.

The following table summarizes changes in our outstanding PVS awards:



	2016			2015			2014
Non-vested PVS awards, January 1	422,726			470,719			578,358
Granted at target level	115,035			147,908			133,823
Adjustments above/(below) target	19,339			132,444			53,438
Vested and converted	(173,364		)	(318,337		)	(250,205		)
Forfeited	(5,674		)	(10,008		)	(44,695		)
Non-vested PVS awards, December 31	378,062			422,726			470,719

Weighted Average Grant Date Fair Value	2016			2015			2014
Non-vested PVS awards, January 1	$	45.60		$	30.93		$	23.79
Granted at target level	60.47			55.49			47.21
Adjustments above/(below) target	38.71			22.97			22.86
Vested and converted	59.64			51.53			48.69
Forfeited	49.86			41.84			30.76
Non-vested PVS awards, December 31	$	54.47		$	45.60		$	30.93

Shares earned under PVS and PVU awards may vary from 0% to 200% of an employee's targeted award. The fair value of PVS awards is based on the market price of our stock at the grant date and is recognized as expense over the performance period, adjusted for estimated target outcomes and net of forfeitures. The weighted average grant date fair value of PVS awards granted during the years 2016, 2015 and 2014 was $60.47, $55.49 and $47.21, respectively. Including forfeiture and above-target achievement expectations, we expect that the PVS awards will convert to 362,939 shares to be issued over an average remaining term of 1 year.

The fair value of PVU awards is also based on the market price of our stock at the grant date. These awards are revalued at the end of each quarter based on changes in our stock price. As a result of the cash settlement feature, PVU awards are recorded within other long-term liabilities.

The following table summarizes changes in our outstanding PVU awards:



	2016		2015		2014
Non-vested PVU awards, January 1	29,196		55,509		79,456
Granted at target level	419		1,386		1,584
Adjustments above/(below) target	2,858		19,315		6,907
Vested and converted	(29,032	)	(47,014	)	(32,438	)
Forfeited	(990	)	—		—
Non-vested PVU awards, December 31	2,451		29,196		55,509



Weighted Average Grant Date Fair Value	2016		2015		2014
Non-vested PVU awards, January 1	$	32.07	$	26.15	$	23.86
Granted at target level	59.64		54.14		47.34
Adjustments above/(below) target	30.80		22.07		22.72
Vested and converted	59.64		51.53		47.34
Forfeited	50.55		—		—
Non-vested PVU awards, December 31	$	25.28	$	32.07	$	26.15

Employee Stock Purchase Plan

We also offer an Employee Stock Purchase Plan (“ESPP”) which provides for the sale of our common stock to eligible employees at 85% of the current market price on the last trading day of each quarterly offering period. Payroll deductions are limited to 25% of the employee's base salary, not to exceed $25,000 in any one calendar year. In addition, employees may not buy more than 2,000 shares during any offering period (8,000 shares per year). Purchases under the ESPP were 60,839 shares, 61,757 shares and 76,751 shares for the years 2016, 2015 and 2014, respectively. At December 31, 2016, there were approximately 4.0 million shares available for issuance under the ESPP.

Deferred Compensation Plans

Our deferred compensation plans include a Non-Qualified Deferred Compensation Plan for Non-Employee Directors, under which non-employee directors may defer all or part of their annual cash retainers. The deferred fees may be credited to a stock-equivalent account. Amounts credited to this account are converted into deferred stock units based on the fair market value of one share of our common stock on the last day of the quarter. For deferred stock units ultimately paid in cash, a liability is calculated at an amount determined by multiplying the number of units by the fair market value of our common stock at the end of each reporting period. In addition, deferred stock awards are granted on the date of our annual meeting, and are distributed in shares of common stock. In 2016, we granted 20,077 deferred stock awards, with a grant date fair value of $71.47. Similarly, a non-qualified deferred compensation plan for eligible employees provides for the conversion of compensation into deferred stock units. As of December 31, 2016, the two deferred compensation plans held a total of 388,287 deferred stock units, including 24,296 units to be paid in cash.

In addition, during 2016, we granted 1,393 restricted share awards at a weighted grant-date fair value of $71.79 per share to new executive officers under the 2016 Plan. During 2015, we granted 41,458 restricted share awards at a weighted grant-date fair value of $57.89 per share to new executive officers under the 2011 Plan. The fair value of the awards is based on the market price of our stock at the grant date and is recognized as expense over the vesting period.

Annual Incentive Plan

Under our annual incentive plan, participants are paid bonuses on the attainment of certain financial goals, which they can elect to receive in either cash or shares of our common stock. If the employee elects payment in shares, they are also given a restricted incentive stock award equal to one share for each four bonus shares issued. The incentive stock awards vest at the end of four years provided that the participant has not made a disqualifying disposition of their bonus shares. Incentive stock award grants were 2,400 shares, 1,500 shares and 4,200 shares in 2016, 2015 and 2014, respectively. Incentive stock forfeitures of 800 shares, 200 shares and 4,100 shares occurred in 2016, 2015 and 2014, respectively. Compensation expense is recognized over the vesting period based on the fair market value of common stock on the award date: $59.64 per share granted in 2016, $51.53 per share granted in 2015 and $48.69 per share granted in 2014.