10. STOCK-BASED COMPENSATION AND EMPLOYEE BENEFIT PLANS

The following table presents stock-based compensation expense included in the Company’s consolidated statements of income:

	Year Ended December 31,
	2015			2014			2013
Cost of portal revenues, exclusive of
depreciation & amortization	$	1,404,093		$	1,311,827		$	1,100,396
Cost of software & services revenues,
exclusive of depreciation & amortization		82,814			47,105			48,128
Selling & administrative		4,953,934			4,744,966			2,877,436
Stock-based compensation expense
before income taxes		6,440,841			6,103,898			4,025,960
Income tax benefit		(2,423,029	)		(2,320,499	)		(1,571,867	)
Net stock-based compensation expense	$	4,017,812		$	3,783,399		$	2,454,093

Stock option and restricted stock plans

The Company has a formal stock compensation plan (the “NIC plan”) to provide for the granting of incentive stock options, non-qualified stock options, or restricted stock awards to encourage certain employees of the Company and its subsidiaries, and directors of the Company to participate in the ownership of the Company and to provide additional incentive for such employees and directors to promote the success of its business through sharing in the future growth of such business.

The NIC plan was amended and restated in May 2014. The May 2014 amendment and restatement, as approved by the Company’s Board of Directors and stockholders, modified the NIC plan to increase the number of shares the Company is authorized to grant under the NIC plan from 14,286,754 to 15,825,223 common shares. At December 31, 2015, a total of 4,681,841 shares were available for future grants under the NIC plan. The Company did not grant any stock options in 2015, 2014, or 2013, and does not currently anticipate granting stock options in the future. Instead, the Company currently expects to continue to grant only restricted stock awards.

Restricted stock

During 2015, the Board of Directors of the Company granted to certain management-level employees and executive officers, service-based restricted stock awards totaling 273,327 shares with a grant-date fair value totaling approximately $4.6 million. Such restricted stock awards vest beginning one year from the date of grant in annual installments of 25%. In addition, non-employee directors of the Company were granted service-based restricted stock awards totaling 45,619 shares with a grant-date fair value totaling approximately $0.8 million. Such restricted stock awards vest one year from the date of grant.

During 2015, the Board of Directors of the Company also granted to certain executive officers performance-based restricted stock awards pursuant to the terms of the Company’s executive compensation program totaling 109,705 shares with a grant-date fair value totaling approximately $1.9 million, which represents the maximum number of shares able to be earned by the executive officers at the end of a three-year performance period ending December 31, 2017. The actual number of shares earned will be based on the Company’s performance related to the following performance criteria over the performance period:

●	Operating income growth (three-year compound annual growth rate);

●	Total consolidated revenue growth (three-year compound annual growth rate); and

●	Cash flow return on invested capital, excluding income taxes paid (three-year average).

At the end of the three-year period, the executive officers are eligible to receive up to a specified number of shares based upon the Company’s performance relative to these performance criteria over the performance period. In addition, the executive officers will accrue dividend equivalents for any cash dividend declared during the performance period, payable in the form of shares of Company common stock, based upon the maximum number of shares to be earned by the executive officers for each performance-based restricted stock award. Such hypothetical cash dividend payment shall be divided by the fair value of the Company’s common stock on the dividend payment date to determine the maximum number of notional shares to be awarded. At the end of the three-year performance period and on the date some or all of the shares are paid under the agreement, a pro rata number of notional dividend shares will be converted into an equivalent number of dividend shares paid and granted to the executive officers based upon the actual number of underlying shares earned during the performance period.

At December 31, 2015, the three-year performance period related to the performance-based restricted stock awards granted to certain executive officers on February 5, 2013 ended. Based on the Company’s actual financial results from 2013 through 2015, 96,732 of the shares subject to the awards and 6,990 dividend shares were earned and vested on February 5, 2016.

At December 31, 2014, the three-year performance period related to the performance-based restricted stock awards granted to certain executive officers on January 30, 2012 ended. Based on the Company’s actual financial results from 2012 through 2014, 67,239 of the shares subject to the awards and 4,043 dividend shares were earned and vested on January 30, 2015.

At December 31, 2013, the three-year performance period related to the performance-based restricted stock awards granted to certain executive officers on March 7, 2011 ended. Based on the Company’s actual financial results from 2011 through 2013, 85,365 of the shares subject to the awards and 4,350 dividend shares were earned and vested on March 7, 2014.

A summary of restricted stock activity for the year ended December 31, 2015 is presented below:

	Restricted Shares			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2015		993,453		$	16.28
Granted		432,694			16.80
Vested		(364,380	)		15.02
Canceled		(136,737	)		15.27
Outstanding at December 31, 2015		925,030			17.17

The fair value of restricted stock vested during the years ended December 31, 2015, 2014 and 2013 was approximately $5.5 million, $4.1 million and $3.5 million, respectively. The weighted average grant date fair value per share of restricted stock granted during the years ended December 31, 2015, 2014 and 2013 was $16.80, $19.05 and $16.54, respectively. At December 31, 2015, the Company had approximately $6.9 million of total unrecognized compensation cost, net of estimated forfeitures, related to nonvested restricted stock awards. The Company expects to recognize this cost over the next 2.4 years from December 31, 2015.

As previously disclosed in prior filings with the SEC, the Company’s former Executive Vice President, Chief Administrative Officer, General Counsel and Secretary (“EVP”), retired effective December 31, 2015. In connection with the EVP’s retirement, the Compensation Committee of the Board of Directors of the Company authorized the accelerated vesting of a portion of the EVP’s unvested service-based restricted stock representing 21,813 shares. The EVP forfeited his remaining balance of 5,269 shares of unvested service-based restricted stock and 33,651 shares of performance-based restricted stock, granted in 2014 and 2015, upon his retirement. The incremental cost to the Company to accelerate the vesting of a portion the EVP’s unvested service-based restricted stock, net of all performance-based and service-based restricted stock forfeited upon his retirement, was insignificant.

Income taxes

The Company is permitted to recognize a credit to additional paid-in capital for federal income tax deductions, or windfall tax benefits, resulting from the vesting of restricted stock if such windfall tax benefits reduce income taxes payable. Following the with-and-without approach for utilization of tax attributes, the Company increased additional paid-in capital for windfall tax benefits totaling approximately $0.4 million, $1.2 million and $1.3 million, respectively, during the years ended December 31, 2015, 2014 and 2013.

Earnings per share

In calculating diluted earnings per share, the assumed proceeds in the treasury stock calculation are adjusted for any restricted stock windfall tax benefits or shortfalls that would be credited or debited, respectively, to additional paid-in capital. Upon adoption of authoritative accounting guidance for share-based payments, the Company elected to exclude the impact of pro forma deferred tax assets (i.e., the windfall or shortfall that would be recognized in the financial statements upon exercise of an award) when calculating diluted earnings per share.

Employee stock purchase plan

In 1999, the Company’s Board of Directors approved an employee stock purchase plan (“ESPP”) intended to qualify as an “employee stock purchase plan” under Section 423 of the Internal Revenue Code. A total of 2,321,688 shares of NIC common stock have been reserved for issuance under this plan. Terms of the plan permit eligible employees to purchase NIC common stock through payroll deductions up to the lesser of 15% of each employee’s compensation or $25,000. Amounts deducted and accumulated by the participant are used to purchase shares of NIC’s common stock at 85% of the lower of the fair value of the common stock at the beginning or the end of the offering period, as defined in the plan.

In the offering period commencing on April 1, 2014 and ending on March 31, 2015, 75,328 shares were purchased at a price of $15.02 per share, resulting in total cash proceeds to the Company of approximately $1.1 million. In the offering period commencing on April 1, 2013 and ending on March 31, 2014, 68,101 shares were purchased at a price of $16.25 per share, resulting in total cash proceeds to the Company of approximately $1.1 million. In the offering period commencing on April 1, 2012 and ending on March 31, 2013, 87,578 shares were purchased at a price of $10.33 per share, resulting in total cash proceeds to the Company of approximately $0.9 million. The next offering period under this plan commenced on April 1, 2015. The closing fair market value of NIC common stock on the first day of the current offering period was $17.48 per share.

The fair values of the offerings were estimated on the dates of grant using the Black-Scholes model using the assumptions in the following table.

	March 31, 2016 Offering			March 31, 2015 Offering			March 31, 2014 Offering
Risk-free interest rate		0.27	%		0.13	%		0.14	%
Expected dividend yield		3.07	%		3.08	%		3.73	%
Expected life	1.0 year			1.0 year			1.0 year
Expected stock price volatility		37.86	%		35.97	%		28.84	%
Weighted average fair value of ESPP rights	$	4.88		$	5.38		$	4.59

The Black-Scholes option-pricing model was not developed for use in valuing employee ESPP rights, but was developed for use in estimating the fair value of traded stock options that have no vesting restrictions and are fully transferable. In addition, it requires the use of subjective assumptions including expectations of future dividends and stock price volatility. Such assumptions are only used for making the required fair value estimate and should not be considered as indicators of future dividend policy or stock price appreciation, or should not be used to predict the value ultimately realized by employees who receive equity awards. Because changes in the subjective assumptions can materially affect the fair value estimate and because employee stock options have characteristics significantly different from those of traded options, the use of the Black-Scholes option-pricing model may not provide a reliable estimate of the fair value of employee ESPP rights.

Defined contribution 401(k) profit sharing plan

The Company and its subsidiaries sponsor a defined contribution 401(k) profit sharing plan. In accordance with the plan, all full-time employees are eligible immediately upon employment and non-full time employees are eligible upon reaching 1,000 hours of service in the relevant period. A discretionary match by the Company of an employee’s contribution of up to 5% of base salary and a discretionary contribution may be made to the plan as determined by the Board of Directors. Expense related to Company matching contributions totaled approximately $2.2 million, $2.1 million and $1.8 million for the years ended December 31, 2015, 2014 and 2013, respectively.