Share-based compensation expense was:


•	$60 million in 2016,


•	$31 million in 2015 and


•	$40 million in 2014.

The amounts above contain awards to employees of the divested Cellulose Fibers businesses and WRECO and are included in our results of discontinued operations. These amounts are:


•	$6 million in 2016,


•	$6 million in 2015 and


•	$10 million in 2014.

This note provides details about:


•	our Long-Term Incentive Compensation Plan (2013 Plan),


•	share-based compensation resulting from our merger with Plum Creek,


•	how we account for share-based awards,


•	tax benefits of share-based awards,


•	types of share-based compensation and


•	unrecognized share-based compensation.

OUR LONG-TERM INCENTIVE COMPENSATION PLAN

Our long-term incentive plans provide for share-based awards that include:


•	stock options,


•	stock appreciation rights,


•	restricted stock,


•	restricted stock units,


•	performance shares and


•	performance share units.

We may issue future grants of up to 21,646,924 shares under the 2013 Plan. We also have the right to reissue forfeited and expired grants.

For stock options and stock appreciation rights:


•	An individual participant may receive a grant of up to 2 million shares in any one calendar year.


•	The exercise price is required to be the market price on the date of the grant.

For restricted stock, restricted stock units, performance shares, performance share units or other equity grants:


•	An individual participant may receive a grant of up to 1 million shares annually.


•	No participant may be granted awards that exceed $10 million earned in a 12 month period.

The Compensation Committee of our board of directors (the Committee) annually establishes an overall pool of stock awards available for grants based on performance.

For stock-settled awards, we:


•	issue new stock into the marketplace and


•	generally do not repurchase shares in connection with issuing new awards.

Our common shares would increase by approximately 39 million shares if all share-based awards were exercised or vested. These include:


•	all options, restricted stock units, and performance share units outstanding at December 31, 2016 under the 2013 Plan and 2004 Plan; and


•	all remaining options, restricted stock units, and performance share units that could be granted under the 2013 Plan.

SHARE-BASED COMPENSATION RESULTING FROM OUR MERGER WITH PLUM CREEK

Replacement awards were granted as a result of the merger with Plum Creek. Eligible outstanding Plum Creek stock options, restricted stock units and deferred stock unit awards were converted into equivalent equity awards with respect to Weyerhaeuser Common Shares, after giving effect to the appropriate adjustments to reflect the consummation of the merger. In total, we issued replacement awards consisting of 1,953,128 stock options and 1,248,006 RSUs. We also assumed 289,910 value management awards (VMAs) through the merger with Plum Creek.

Replacement Stock Option Awards

The replacement stock option awards issued as a result of the merger with Plum Creek have similar exercise provisions as the terms of our current awards. All replacement stock option awards were fully vested prior to the date of the merger, so no expense will be recorded. The value of the replacement stock option awards was $5 million, which was included in the equity consideration issued in the merger as described in Note 4: Merger with Plum Creek.

Replacement Restricted Stock Unit Awards

The replacement RSUs issued as a result of the merger with Plum Creek have similar vesting provisions as the terms of existing Weyerhaeuser restricted stock unit awards. Expense for replacement RSUs will continue to be recognized over the remaining service period unless a qualifying termination occurs. A qualifying termination of an awardee will result in acceleration of vesting and expense recognition in the period that the qualifying termination occurs. Qualifying terminations during 2016 resulted in accelerated vesting of 705,394 of the replacement RSUs and recognition of $15 million of expense. The accelerated expense is included in the merger-related integration costs as described in Note 17: Charges for Integration and Restructuring, Closures and Asset Impairments.

Value Management Awards

Following the merger, the VMAs assumed were valued at target. All outstanding VMAs, if earned, will vest December 31, 2017, and will be paid in the first quarter 2018. The VMAs are classified and accounted for as liabilities, as they will be settled in cash upon vesting. The expense recognized over the remaining performance period will equal the cash value of an award as of the last day of the performance period multiplied by the number of awards that are earned. Expense for VMAs will continue to be recognized over the remaining service period unless a qualifying termination occurs. A qualifying termination of an awardee will result in the acceleration of vesting and expense recognition in the period that the qualifying termination occurs. Qualifying terminations during 2016 resulted in $6 million of expense recognized. This accelerated expense is included in merger-related integration costs as described in Note 17: Charges for Integration and Restructuring, Closures and Asset Impairments.

HOW WE ACCOUNT FOR SHARE-BASED AWARDS

When accounting for share-based awards we:


•	use a fair-value-based measurement for share-based awards and


•	recognize the cost of share-based awards in our consolidated financial statements.

We recognize the cost of share-based awards in our Consolidated Statement of Operations over the required service period — generally the period from the date of the grant to the date when it is vested. Special situations include:


•	Awards that vest upon retirement — the required service period ends on the date an employee is eligible for retirement, including early retirement.


•	Awards that continue to vest following job elimination or the sale of a business — the required service period ends on the date the employment from the company is terminated.

In these special situations, compensation expense from share-based awards is recognized over a period that is shorter than the stated vesting period.

TAX BENEFITS OF SHARE-BASED AWARDS

Our total income tax benefit from share-based awards — as recognized in our Consolidated Statement of Operations — for the last three years was:


•	$12 million in 2016,


•	$8 million in 2015 and


•	$11 million in 2014.

The amounts above contain income tax benefit from share-based awards to employees that were part of the Cellulose Fibers divestitures and WRECO Divestiture and are included in our results of discontinued operations. These amounts are:


•	$2 million in 2016,


•	$2 million in 2015 and


•	$4 million in 2014.

Tax benefits from share-based awards are accrued as stock compensation expense is recognized in the Consolidated Statement of Operations. Tax benefits from share-based awards are realized when:


•	restricted shares and restricted share units vest,


•	performance shares and performance share units vest,


•	stock options are exercised and


•	stock appreciation rights are exercised.

TYPES OF SHARE-BASED COMPENSATION

Our share-based compensation is in the form of:


•	stock options,


•	restricted stock units,


•	performance share units,


•	stock appreciation rights,


•	deferred compensation stock equivalent units and


•	value management awards assumed in merger with Plum Creek.

STOCK OPTIONS

Stock options entitle award recipients to purchase shares of our common stock at a fixed exercise price. We grant stock options with an exercise price equal to the market price of our stock on the date of the grant.

The Details

Our stock options generally:


•	vest over four years of continuous service and


•	must be exercised within 10 years of the grant-date.

The vesting and post-termination vesting terms for stock options granted in 2016, 2015 and 2014 were as follows:


•	vest ratably over four years;


•	vest or continue to vest in the event of death while employed or disability;


•	continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;


•	continue to vest for one year in the event of involuntary termination when the retirement criteria has not been met; and


•	stop vesting for all other situations including early retirement prior to age 62.

Our Accounting

We use a Black-Scholes option valuation model to estimate the fair value of every stock option award on its grant-date.

In our estimates, we use:


•	historical data — for option exercise time and employee terminations;


•	a Monte-Carlo simulation — for how long we expect granted options to be outstanding; and


•	the U.S. Treasury yield curve — for the risk-free rate. We use a yield curve over a period matching the expected term of the grant.

The expected volatility in our valuation model is based on:


•	implied volatilities from traded options on our stock,


•	historical volatility of our stock and


•	other factors.

Weighted Average Assumptions Used in Estimating Value of Stock Options Granted



	2016 GRANTS			2015 GRANTS			2014 GRANTS
Expected volatility	25.43		%	25.92		%	31.71		%
Expected dividends	5.37		%	3.28		%	2.92		%
Expected term (in years)	4.95			4.77			4.97
Risk-free rate	1.28		%	1.54		%	1.57		%
Weighted average grant-date fair value	$	2.73		$	5.85		$	6.62

Share-based compensation expense for stock options is generally recognized over the vesting period. There are exceptions for stock options awarded to employees who:


•	are eligible for retirement,


•	will become eligible for retirement during the vesting period or


•	whose employment is terminated during the vesting period due to job elimination or the sale of a business.

In these cases, we record the share-based compensation expense over a required service period that is less than the stated vesting period.

Activity

The following table shows our option unit activity for 2016.



	OPTIONS (IN THOUSANDS)	WEIGHTED AVERAGE EXERCISE PRICE		WEIGHTED AVERAGE REMAINING CONTRACTUAL TERM (IN YEARS)	AGGREGATE INTRINSIC VALUE (IN MILLIONS)
Outstanding at December 31, 2015	12,763	$	25.88
Granted⁽¹⁾	6,122	$	23.47
Exercised	(2,570)	$	25.01
Forfeited or expired	(1,603)	$	25.98
Outstanding at December 31, 2016⁽²⁾	14,712	$	24.96	5.47	$	528
Exercisable at December 31, 2016	9,152	$	23.63	3.65	$	338
(1) Includes 1,953 thousand stock option replacement awards issued as a result of the merger with Plum Creek. (2) As of December 31, 2016, there were approximately 1,624 thousand stock options that had met the requisite service period and will be released as identified in the grant terms.

The total intrinsic value of stock options exercised was:


•	$18 million in 2016,


•	$13 million in 2015 and


•	$55 million in 2014.

The total grant-date fair value of stock options vested was:


•	$14 million in 2016,


•	$14 million in 2015 and


•	$16 million in 2014.

RESTRICTED STOCK UNITS

Through the Plan, we award restricted stock units — grants that entitle the holder to shares of our stock as the award vests.

The Details

Our restricted stock units granted in 2016, 2015 and 2014 generally:


•	vest ratably over four years;


•	immediately vest in the event of death while employed or disability;


•	continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;


•	continue vesting for one year in the event of involuntary termination when the retirement has not been met; and


•	will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.

Our Accounting

The fair value of our restricted stock units is the market price of our stock on the grant-date of the awards.

We generally record share-based compensation expense for restricted stock units over the four-year vesting period. Generally for restricted stock units that continue to vest following the termination of employment, we record the share-based compensation expense over a required service period that is less than the stated vesting period.

Activity

The following table shows our restricted stock unit activity for 2016.



	STOCK UNITS (IN THOUSANDS)	WEIGHTED AVERAGE GRANT-DATE FAIR VALUE
Nonvested at December 31, 2015	1,104	$	31.37
Granted⁽¹⁾	1,925	$	30.25
Vested	(1,202)	$	32.94
Forfeited	(244)	$	27.04
Nonvested at December 31, 2016⁽²⁾	1,583	$	26.49
(1) Includes 1,248 thousand restricted stock unit replacement awards issued as a result of the merger with Plum Creek. (2) As of December 31, 2016, there were approximately 385 thousand restricted stock units that had met the requisite service period and will be released as identified in the grant terms.

The weighted average grant-date fair value for restricted stock units was:


•	$30.25 in 2016,


•	$35.41 in 2015 and


•	$30.14 in 2014.

The total grant-date fair value of restricted stock units vested was:


•	$36 million in 2016,


•	$14 million in 2015 and


•	$16 million in 2014.

Nonvested restricted stock units accrue dividends that are paid out when restricted stock units vest. Any restricted stock units forfeited will not receive dividends.

As restricted stock units vest, a portion of the shares awarded is withheld to cover employee taxes. As a result, the number of stock units vested and the number of common shares issued will differ.

PERFORMANCE SHARE UNITS

Through the Plan, we award performance share units — grants that entitle the holder to shares of our stock as the award vests.

The Details

The final number of shares awarded will range from 0 percent to 150 percent of each grant’s target, depending upon actual company performance.

For shares granted in 2016, the ultimate number of performance share units earned is based on three measures:


•	our relative total shareholder return (TSR) ranking measured against the S&P 500 over a three year period,


•	our relative TSR ranking measured against an industry peer group of companies over a three year period and


•	achievement of Plum Creek merger cost synergy targets.

For shares granted in 2015, the ultimate number of performance share units earned is based on two measures:


•	our relative total shareholder return (TSR) ranking measured against the S&P 500 over a three year period and


•	our relative TSR ranking measured against an industry peer group of companies over a three year period.

The vesting provisions for performance share units granted in 2016 and 2015 were as follows:


•	vest 100 percent on the third anniversary of the grant date as long as the individual remains employed by the company;


•	fully vest in the event the participant dies or becomes disabled while employed;


•	continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;


•	continue vesting for one year in the event of involuntary termination when the retirement criteria has not been met and the employee has met the second anniversary of the grant date; and


•	will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.

For shares granted in 2014, the ultimate number of performance share units earned is based on two measures:


•	Weyerhaeuser’s cash flow during the first year determined the initial number of units earned.


•	Weyerhaeuser’s relative total shareholder return (TSR) ranking in the S&P 500 during the first two years is used to adjust the initial number of units earned up or down by 20 percent.

For shares granted in 2014, at the end of the two-year performance period and over a further two-year vesting period, performance share units would be paid in shares of our stock. Performance share units granted and that are earned vest as follows:


•	vest 50 percent, 25 percent and 25 percent on the second, third and fourth anniversaries of the grant-date, respectively, as long as the individual remains employed by the company;


•	fully vest in the event the participant dies or becomes disabled while employed;


•	continue to vest upon retirement at an age of at least 62, but a portion of the grant is forfeited if retirement occurs before the one year anniversary of the grant;


•	continue vesting for one year in the event of involuntary termination when the retirement has not been met; and


•	will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.

Our Accounting

Since the awards contain a market condition, the effect of the market condition is reflected in the grant-date fair value which is estimated using a Monte Carlo simulation model. This model estimates the TSR ranking of the company over the performance period. Compensation expense is based on the estimated probable number of earned awards and recognized over the vesting period on an accelerated basis. Generally, compensation expense would be reversed if the performance condition is not met unless the requisite service period has been achieved.

Weighted Average Assumptions Used in Estimating the Value of Performance Share Units



	2016 GRANTS		2015 GRANTS			2014 GRANTS
Performance period	1/1/2016 – 12/31/2018		1/1/2015 – 12/31/2017			1/1/2014 – 12/31/2015
Expected dividends	3.92% - 5.37%		3.26		%	2.91		%
Risk-free rate	0.45% - 0.97%		0.05% - 1.07%			0.03% - 0.79%
Volatility	21.87% - 28.09%		16.33% - 20.89%			20.74% - 23.53%
Weighted average grant-date fair value	$	22.58	$	34.75		$	30.62

Activity

The following table shows our performance share unit activity for 2016.



	GRANTS (IN THOUSANDS)		WEIGHTED AVERAGE GRANT-DATE FAIR VALUE
Nonvested at December 31, 2015	680		$	31.42
Granted at target	493		$	22.58
Vested	(261	)	$	21.26
Forfeited	(151	)	$	25.72
Nonvested at December 31, 2016⁽¹⁾	761		$	25.23
(1) As of December 31, 2016, there were approximately 89 thousand performance share units that had met the requisite service period and will be released as identified in the grant terms.

The total grant-date fair value of performance share units vested was:


•	$8 million in 2016,


•	$9 million in 2015 and


•	$7 million in 2014.

For 2014 grants, the company exceeded the cash flow target, resulting in an initial number of shares earned equal to 114 percent of target. Because the company's two-year TSR ranking was between the 25^th and 50^th percentile, the initial number of performance shares granted decreased 11 percent.

As performance share units vest, a portion of the shares awarded is withheld to cover participant taxes. As a result, the number of stock units vested and the number of common shares issued will differ.

STOCK APPRECIATION RIGHTS

Through the Plan, we grant cash-settled stock appreciation rights as part of certain compensation awards.

The Details

Stock appreciation rights are similar to stock options. Employees benefit when the market price of our stock is higher on the exercise date than it was on the date the stock appreciation rights were granted. The differences are that the employee:


•	receives the benefit as a cash award and


•	does not purchase the underlying stock.

The vesting conditions and exceptions are the same as for 10-year stock options. Details are in the Stock Options section earlier in this note.

Stock appreciation rights are generally issued to employees outside of the U.S.

Our Accounting

We use a Black-Scholes option-valuation model to estimate the fair value of a stock appreciation right on its grant-date and every subsequent reporting date that the right is outstanding. Stock appreciation rights are liability-classified awards and the fair value is remeasured at every reporting date.

The process used to develop our valuation assumptions is the same as for the 10-year stock options we grant. Details are in the Stock Options section earlier in this note.

Weighted Average Assumptions Used to Re-measure Value of Stock Appreciation Rights at Year-End



	2016 GRANTS			2015 GRANTS			2014 GRANTS
Expected volatility	24.12		%	22.10		%	18.20		%
Expected dividends	4.04		%	4.20		%	3.21		%
Expected term (in years)	2.20			1.94			1.32
Risk-free rate	1.36		%	0.99		%	0.45		%
Weighted average fair value	$	7.84		$	6.96		$	12.70

Activity

The following table shows our stock appreciation rights activity for 2016.



	RIGHTS (IN THOUSANDS)		WEIGHTED AVERAGE EXERCISE PRICE		AVERAGE REMAINING CONTRACTUAL TERM (IN YEARS)	AGGREGATE INTRINSIC VALUE (IN MILLIONS)
Outstanding at December 31, 2015	382		$	24.25
Granted	107		$	23.09
Exercised	(66	)	$	23.42
Forfeited or expired	(37	)	$	26.90
Outstanding at December 31, 2016	386		$	23.82	5.24	$	3
Exercisable at December 31, 2016	233		$	21.85	3.03	$	2

The total liabilities paid for stock appreciation rights was:


•	$1 million in 2016,


•	$1 million in 2015 and


•	$2 million in 2014.

UNRECOGNIZED SHARE-BASED COMPENSATION

As of December 31, 2016, our unrecognized share-based compensation cost for all types of share-based awards included $41 million related to non-vested equity-classified share-based compensation arrangements — expected to be recognized over a weighted average period of approximately 2.3 years.

DEFERRED COMPENSATION STOCK EQUIVALENT UNITS

Certain employees and our board of directors may defer compensation into stock-equivalent units.

The Details

The plan works differently for employees and directors.

Eligible employees:


•	may choose to defer all or part of their bonus into stock-equivalent units;


•	may choose to defer part of their salary, except for executive officers; and


•	receive a 15 percent premium if the deferral is for at least five years.

Our directors:


•	receive a portion of their annual retainer fee in the form of restricted stock units, which vest over one year and may be deferred into stock-equivalent units;


•	may choose to defer some or all of the remainder of their annual retainer fee into stock-equivalent units; and


•	do not receive a premium for their deferrals.

Employees and directors also choose when the deferrals will be paid out although no deferrals may be paid until after the separation from service of the employee or director.

Our Accounting

We settle all deferred compensation accounts in cash for our employees. Our directors receive shares of common stock as payment for stock-equivalent units. In addition, we credit all stock-equivalent accounts with dividend equivalents. The number of common shares to be issued in the future to directors is 665,774.

Stock-equivalent units are:


•	liability-classified awards and


•	re-measured to fair value at every reporting date.

The fair value of a stock-equivalent unit is equal to the market price of our stock.

Activity

The number of stock-equivalent units outstanding in our deferred compensation accounts was:


•	1,004,448 as of December 31, 2016,


•	1,003,053 as of December 31, 2015 and


•	944,966 as of December 31, 2014.