Stock-Based Compensation

In April 2013, Encore’s Board of Directors (the “Board”) approved the Encore Capital Group, Inc. 2013 Incentive Compensation Plan (as amended, the “2013 Plan”), which was then approved by the Company’s stockholders on June 5, 2013. The 2013 Plan superseded the Company’s 2005 Stock Incentive Plan (“2005 Plan”). Board members, employees, and consultants of Encore and its subsidiaries and affiliates are eligible to receive awards under the 2013 Plan. Subject to certain adjustments, the Company may grant awards for an aggregate of 2,500,000 shares of the Company’s common stock under the 2013 Plan. Any shares subject to awards made under the 2013 Plan that terminate by expiration, forfeiture, cancellation, payment of exercise price, payment of withholding tax obligation or otherwise without the issuance of such shares shall again be available for issuance or payment of awards under the 2013 Plan. The 2013 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, dividend equivalent rights, cash awards, performance-based awards and any other types of awards not inconsistent with the 2013 Plan. The awards under the 2013 Plan consist of compensation subject to authoritative guidance for stock-based compensation.

In accordance with authoritative guidance for stock-based compensation, compensation expense is recognized only for those shares expected to vest, based on the Company’s historical experience and future expectations. Total compensation expense during the years ended December 31, 2016, 2015, and 2014 was $12.6 million, $22.0 million, and $17.2 million, respectively.

The Company’s stock-based compensation arrangements are described below:

Stock Options

The 2013 Plan permits the granting of stock options. No options have been awarded under the 2013 Plan. Under the 2005 Plan, option awards were generally granted with an exercise price equal to the market price of the Company’s stock at the date of issuance. They generally vest over three to five years of continuous service, and have ten-year contractual terms.

The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards. All options are amortized ratably over the requisite service periods of the awards, which are generally the vesting periods.

The fair value for options granted is estimated at the date of grant using a Black-Scholes option-pricing model. There were no options granted during the years ended December 31, 2016, 2015, or 2014. As of December 31, 2016, all outstanding stock options have been fully vested and all related compensation expenses have been fully recognized.

A summary of the Company’s stock option activity as of December 31, 2016, and changes during the year then ended, is presented below:



	Number of Shares		Option Price Per Share	Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2015	118,879		$2.89 –$24.65	$	16.23
Exercised	(15,333	)	22.17 –24.65	22.87
Outstanding at December 31, 2016	103,546		$2.89 –$22.17	$	15.24	$	1,388
Exercisable at December 31, 2016	103,546		$2.89 –$22.17	$	15.24	$	1,388

The total intrinsic value of options exercised during the year ended December 31, 2016 was negligible. The total intrinsic value of options exercised during the years ended December 31, 2015 and 2014 was $1.2 million and $29.6 million, respectively. As of December 31, 2016, the weighted-average remaining contractual life of options outstanding and options exercisable was 3.4 years.

Non-Vested Shares

The Company’s 2013 Plan (and previously, the 2005 Plan), permits restricted stock units, restricted stock awards, and performance share awards. The fair value of non-vested shares with service condition and/or performance condition that affect vesting is equal to the closing sale price of the Company’s common stock on the date of issuance. Compensation cost is recognized only for the awards that ultimately vest. The Company has certain share awards that include market conditions that affect vesting, the fair value of these shares is estimated using a lattice model. Compensation cost is not adjusted if the market condition is not met, as long as the requisite service is provided. For the majority of non-vested shares, shares are issued on the vesting dates net of the amount of shares needed to satisfy minimal statutory tax withholding requirements. The tax obligations are then paid by the Company on behalf of the employees.

A summary of the status of the Company’s restricted stock units and restricted stock awards as of December 31, 2016, and changes during the year then ended, is presented below:



	Non-Vested Shares		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2015	1,304,271		$	38.71
Awarded	712,841		$	27.16
Vested	(513,073	)	$	39.93
Cancelled/forfeited	(163,664	)	$	38.57
Non-vested at December 31, 2016	1,340,375		$	32.11

Unrecognized compensation cost related to non-vested shares as of December 31, 2016, was $14.2 million. The weighted-average remaining expense period, based on the unamortized value of these outstanding non-vested shares, was approximately 1.8 years. The fair value of restricted stock units and restricted stock awards vested for the years ended December 31, 2016, 2015, and 2014 was $12.5 million, $16.5 million, and $20.2 million, respectively.