SHARE-BASED PAYMENTS

The Mosaic Company 2014 Stock and Incentive Plan (the "2014 Stock and Incentive Plan") was approved by our shareholders and became effective on May 15, 2014 and permits up to 25 million shares of common stock to be issued under share-based awards granted under the plan. The 2014 Stock and Incentive Plan provides for grants of stock options, restricted stock, restricted stock units, performance units and a variety of other share-based and non-share-based awards. Our employees, officers, directors, consultants, agents, advisors, and independent contractors, as well as other designated individuals, are eligible to participate in the 2014 Stock and Incentive Plan.

The Mosaic Company 2004 Omnibus Stock and Incentive Plan (the “Omnibus Plan”), which was approved by our shareholders and became effective in 2004 and subsequently amended, provided for the grant of shares and share options to employees for up to 25 million shares of common stock. While awards may no longer be made under the Omnibus Plan, it will remain in effect with respect to the awards that had been granted thereunder prior to its termination.

Mosaic settles stock option exercises, restricted stock units, and certain performance units and performance shares with newly issued common shares. The Compensation Committee of the Board of Directors administers the 2014 Stock and Incentive Plan and the Omnibus Plan subject to their respective provisions and applicable law.

Stock Options

Stock options are granted with an exercise price equal to the market price of our stock at the date of grant and have a ten-year contractual term. The fair value of each option award is estimated on the date of the grant using the Black-Scholes option valuation model. Stock options vest in equal annual installments in the first three years following the date of grant (graded vesting). Stock options are expensed on a straight-line basis over the required service period, based on the estimated fair value of the award on the date of grant, net of estimated forfeitures.

Valuation Assumptions

Assumptions used to calculate the fair value of stock options in each period are noted in the following table. Expected volatility is based on the simple average of implied and historical volatility using the daily closing prices of the Company’s stock for a period equal to the expected term of the option. The risk-free interest rate is based on the U.S. Treasury rate at the time of the grant for instruments of comparable life.



	Years Ended December 31,
	2016		2015		2014
Weighted average assumptions used in option valuations:
Expected volatility	42.54	%	39.90	%	42.40	%
Expected dividend yield	3.86	%	1.98	%	2.01	%
Expected term (in years)	7		7		7
Risk-free interest rate	1.65	%	1.92	%	2.31	%

A summary of the status of our stock options as of December 31, 2016, and activity during 2016, is as follows:



	Shares (in millions)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding as of December 31, 2015	2.4		$	51.76
Granted	0.4		28.49
Exercised	(0.2	)	15.47
Outstanding as of December 31, 2016	2.6		$	51.11	4.6	$	0.4
Exercisable as of December 31, 2016	1.9		$	56.57	3.4	$	—

The weighted-average grant date fair value of options granted during 2016, 2015 and 2014 was $8.37, $17.87 and $18.79, respectively. The total intrinsic value of options exercised during 2016, 2015 and 2014 was $2.8 million, $7.3 million and $9.4 million, respectively.

Restricted Stock Units

Restricted stock units are issued to various employees, officers and directors at a price equal to the market price of our stock at the date of grant. The fair value of restricted stock units is equal to the market price of our stock at the date of grant. Restricted stock units generally cliff vest after three years of continuous service and are expensed on a straight-line basis over the required service period, based on the estimated grant date fair value, net of estimated forfeitures.

A summary of the status of our restricted stock units as of December 31, 2016, and activity during 2016, is as follows:



	Shares (in millions)		Weighted Average Grant Date Fair Value Per Share
Restricted stock units as of December 31, 2015	0.8		$	50.60
Granted	0.5		28.10
Issued and cancelled	(0.2	)	50.82
Restricted stock units as of December 31, 2016	1.1		$	40.38

Performance Units

During the year ended December 31, 2016, 106,826 total shareholder return ("TSR") performance units were granted with a fair value of $34.87. Final performance units are awarded based on the increase or decrease, subject to certain limitations, in Mosaic’s share price from the grant date to the third anniversary of the award, plus dividends (a measure of total shareholder return or TSR). The beginning and ending stock prices are based on a 30 trading-day average stock price. Holders of the awards must be employed at the end of the performance period in order for any units to vest, except in the event of death, disability or retirement at or after age 60, certain changes in control, and Committee or Board discretion as provided in the related award agreements.

The fair value of each TSR performance unit is determined using a Monte Carlo simulation. This valuation methodology utilizes assumptions consistent with those of our other share-based awards and a range of ending stock prices; however, the expected term of the awards is three years, which impacts the assumptions used to calculate the fair value of performance units as shown in the table below. TSR performance units are considered equity-classified fixed awards measured at grant-date fair value and not subsequently re-measured. TSR performance units cliff vest after three years of continuous service and are expensed on a straight-line basis over the required service period, based on the estimated grant date fair value of the award net of estimated forfeitures.

A summary of the assumptions used to estimate the fair value of TSR performance units is as follows:



	Years Ended December 31,
	2016		2015		2014
Weighted average assumptions used in performance unit valuations:
Expected volatility	35.67	%	24.86	%	30.39	%
Expected dividend yield	3.86	%	1.98	%	2.08	%
Expected term (in years)	3		3		3
Risk-free interest rate	0.99	%	1.05	%	0.77	%

During the year ended December 31, 2016, approximately 329,599 performance units were granted with vesting based on the cumulative spread between our return on invested capital (ROIC) and our weighted-average cost of capital (WACC) measured over a three-year period. These units are accounted for as share-based payments but are settled in cash, and are therefore accounted for as a liability with changes in value recorded through earnings during the three year service period. Awards are forfeited upon termination of employment, but not for retirement (if the employee has at least five years of service at age 60 or older), death, or disability of the employee. The total grant-date fair value of these awards was equal to the market price of our stock at the date of grant, which was $28.49.

A summary of our performance unit activity during 2016 is as follows:



	Shares (in millions)		Weighted Average Grant Date Fair Value Per Share
Outstanding as of December 31, 2015	0.5		$	48.24
Granted	0.4		30.05
Issued and cancelled	(0.1	)	20.14
Outstanding as of December 31, 2016	0.8		$	41.36

Performance Based Cost Reduction Incentive Awards

During the year ended December 31, 2014, approximately 627,054 units of one-time, long-term incentive awards were issued to executive officers and other management employees tied to achieving target controllable operating costs savings of $228 million from 2013 levels by the end of 2016. The awards will be settled through the issuance of shares of Mosaic common stock equal to the number of performance awards multiplied by a payout percentage, determined on the basis of achieving specified controllable operating costs per tonne. Awards are forfeited upon termination of employment, but not for retirement (if the employee has at least five years of service at age 60 or older), death, or disability of the employee. The total grant-date fair value of these awards was equal to the market price of our stock at the date of grant, which was $49.17.

Share-Based Compensation Expense

We recorded share-based compensation expense of $30.5 million, $41.8 million and $57.2 million for 2016, 2015 and 2014, respectively. The tax benefit related to share exercises and lapses in the year was $10.7 million, $13.8 million and $19.8 million for 2016, 2015 and 2014, respectively.

As of December 31, 2016, there was $12.1 million of total unrecognized compensation cost related to options, restricted stock units and performance units and shares granted under the 2014 Stock and Incentive Plan and the Omnibus Plan. The unrecognized compensation cost is expected to be recognized over a weighted-average period of 2 years. The total fair value of options vested in 2016, 2015 and 2014 was $4.5 million, $4.4 million and $5.5 million, respectively.

Cash received from exercises of all share-based payment arrangements for 2016, 2015 and 2014 was $3.8 million, $5.3 million and $6.7 million, respectively. In 2016, 2015 and 2014, we received a tax benefit for tax deductions from options of $3.3 million, $8.9 million and $10.2 million, respectively.