16. Stock-based compensation

The Company has issued options under the Genpact Global Holdings 2005 Plan (the “2005 Plan”), the Genpact Global Holdings 2006 Plan (the “2006 Plan”), the Genpact Global Holdings 2007 Plan (the “2007 Plan”) and the Genpact Limited 2007 Omnibus Incentive Compensation Plan (the “2007 Omnibus Plan”) to eligible persons, who are employees, directors and certain other persons associated with the Company.

With respect to options granted under the 2005, 2006 and 2007 Plans before the date of adoption of the 2007 Omnibus Plan, if an award granted under any such plan was forfeited or otherwise expired, terminated, or cancelled without the delivery of shares, then the shares covered by the forfeited, expired, terminated, or cancelled award were added to the number of shares otherwise available for grant under the respective plans.

Under the 2007 Omnibus Plan, share-based awards forfeited, expired, terminated, or cancelled under any of the plans were added to the number of shares otherwise available for grant under the 2007 Omnibus Plan. The 2007 Omnibus Plan was amended and restated on April 11, 2012 to increase the number of common shares authorized for issuance by 5,593,200 shares to 15,000,000 shares.

On May 9, 2017, the Company’s shareholders approved the adoption of the Genpact Limited 2017 Omnibus Incentive Compensation Plan (the “2017 Omnibus Plan”), pursuant to which 15,000,000 Company common shares are available for issuance. No further grants may be made under the 2007 Omnibus Plan after the date of adoption of the 2017 Omnibus Plan.

Stock-based compensation costs relating to the foregoing plans during the six months ended June 30, 2016 and June 30, 2017 were 13,328 and 12,078, respectively, and for the three months ended June 30, 2016 and 2017 were $8,078 and $7,233, respectively. These costs have been allocated to cost of revenue and selling, general, and administrative expenses.

Stock options

Options granted are subject to a vesting requirement. Options granted under the plans are exercisable into common shares of the Company, have a contractual period of ten years and vest over four to five years unless specified otherwise in the applicable award agreement. The Company recognizes the compensation cost over the vesting period of the option. Compensation cost is determined as of the date of grant by estimating the fair value of an option using the Black-Scholes option-pricing model.

The following table shows the significant assumptions used in connection with the determination of the fair value of options granted in the six months ended June 30, 2016 and June 30, 2017.

	Six months ended June 30, 2016	Six months ended June 30, 2017
Dividend yield	—			0.97%
Expected life (in months)	84			84
Risk-free rate of interest	1.56%		2.25%
Volatility	27.22%		24.28%

16. Stock-based compensation (Continued)

A summary of stock option activity during the six months ended June 30, 2017 is set out below:

	Six months ended June 30, 2017
	Shares arising out of options			Weighted average exercise price		Weighted average remaining contractual life (years)		Aggregate intrinsic value
Outstanding as of January 1, 2017		5,707,690		$	18.65		5.8	$	—
Granted		250,000			24.74		—		—
Forfeited		(80,000	)		20.63		—		—
Expired		—			—		—		—
Exercised		(548,086	)		14.17		—		7,486
Outstanding as of June 30, 2017		5,329,604		$	19.37		6.0	$	45,087
Vested as of June 30, 2017 and expected to vest thereafter (Note a)	5,099,555			$	19.14		6.0	$	44,493
Vested and exercisable as of June 30, 2017		2,273,105		$	16.00		4.4	$	26,887
Weighted average grant date fair value of grants during the period	$	6.62

(a)	Options expected to vest reflect an estimated forfeiture rate.

As of June 30, 2017, the total remaining unrecognized stock-based compensation cost for options expected to vest amounted to $10,161, which will be recognized over the weighted average remaining requisite vesting period of 2.6 years.

Restricted share units

The Company has granted restricted share units, or RSUs, under the 2007 and 2017 Omnibus Plans. Each RSU represents the right to receive one Company common share at a future date. The fair value of each RSU is the market price of a Company common share on the date of the grant. RSUs granted to date have graded vesting schedules of three months to four years. The compensation expense is recognized on a straight-line basis over the vesting term. A summary of RSUs granted during the six months ended June 30, 2017 is set out below:

	Six months ended June 30, 2017
	Number of Restricted Share Units			Weighted Average Grant Date Fair Value
Outstanding as of January 1, 2017		117,905		$	20.65
Granted		1,111,822			25.44
Vested (Note a)		(11,070	)		17.87
Forfeited		—			—
Outstanding as of June 30, 2017		1,218,657		$	25.04
Expected to vest (Note b)		990,303

(a)	RSUs that vested during the period were net settled upon vesting by issuing 10,646 shares (net of minimum statutory tax withholding).

(b)	The number of RSUs expected to vest reflects an estimated forfeiture rate.

53,546 RSUs vested in the year ended December 31, 2015, in respect of which 53,023 shares were issued during the six months ended June 30, 2017 after withholding shares to the extent of minimum statutory withholding taxes.

34,035 RSUs vested in the year ended December 31, 2016, in respect of which 17,802 shares were issued during the six months ended June 30, 2017 after withholding shares to the extent of minimum statutory withholding taxes.

16. Stock-based compensation (Continued)

As of June 30, 2017, the total remaining unrecognized stock-based compensation cost related to RSUs amounted to $22,714, which will be recognized over the weighted average remaining requisite vesting period of 3.1 years.

Performance units

The Company also grants stock awards in the form of performance units, or PUs, and has granted PUs under both the 2007 and 2017 Omnibus Plans.

Each PU represents the right to receive one Company common share at a future date based on the Company’s performance against specified targets. PUs granted to date have vesting schedules of six months to three years. The fair value of each PU is the market price of one common share of the Company on the date of grant and assumes that performance targets will be achieved. PUs granted under the plan are subject to cliff vesting. The compensation expense for such awards is recognized on a straight-line basis over the vesting terms. Over the performance period, the number of shares to be issued is adjusted upward or downward depending on the probability of achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized is based on a comparison of the final performance metrics to the specified targets.

A summary of PU activity during the six months ended June 30, 2017 is set out below:

	Six months ended June 30, 2017
	Number of Performance Units			Weighted Average Grant Date Fair Value		Maximum Shares Eligible to Receive
Outstanding as of January 1, 2017		3,772,128		$	23.04		5,524,114
Granted		1,811,292			25.22		3,622,584
Vested (Note a)		(1,136,047)			16.78		(1,136,047)
Forfeited (Note b)		(1,523,590	)		27.69		(1,527,990	)
Adjustment upon final determination of level of performance goal achievement (Note c)							(1,747,586)
Outstanding as of June 30, 2017		2,923,783		$	24.40		4,735,075
Expected to vest (Note d)		2,175,507

(a)

PUs that vested during the period were net settled upon vesting by issuing 731,701 shares (net of minimum statutory tax withholding).

(b)

Includes 1,443,624 target shares underlying PUs granted in 2016 which were forfeited for failure to achieve all of the threshold performance targets under such awards as certified by the compensation committee based on the Company’s audited financial statements for the year ended December 31, 2016.

(c)

Represents the difference between the maximum number of shares achievable under the PUs granted in 2016 and the number of target shares underlying the PUs granted in 2016, which were forfeited for failure to achieve all of the threshold performance targets under such awards as certified by the compensation committee based on the Company’s audited financial statements for the year ended December 31, 2016.

(d)

The number of PUs expected to vest is based on the probable achievement of the performance targets after considering an estimated forfeiture rate.

As of June 30, 2017, the total remaining unrecognized stock-based compensation cost related to PUs amounted to $30,005, which will be recognized over the weighted average remaining requisite vesting period of 2.3 years.

16. Stock-based compensation (Continued)

Employee Stock Purchase Plan (ESPP)

On May 1, 2008, the Company adopted the Genpact Limited U.S. Employee Stock Purchase Plan and the Genpact Limited International Employee Stock Purchase Plan (together, the “ESPP”).

The ESPP allows eligible employees to purchase the Company’s common shares through payroll deductions at 90% of the closing price of the Company’s common shares on the last business day of each purchase interval. The dollar amount of common shares purchased under the ESPP must not exceed 15% of the participating employee’s base salary, subject to a cap of $25 per employee per calendar year. With effect from September 1, 2009, the offering periods commence on the first business day in March, June, September and December of each year and end on the last business day of the subsequent May, August, November and February. 4,200,000 common shares have been reserved for issuance in the aggregate over the term of the ESPP.

During the six months ended June 30, 2016 and 2017, 60,636 and 100,357 common shares, respectively, were issued under the ESPP.

The ESPP is considered compensatory under the FASB guidance on Compensation-Stock Compensation.

The compensation expense for the ESPP is recognized in accordance with the FASB guidance on Compensation-Stock Compensation. The compensation expense for the ESPP during the six months ended June 30, 2016 and 2017 was $188 and $273, respectively, and for the three months ended June 30, 2016 and 2017 was $102 and $132, respectively, and has been allocated to cost of revenue and selling, general, and administrative expenses.