Share-Based and Deferred Compensation and Employee Ownership Plans

The Company issues share based compensation under the 2006 Equity and Incentive Plan, the 2007 Equity and Incentive Plan (both established prior to the November 2009 transaction between Ramius and Cowen) and the Cowen Group, Inc. 2010 Equity and Incentive Plan (collectively, the “Equity Plans”). The Equity Plans permit the grant of options, restricted shares, restricted stock units, stock appreciation rights ("SAR's") and other equity based awards to the Company's employees, consultants and directors for up to 17,725,000 shares of common stock plus any approved additional shares in accordance with the Equity Plans. Stock options granted generally vest over two-to-five-year periods and expire seven years from the date of grant. Restricted shares and restricted share units issued may be immediately vested or may generally vest over a two-to-five-year period. SAR's vest and expire after five years from grant date. Awards are subject to the risk of forfeiture. As of December 31, 2014, there were approximately 1.2 million shares available for future issuance under the Equity Plans.

Under the 2010 Equity Plan, the Company awarded $29.3 million of deferred cash awards to its employees during the year ended December 31, 2014. These awards vest over a period of five years and accrue interest between 0.70% to 0.75% per year. As of December 31, 2014, the Company had unrecognized compensation expense related to deferred cash awards of $33.8 million.

The Company measures compensation cost for share based awards according to the equity method. In accordance with the expense recognition provisions of those standards, the Company amortizes unearned compensation associated with share based awards on a straight-line basis over the vesting period of the option or award. In relation to awards under the Equity Plans, the Company recognized expense of $18.3 million, $17.9 million, and $19.9 million for the years ended December 31, 2014, 2013, and 2012, respectively. The income tax effect recognized for the Equity Plans was a benefit of $6.0 million, $9.7 million, and $11.3 million for the years ended December 31, 2014, 2013, and 2012, respectively; however, for 2013 and 2012, these benefits were offset by a valuation allowance.

In relation to awards under the RCG Grants, the Company recognized expense of $4.9 million for the year ended December 31, 2012. The income tax effect recognized for the RCG Grants was a benefit of $1.9 million for the year ended December 31, 2012.

Stock Options and Stock Appreciation Rights

The Company values options and SAR's on grant date using the Black-Scholes valuation model which requires the Company to make assumptions regarding the expected term, volatility, risk-free rate and dividend yield:

Expected term. Expected term represents the period of time that awards granted are expected to be outstanding. The Company elected to use the "simplified" calculation method, as applicable to companies that lack extensive historical data. The mid-point between the vesting date and the contractual expiration date is used as the expected term under this method.

Expected volatility. The Company bases its expected volatility on its own stock price history.

Risk free rate. The risk-free rate for periods within the expected term of the award is based on the interest rate of a traded zero-coupon U.S. Treasury bond with a term equal to the awards' expected term on the date of grant.

Dividend yield. The Company has not paid and does not expect to pay dividends in the foreseeable future. Accordingly, the assumed dividend yield is zero.

The following table summarizes the Company's stock option activity for the year ended December 31, 2014:



	Shares Subject to Option		Weighted Average Exercise Price/Share		Weighted Average Remaining Term	Aggregate Intrinsic Value(1)
					(in years)	(dollars in thousands)
Balance outstanding at December 31, 2012	773,763		$	12.58	1.6	$	—
Options granted	—		—		—	—
Options exercised	—		—		—	—
Options expired	(473,757	)	16.00		—	—
Balance outstanding at December 31, 2013	300,006		$	7.19	2.40	$	41
Options granted	—		—		—	—
Options exercised	(33,334	)	3.50		—	—
Options expired	(50,000	)	16.27		—	—
Balance outstanding at December 31, 2014	216,672		$	5.65	1.60	$	87
Options exercisable at December 31, 2013	300,006		$	7.19	2.40	$	—
Options exercisable at December 31, 2014	216,672		$	5.65	1.60	$	—


(1)	Based on the Company's closing stock price of $4.80 on December 31, 2014 and $3.91 on December 31, 2013.

As of December 31, 2014, the unrecognized compensation expense related to the Company's grant of stock options was insignificant.

The following table summarizes the Company's SAR's for the year ended December 31, 2014:



	Shares Subject to Option	Weighted Average Exercise Price/Share		Weighted Average Remaining Term		Aggregate Intrinsic Value(1)
				(in years)		(dollars in thousands)
Balance outstanding at December 31, 2012	—	$	—	0		$	—
SAR's granted	400,000	$	2.90	—		—
SAR's acquired	—	$	—	—		—
SAR's expired	—	$	—	—		—
Balance outstanding at December 31, 2013	400,000	$	2.90	4.21		608
SAR's granted	—	—		—		—
SAR's acquired	—	—		—		—
SAR's expired	—	—		—		—
Balance outstanding at December 31, 2014	400,000	$	2.90	3.21		$	913
SAR's exercisable at December 31, 2014	—	$	—	$	—


(1)	Based on the Company's closing stock price of $4.80 on December 31, 2014 and $3.91 on December 31, 2013.

As of December 31, 2014 and 2013, the unrecognized compensation expense related to the Company's grant of SAR's was $0.2 million and $0.3 million, respectively.

Restricted Shares and Restricted Stock Units Granted to Employees

Restricted shares and restricted stock units are referred to collectively as restricted stock. The following table summarizes the Company's restricted share and restricted stock unit activity for the year ended December 31, 2014:



	Nonvested Restricted Shares and Restricted Stock Units		Weighted-Average Grant Date Fair Value
Balance outstanding at December 31, 2012	10,252,023		$	4.15
Granted (1)	7,939,924		2.63
Vested	(4,463,990	)	3.86
Canceled	—		—
Forfeited	(176,413	)	3.15
Balance outstanding at December 31, 2013	13,551,544		$	3.37
Granted	9,674,496		3.89
Vested	(4,071,120	)	3.27
Canceled	—		—
Forfeited	(1,500,338	)	3.07
Balance outstanding at December 31, 2014 (1)	17,654,582		$	3.70

(1) Performance linked restricted stock units of 1,925,750 were awarded to employees of the Company in December 2013 and January 2014. Of the awards granted, 281,250 have been forfeited during the year ended December 31, 2014. The remaining awards, included in the outstanding balance as of December 31, 2014, will vest on June 10, 2019 and will be earned only to the extent that the Company attains specified performance goals relating to its volume-weighted average share price and the aggregate net income for the years from 2014 to 2018. The actual number of RSUs ultimately earned could vary from zero, if performance goals are not met, to as much as 100% of the targeted award. Each RSU is equal to the one share of the Company’s Class A common stock. Compensation expense is recognized to the extent that it is probable that the Company will attain the performance goals.

The fair value of restricted stock (excluding performance linked units which are valued using the Monte Carlo valuation model) is determined based on the number of shares granted and the quoted price of the Company's common stock on the date of grant.

As of December 31, 2014, there was $43.4 million of unrecognized compensation expense related to the Company's grant of nonvested restricted shares and restricted stock units to employees. Unrecognized compensation expense related to nonvested restricted shares and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 1.75 years.

Restricted Shares and Restricted Stock Units Granted to Non-employee Board Members

There were 158,791 restricted stock units awarded during the year ended December 31, 2014. Vested awards of 216,834 were delivered during the year ended December 31, 2014. As of December 31, 2014 there were 424,479 restricted stock units outstanding.