Share-Based and Deferred Compensation and Employee Ownership Plans

On December 5, 2016, the Company effected a one-for-four reverse stock split of the Company's class A and class B common stock. All share and per share information has been retroactively adjusted to reflect the reverse stock split.

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 Capital Group LLC 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 and directors. 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, 2017, there were no shares available for future issuance under the Equity Plans.

Under the 2010 Equity Plan, the Company awarded $24.1 million of deferred cash awards to its employees during the year ended December 31, 2017. These awards vest over a four year period and accrue interest at 0.70% per year. As of December 31, 2017, the Company had unrecognized compensation expense related to the 2010 Equity Plan deferred cash awards of $35.0 million.

Subsequent to the acquisition of Convergex Group (see Note 2) the Company maintained the Convergex Nonqualified Deferred Compensation Plan, which is a deferred cash award plan that is expensed over the 27 month service period requirement. As of December 31, 2017, the Company had unrecognized compensation expense related to former Convergex Group deferred cash awards of $2.4 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, net of estimated forfeitures. In relation to awards under the Equity Plans, the Company recognized compensation expense of $28.4 million, $26.0 million, and $21.7 million for the years ended December 31, 2017, 2016, and 2015 respectively. The income tax effect recognized for the Equity Plans was a benefit of $7.7 million, $11.4 million, and $5.0 million for the years ended December 31, 2017, 2016, and 2015 respectively.

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 years ended December 31, 2017 and 2016:



	Class A Common 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, 2015	4,167		$	19.56	1.6	$	87
Options granted	—		—		—	—
Options exercised	—		—		—	—
Options expired	—		—		—	—
Balance outstanding at December 31, 2016	4,167		$	19.56	0.10	$	—
Options granted	—		—		—	—
Options exercised	—		—		—	—
Options expired	(4,167	)	19.56		—	—
Balance outstanding at December 31, 2017	—		$	—	0	$	—
Options exercisable at December 31, 2016	4,167		$	19.56	0.10	$	—
Options exercisable at December 31, 2017	—		$	—	0	$	—


(1)	Based on the Company's closing stock price of $13.65 on December 31, 2017 and $15.50 on December 31, 2016.

As of December 31, 2017, the Company's stock options were fully expensed.

The following table summarizes the Company's SAR's for the years ended December 31, 2017:



	Class A Common 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, 2015	100,000		$	11.60	2.21	$	558
SAR's granted	—		—		—	—
SAR's acquired	—		—		—	—
SAR's expired	—		—		—	—
Balance outstanding at December 31, 2016	100,000		$	11.60	1.21	$	435
SAR's granted	—		—		—	—
SAR's vested	(25,000	)	11.60		—	—
SAR's expired	—		—		—	—
Balance outstanding at December 31, 2017	75,000		$	11.60	0.21	$	173
SAR's exercisable at December 31, 2016	—		$	—	—	$	—
SAR's exercisable at December 31, 2017	—		$	—	0	$	—


(1)	Based on the Company's closing stock price of $13.65 on December 31, 2017 and $15.50 on December 31, 2016.

As of December 31, 2017 the unrecognized compensation expense related to the Company's grant of SAR's was an immaterial amount and at December 31, 2016 it was $0.1 million.

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 years ended December 31, 2017 and 2016:



	Nonvested Restricted Class A Common Shares and Class A Common Restricted Stock Units		Weighted-Average Grant Date Fair Value
Balance outstanding at December 31, 2015	5,370,091		$	16.68
Granted	2,157,403		14.02
Vested	(1,487,092	)	14.95
Canceled	—		—
Forfeited	(322,470	)	14.89
Balance outstanding at December 31, 2016	5,717,932		$	16.23
Granted	2,255,441		14.98
Vested	(2,036,366	)	14.64
Canceled	—		—
Forfeited	(357,714	)	15.77
Balance outstanding at December 31, 2017	5,579,293		$	16.33

Included in the restricted share and restricted stock unit activity are performance linked restricted stock units of 481,438 which were awarded to employees of the Company in December 2013 and January 2014. An additional 700,000 performance linked restricted stock units were awarded in March 2016. Of the awards granted, 109,375 have been forfeited through December 31, 2017. The remaining awards, included in the outstanding balance as of December 31, 2017, will vest between March 2019 and December 2020 and will be earned only to the extent that the Company attains specified market conditions relating to its volume-weighted average share price and total shareholder return in relation to certain benchmark indices and performance goals relating to aggregate net income and average return on shareholder equity. The actual number of RSUs ultimately earned could vary from zero, if performance goals are not met, to as much as 150% 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, 2017, there was $56.4 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 2.27 years.

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

There were 56,519 restricted stock units awarded during the year ended December 31, 2017. As of December 31, 2017 there were 191,962 restricted stock units outstanding. There were 56,100 restricted stock units awarded during the year ended December 31, 2016. As of December 31, 2016 there were 162,176 restricted stock units outstanding.