(14) Share-Based Transactions

The Company has outstanding equity awards under its Omnibus Incentive Plan (“OIP”). The OIP provides for the issuance of equity awards, including stock options, stock appreciation rights, restricted stock, deferred stock, RSUs, unrestricted stock, as well as cash-based awards. In addition to time-based vesting requirements, awards granted under the OIP also may be subject to specified performance criteria. Since 2010, the Company has issued equity awards to our management (officers and other key employees), non-employee directors, and sales force leaders under the OIP. As of December 31, 2015, we had approximately 1.5 million shares available for future grants under this plan.

Employee and Director Share-Based Compensation. As of December 31, 2015, the Company had outstanding restricted stock, RSUs, and stock options issued to our management (officers and other key employees), as well as restricted stock, RSUs, and deferred RSUs issued to our non-employee directors, under the OIP.

Restricted Stock and RSUs. Since 2013, the Company granted shares of restricted stock and RSUs to management (“management restricted stock and RSU awards”) as follows:

Prior to 2014, management of the Company’s U.S. based subsidiaries received restricted stock and management of the Company’s Canadian subsidiaries received RSUs. These awards have time-based vesting requirements with equal and annual graded vesting over approximately three years subsequent to the grant date.

In 2014 and 2015, management (regardless of geography) received RSUs that have time-based vesting requirements with equal and annual graded vesting over approximately three years subsequent to the grant date. Awards granted to management in 2014 (the “modified awards”) to provide for such awards to vest upon voluntary termination of employment by any employee who is “retirement eligible” as of his or her termination date. In order to be retirement eligible, an employee must be at least 55 years old and his or her age plus years of service with the Company must equal at least 75. The “retirement eligible” provision is expected to be included in all future management grants.

Since 2013, the Company granted shares of restricted stock and RSUs to non-employee members of the Board of Directors (“director restricted stock and RSU awards”) as follows:

Prior to 2013, non-employee directors received restricted stock that have time-based vesting requirements with equal and annual graded vesting over approximately three years subsequent to the grant date.

In 2013, non-employee directors received RSUs that have time-based vesting requirements that lapsed approximately one year after the grant date. These awards also contain post-vesting sale restrictions until the non-employee director no longer serves on our Board.

Beginning in 2014 and continuing in 2015, non-employee directors received RSUs that have time-based vesting requirements with equal and annual graded vesting over four quarters subsequent to the grant date. These awards also contain post-vesting sale restrictions until the non-employee director no longer serves on our Board.

In addition, certain directors elected to defer their cash and/or equity retainers into deferred RSUs, which vest immediately or, if applicable, on the dates the RSUs would have vested.

All of our outstanding management and director restricted stock and RSU awards are eligible for dividends or dividend equivalents regardless of vesting status.

In connection with our granting of management and director restricted stock and RSU awards, we recognized expense and tax benefit offsets as follows:

	Year ended December 31,
	2015		2014		2013
	(In thousands)
Total management and director restricted stock and RSU awards	$	13,839	$	15,726	$	13,101
Tax benefit associated with total management and director restricted stock and RSU award expense		4,668		5,322		3,936

The following table summarizes management and director restricted stock and RSU activity during the years ended December 31, 2015, 2014, and 2013.

	Shares			Weighted-average measurement-date fair value per share
	(Shares in thousands)
Unvested employee restricted stock and RSUs, December 31, 2012		1,507		$	19.72
Granted		322			32.76
Forfeited		(9	)		28.72
Vested		(1,098	)		17.59
Unvested employee restricted stock and RSUs, December 31, 2013		722			28.67
Granted		279			41.31
Forfeited		(13	)		30.49
Vested		(408	)		28.53
Unvested employee restricted stock and RSUs, December 31, 2014		580			34.67
Granted		246			52.75
Forfeited		(8	)		41.98
Vested		(428	)		35.43
Unvested employee restricted stock and RSUs, December 31, 2015		390			45.07

As of December 31, 2015, total compensation cost not yet recognized in our financial statements related to management and director restricted stock and RSU awards with time-based vesting conditions yet to be reached was approximately $5.7 million, and the weighted-average period over which cost will be recognized was 0.8 years.

Stock Options. Beginning in 2013, the Company issued stock options to certain of its executive officers under the OIP as part of their annual equity compensation. The remaining annual equity compensation for these executive officers was granted in the form of management restricted stock awards and RSUs discussed above. Stock options are generally granted with an exercise price equal to the fair market value of our common stock on the grant date, and they expire 10 years from the date of grant. These options have time-based restrictions with equal and annual graded vesting over a three-year period. Stock options issued in 2014 and thereafter provide for such awards to vest upon the voluntary termination of employment by any employee who is “retirement eligible” as of his or her termination date. Upon retirement, employees have the lesser of three years or the remaining option term to exercise any vested options.

Compensation expense and related tax benefits recognized for stock options awards were as follows:

	Year ended December 31,
	2015		2014		2013
	(In thousands)
Expense recognized for stock option awards	$	643	$	1,803	$	323
Tax benefit recognized for stock option awards		225		631		113

The fair value of each option was estimated on the date of grant using the Black-Scholes model. We derived expected volatility after considering the historical volatility of our own stock, which has been trading since April 1, 2010. The Company’s per share dividend yield as of the grant date was used as the input for the expected dividend payout on the underlying shares. The risk-free interest rate was based on the U.S. Treasury yield for a term approximating the expected life of the options at the time of grant. The Company used a blended approach to develop the expected term that considered both actual exercise activity where available along with the simplified method where historical information was not available. All inputs into the Black-Scholes model were estimates made at the time of grant. The actual realized value of each option grant could materially differ from these estimates, which would have no impact to future reported compensation expense.

The following assumptions were used to estimate the fair value of stock options granted:

	Year ended December 31,
	2015			2014			2013
Expected volatility		24.00	%		33.00	%		30.00	%
Expected per share dividend yield		1.20	%		1.17	%		1.35	%
Risk-free interest rate		1.61	%		1.81	%		1.06	%
Expected term of options	5 years			6 years			6 years
Fair value per option	$	11.07		$	12.54		$	8.44

The following table summarizes activity related to stock options outstanding and exercisable during the years ended December 31, 2015 and 2014.

	Outstanding					Exercisable
	Number of shares			Weighted average exercise price		Number of shares		Weighted average exercise price
	(Shares in thousands)
Outstanding at December 31, 2012		-		n/a		—		n/a
Granted		134		$	32.63
Exercised		-			-
Outstanding at December 31, 2013		134			32.63	—		n/a
Granted		116			41.20
Exercised		(4	)		32.63
Outstanding at December 31, 2014		246			36.67		40	$	32.63
Granted		46			53.50
Exercised		(89	)		34.89
Outstanding at December 31, 2015		203			41.28		35		36.38

Range of granted option exercise prices outstanding at December 31, 2015:
$32.63 (average term remaining - 7.2 years)		64		$	32.63		20	$	32.63
$41.20 (average term remaining - 8.2 years)		93			41.20		15		41.20
$53.50 (average term remaining - 9.1 years)		46			53.50	—		n/a

The aggregate intrinsic value represents the difference between the exercise price of our stock options and the quoted closing price of our common stock as of December 31, 2015. A summary of the intrinsic values of our stock options is as follows:

	December 31, 2015
	(In thousands)
Aggregate intrinsic value of exercisable stock options	$	378
Aggregate intrinsic value of stock options expected to vest		830
Aggregate intrinsic value of stock options outstanding	$	1,208

The intrinsic value, tax benefit realized and value of shares withheld related to option exercise activity are summarized as follows:

	Year ended December 31,
	2015		2014		2013
	(In thousands)
Intrinsic value of options exercised	$	1,620	$	53	$	-
Tax benefit realized from the options exercised		567		19		-
Value of issued shares withheld to satisfy option exercise price		2,966		142		-

As of December 31, 2015, there was approximately $0.3 million of total unrecognized compensation cost related to unvested options, and the weighted-average period over which cost will be recognized was approximately 0.7 years.

Non-Employee Share-Based Compensation. Non-employee share-based transactions relate to the granting of RSUs to members of our sales force (“agent equity awards”). Agent equity awards are generally granted as a part of quarterly contests for successful life insurance policy acquisitions or renewals and for sales of investment and savings products for which the grant and the service period occur within the same calendar quarter.

The following table summarizes non-employee RSU activity during the years ended December 31, 2015, 2014, and 2013.

	Shares			Weighted-average measurement-date fair value per share
	(Shares in thousands)
Unvested non-employee RSUs, December 31, 2012		132		$	25.42
Granted		504			32.14
Vested		(532	)		29.64
Unvested non-employee RSUs, December 31, 2013		104			36.44
Granted		295			45.08
Vested		(326	)		41.23
Unvested non-employee RSUs, December 31, 2014		73			49.98
Granted		326			42.79
Vested		(326	)		44.39
Unvested non-employee RSUs, December 31, 2015		73			42.83

Agent equity awards vest and are measured using the fair market value at the conclusion of the quarterly contest, which is the time that performance is complete. However, agent equity awards are subject to long-term sales restrictions expiring over three years. Because the sale restrictions extend up to three years beyond the vesting period, the fair market value of the awards incorporates an illiquidity discount reflecting the risk associated with the post-vesting restrictions. To quantify this discount for each award, we use a series of put option models with one-, two- and three-year tenors to estimate a hypothetical cost of eliminating the downside risk associated with the sale restrictions.

The most significant assumptions in the Black-Scholes models are the volatility assumptions. We derive volatility assumptions primarily from the historical volatility of our common stock using terms comparable to the sale restriction terms.

The following table presents the assumptions used in valuing quarterly RSU grants to agents:

	Year ended December 31,
	2015		2014		2013
Expected volatility	18% to 35%		17% to 31%		20% to 35%
Quarterly dividends expected	$	0.16	$	0.12	$	0.11
Risk-free interest rates	Less than 2%		Less than 2%		Less than 2%

To the extent that these awards are an incremental direct cost of successful acquisitions or renewals of life insurance policies that result directly from and are essential to the policy acquisition(s) and would not have been incurred had the policy acquisition(s) not occurred, we defer and amortize the fair value of the awards in the same manner as other deferred policy acquisition costs. All agent equity awards that are not directly related to the acquisition or renewal of life insurance policies are recognized as expense over the requisite vesting period.

Details on the granting and valuation of these awards follow:

	Year ended December 31,
	2015		2014		2013
	(Dollars in thousands, except per-share amounts)
Total quarterly non-employee RSUs granted		325,744		294,985		503,737
Measurement date per-share fair value of awards	$40.98 to $46.71		$42.96 to $49.98		$26.39 to $36.44
Illiquidity discounts	8% to 9%		8% to 9%		13% to 18%
Quarterly incentive awards expense recognized currently	$	467	$	453	$	364
Quarterly incentive awards expense deferred		13,423		13,598		15,818
Concurrent tax benefit of deferred expense		4,454		4,500		5,001

As of December 31, 2015, all agent equity awards were fully vested with the exception of approximately 73,000 shares that vested on January 1, 2016. As such, any related compensation cost not recognized as either expense or deferred acquisition costs in our financial statements through December 31, 2015 is immaterial.