Note 8. Compensation and Benefits

Total compensation and benefits consists of the following:



	For the Years Ended December 31,
	2016		2015		2014
Salaries, incentive compensation and benefits ⁽¹⁾	$	312,676	$	335,700	$	327,154
Restricted share-based award compensation expense	43,159		36,467		23,148
Total salaries, incentive compensation and benefits	355,835		372,167		350,302
Pre-offering related compensation - share-based awards	28,080		42,071		64,664
Total compensation and benefits	$	383,915	$	414,238	$	414,966
⁽¹⁾ Excluding restricted share-based award compensation expense

Incentive compensation

Cash incentive compensation paid to members of Artisan’s investment teams and members of its distribution teams is generally based on formulas that are tied directly to revenues. These payments are made in the quarter following the quarter in which the incentive was earned with the exception of fourth quarter payments which are paid in the fourth quarter of the year. Cash incentive compensation paid to most other employees is discretionary and subjectively determined based on individual performance and Artisan’s overall results during the applicable year and has historically been paid in the fourth quarter of the year. The cash incentive compensation earned by executive officers for the year ended December 31, 2016, was paid in 2017.

Restricted share-based awards

Artisan has registered 14,000,000 shares of Class A common stock for issuance under the 2013 Omnibus Incentive Compensation Plan (the “Plan”). Pursuant to the Plan, APAM has granted a combination of restricted stock awards and restricted stock units (collectively referred to as “restricted share-based awards”) of Class A common stock to employees. The restricted share-based awards generally vest on a pro rata basis over five years. Certain share-based awards will vest upon a combination of both (1) pro-rata annual time vesting and (2) qualifying retirement (as defined in the award agreements). Unvested awards are subject to forfeiture upon termination of employment. Grantees receiving the awards are entitled to dividends on unvested and vested shares and units. 9,263,590 shares of Class A common stock were reserved and available for issuance under the Plan as of December 31, 2016

Compensation expense related to the restricted share-based awards is recognized based on the estimated grant date fair value on a straight-line basis over the requisite service period of the award. The initial requisite service period is generally five years for restricted share-based awards.

As of January 1, 2016, the Company’s accounting policy is to record the impact of forfeitures when they occur. During the year ended December 31, 2016, previously recognized compensation expense was reversed for 52,718 forfeited restricted share-based awards.

The following table summarizes the restricted share-based award activity for the years ended December 31, 2016, 2015 and 2014:



	Weighted-Average Grant Date Fair Value		Number of Awards
Unvested at January 1, 2014	$	52.36	1,575,157
Granted	52.85		1,444,688
Forfeited	—		—
Vested	52.61		(319,211	)
Unvested at January 1, 2015	$	52.59	2,700,634
Granted	48.17		642,950
Forfeited	52.71		(12,559	)
Vested	52.69		(469,041	)
Unvested at January 1, 2016	$	51.58	2,861,984
Granted	30.42		1,138,892
Forfeited	50.44		(52,718	)
Vested	51.76		(553,248	)
Unvested at December 31, 2016	$	44.47	3,394,910

Compensation expense recognized related to the restricted share-based awards was $43.2 million, $36.5 million and $23.1 million for the years ended December 31, 2016, 2015, and 2014, respectively. The aggregate vesting date fair value of awards that vested during the years ended December 31, 2016 and 2015 was approximately $15.3 million and $22.0 million, respectively. The unrecognized compensation expense for the unvested restricted share-based awards as of December 31, 2016 was $111.1 million with a weighted average recognition period of 3.1 years remaining. The initial requisite service period and remaining weighted average recognition period for all types of restricted share-based awards are substantially equivalent.

During the years ended December 31, 2016 and 2015, the Company withheld a total of 28,225 and 14,276 restricted shares, respectively, as a result of net share settlements to satisfy employee tax withholding obligations. The Company paid $0.8 million and $0.7 million in employee tax withholding obligations related to these settlements during the years ended December 31, 2016 and 2015, respectively. These net share settlements had the effect of shares repurchased and retired by the Company, as they reduced the number of shares outstanding.

Pre-offering related compensation - share-based awards

Holdings historically granted Class B share-based awards to certain employees. These awards vested over a period of five years. Prior to the IPO, all vested Class B awards were subject to mandatory redemption on termination of employment for any reason and were reflected as liabilities measured at fair value; unvested Class B awards were forfeited on termination of employment.

The vested Class B liability awards of a terminated employee were historically redeemed in cash in annual installments, generally over the five years following termination of employment. The remaining redemption payment liability for Class B awards of partners whose services to Holdings terminated prior to the IPO was $0.5 million as of December 31, 2016.

As a part of the IPO Reorganization, the Class B grant agreements were amended to eliminate the cash redemption feature. The amendment was considered a modification under ASC 718 and the Class B awards have been classified as equity awards since such modification. Compensation expense is recorded for unvested Class B awards on a straight-line basis over the remaining vesting period.

The following table summarizes the activity related to unvested Class B awards for the years ended December 31, 2016, 2015 and 2014:



	Weighted-Average Grant Date Fair Value		Number of Class B Awards
Unvested Class B awards at January 1, 2014	$	30.00	7,249,842
Granted	—		—
Forfeited	—		—
Vested	30.00		(3,204,826	)
Unvested Class B awards at January 1, 2015	$	30.00	4,045,016
Granted	—		—
Forfeited	30.00		(54,730	)
Vested	30.00		(1,641,952	)
Unvested Class B awards at January 1, 2016	$	30.00	2,348,334
Granted	—		—
Forfeited	30.00		(91,383	)
Vested	30.00		(1,411,731	)
Unvested Class B awards at December 31, 2016	$	30.00	845,220

Compensation expense recognized related to the unvested Class B awards was $28.1 million, $42.1 million and $64.7 million for the years ended December 31, 2016, 2015, and 2014, respectively. The unrecognized compensation expense for the unvested Class B awards as of December 31, 2016 was $12.7 million with a weighted average recognition period of 0.5 years remaining.