SHARE-BASED COMPENSATION

Incentive compensation and award plan—On January 11, 2017, we adopted the TechnipFMC plc Incentive Award Plan (the “Plan”). The Plan provides certain incentives and awards to officers, employees, non-employee directors and consultants of TechnipFMC and its subsidiaries. The Plan allows our Board of Directors to make various types of awards to non-employee directors and the Compensation Committee (the “Committee”) of the Board of Directors to make various types of awards to other eligible individuals. Awards may include share options, share appreciation rights, performance share units, restricted share units, restricted shares or other awards authorized under the Plan. All awards are subject to the Plan’s provisions, including all share-based grants previously issued by FMC Technologies and Technip prior to consummation of the Merger. Under the Plan, 24.1 million ordinary shares were authorized for awards.

The exercise price for options is determined by the Committee but cannot be less than the fair market value of our ordinary shares at the grant date. Restricted share and performance share unit grants generally vest after three years of service.

Under the Plan, our Board of Directors has the authority to grant non-employee directors share options, restricted shares, restricted share units and performance shares. Unless otherwise determined by our Board of Directors, awards to non-employee directors generally vest on the date of our annual shareholder meeting following the date of grant. Restricted share units are settled when a director ceases services to the Board of Directors. At December 31, 2017, outstanding awards to active and retired non-employee directors included 64.9 thousand share units.

The measurement of share-based compensation expense on restricted share awards and performance share awards is based on the market price at the grant date and the number of shares awarded. We used the Cox Ross Rubinstein binomial model to measure the fair value of stock options granted prior to December 31, 2016 and Black-Scholes options pricing model to measure the fair value of stock options granted on or after January 1, 2017.

The share-based compensation expense for each award is recognized ratably over the applicable service period or the period beginning at the start of the service period and ending when an employee becomes eligible for retirement (currently age 62 under the plan), after taking into account estimated forfeitures.We recognize compensation expense and the corresponding tax benefits for awards under the Plan. The compensation expense for nonvested share units under the Plan is as follows:



	Year Ended December 31,
(In millions)	2017		2016		2015
Share-based compensation expense	$	44.4	$	22.0	$	36.1
Income tax benefits related to share-based compensation expense	$	12.0	$	5.9	$	9.7

As of December 31, 2017, the portion of share-based compensation expense related to outstanding awards to be recognized in future periods is as follows:



	December 31, 2017
Share-based compensation expense not yet recognized (in millions)	$	77.9
Weighted-average recognition period (in years)	2.2

Restricted share units. A summary of the nonvested restricted share units awarded to employees as of December 31, 2017, and changes during the year is presented below:



(Shares in thousands)	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2016	—		$	—
Assumed in the FMC Technologies Merger	213.1		$	35.85
Granted	1,516.9		$	27.54
Vested	—		$	—
Cancelled/forfeited	(7.7	)	$	35.85
Nonvested at December 31, 2017	1,722.3		$	28.53

The following summarizes values for restricted share unit activity to employees⁽¹⁾:



	Year Ended December 31,
	2017
Weighted average grant date fair value of restricted share units granted	$	27.54
Vest date fair value of restricted share units vested (in millions)	$	—

⁽¹⁾We began issuing restricted share units in 2017.

Performance Shares. The Board of Directors has granted certain employees, senior executives and Directors or Officers shares subject to achieving satisfactory performances. For performance shares issued prior to December 31, 2016, performance is based on results in terms of health/safety/environment, operating income from recurring activities, and treasury generated from operating activities or total shareholder return. For performance shares issued on or after January 1, 2017, performance is based on results of return on investment or shareholder value.

A summary of the nonvested performance share units awarded to employees as of December 31, 2017, and changes during the year is presented below:



(Shares in thousands)	Shares		Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2016	1,314.6		$	60.15
Adjustment due to FMC Technologies transaction ⁽¹⁾	1,306.0		$	—
Granted	855.2		$	31.65
Vested	(642.0	)	$	52.42
Cancelled/forfeited	(85.0	)	$	25.33
Nonvested at December 31, 2017	2,748.8		$	25.59

⁽¹⁾ The Weighted-Average Grant Date Fair Value for the increase in shares due to the merger remains at $0.00 in order to recalculate the new weighted average for the December 31, 2016 nonvested shares (see Note 2).

The following summarizes values for performance share activity to employees:



	Year Ended December 31,
	2017		2016		2015
Weighted average grant date fair value of performance shares granted	$	31.65	$	42.74	$	43.16
Vest date fair value of performance shares vested (in millions)	$	18.60	$	26.38	$	29.01

Share Option Awards. The fair value of each option award is estimated as of the date of grant using the Black-Scholes options pricing model or the Cox Ross Rubinstein binomial model. Expected volatility is based on normalized historical volatility of our shares over a preceding period commensurate with the expected term of the option. From 2017, the risk-free rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant. Prior to 2017, the risk free rate was based on the bond yields from the European Central Bank. Share options awarded prior to 2017 were valued using an expected dividend yield of between 2.0% and 4.5% while those awarded in 2017 used 2.0%.

Share options awarded prior to 2017 were granted subject to performance criteria based upon certain targets, such as total shareholder return, return on capital employed, and operating income from recurring activities. Subsequent share options granted are time based awards vesting over a three year period.

The weighted average assumptions for the option awards granted in the years ended December 31, 2017, 2016 and 2015 are as follows:



	Year Ended December 31,
	2017		2016		2015
Expected volatility	35.7	%	34.5	%	29.2	%
Expected term (in years)	6.5		4.2		4.2
Risk-free interest rate	2.1	%	—	%	1.1	%

During the years ended December 31, 2017, 2016 and 2015, we granted 798.4 thousand, 595.1 thousand and 568.6 thousand options, respectively, and the weighted average grant-date fair value of options granted during years ended December 31, 2017, 2016 and 2015 was $8.79, €7.70 and €6.01, respectively.

The following is a summary of option transactions during years ended December 31, 2017, 2016 and 2015:



(shares in thousands)	Number of shares		Weighted average exercise price		Weighted average remaining life (in years)
Balance at December 31, 2014	2,520.5		€	60.03	2.7
Granted	568.6		€	47.83
Exercised	(561.7	)	€	37.87
Cancelled	(106.9	)	€	69.62
Balance at December 31, 2015	2,420.5		€	61.88	3.5
Granted	595.1		€	48.33
Exercised	(25.5	)	€	57.22
Cancelled	(801.3	)	€	52.43
Balance at December 31, 2016	2,188.8		€	61.72	5.0
Adjustment due to FMC Technologies transaction ⁽¹⁾	2,188.8		$	—
Granted	798.4		$	29.29
Exercised	—		$	—
Cancelled	(292.2	)	$	47.60
Balance at December 31, 2017	4,883.8		$	36.35	4.6
Exercisable at December 31, 2017	1,788.8		$	51.61	1.6

The aggregate intrinsic value of stock options outstanding and stock options exercisable as of December 31, 2017 was $12.5 million and nil, respectively.

There were nil, 25.5 thousand and 561.7 thousand options exercised during the years ended December 31, 2017, 2016 and 2015, respectively. Cash received from the option exercises was nil, €1.5 million and €21.3 million during years ended December 31, 2017, 2016 and 2015, respectively. The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was nil, nil and €12.9 million, respectively. To exercise stock options, an employee may choose (1) to pay, either directly or by way of the group savings plan, the stock option strike price to obtain shares, or (2) to sell the shares immediately after having exercised the stock option (in this case, the employee does not pay the strike price but instead receives the intrinsic value of the stock options in cash).

The following summarizes additional information concerning outstanding and exercisable options at December 31, 2017 :



	Options Outstanding				Options Exercisable
Exercise Price Range	Number of options (in thousands)	Weighted average remaining life (in years)	Weighted average exercise price		Number of options (in thousands)	Weighted average exercise price
$26.00 - $33.00	3,061.9	6.4	$	27.33	—	$	—
$45.00 - $51.00	1,277.0	1.0	$	49.23	1,244.0	$	49.33
$55.00 - $57.00	544.9	3.2	$	56.82	544.9	$	56.82
Total	4,883.8	4.6	$	36.35	1,788.9	$	51.61