Stock-Based Compensation Plans

Effective February 2013, the Company terminated its two existing stock compensation plans and created a single plan to cover all employees and directors: the Stock Incentive Plan and the Non-Employee Director Stock Compensation Plan. The Stock Incentive Plan is used to provide long-term incentive compensation through stock options, restricted share units and performance-based restricted share units.

Options are granted under the Stock Incentive Plan to officers and other key employees and directors at an exercise price equal to the closing price on the date of grant. For grants prior to April 23, 2007, the exercise price is equal to the fair market value of the shares on the date of grant, which is defined for purposes of the plans as the average of the high and low prices for the Company’s common stock on the 10 trading days ending on the date of grant. Unless otherwise determined by the Compensation Committee which administers the plan, options become exercisable at a rate of 25% after the first year, 50% after the second year, 75% after the third year and 100% after the fourth year from the date of grant. Options granted in 2014 expire in 10 years. Options granted from 2004 to 2013 expire six years after the date of grant. All options granted to directors and options granted to officers and employees prior to 2014 and after 2014 expire ten years after date of grant. Options granted prior to January 29, 2007, became exercisable at a rate of 50% after the first year, 75% after the second year and 100% after the third year.

The Company determines the fair value of each grant using the Black-Scholes option pricing model. The weighted-average assumptions for grants made during the years ended December 31, 2015, 2014 and 2013 are as follows:



	2015		2014		2013
Dividend yield	2.95	%	2.50	%	2.76	%
Volatility	24.97	%	27.49	%	35.52	%
Risk-free interest rate	1.32	%	1.39	%	0.76	%
Expected lives in years	4.2		4.2		4.2

Expected dividend yield is based on the Company’s dividend rate. Expected stock volatility was determined based upon the historical volatility for the four-year-period preceding the date of grant. The risk-free interest rate was based on the yield curve in effect at the time the options were granted, using U.S. constant maturities over the expected life of the option. The expected lives of the awards represents the period of time that options granted are expected to be outstanding.

Activity in the Company’s stock option plans for the year ended December 31, 2015 was as follows:



Option Activity	Number of Shares (in 000’s)		Weighted Average Exercise Price		Weighted Average Remaining Life (Years)
Options outstanding at January 1, 2015	2,426		$	50.52
Granted	749		58.19
Exercised	(356	)	40.25
Canceled	(149	)	52.58
Options outstanding at December 31, 2015	2,670		$	53.69	5.15
Options exercisable at December 31, 2015	1,123		$	48.94	2.71

The weighted-average fair value of options granted during 2015, 2014 and 2013 was $9.80, $12.57 and $12.08, respectively. The total fair value of shares vested during 2015, 2014 and 2013 was $9.0 million, $9.6 million and $9.1 million, respectively. The total intrinsic value of options exercised during 2015, 2014 and 2013 was $7.9 million, $25.4 million and $26.2 million, respectively. The total cash received from these option exercises was $11.9 million, $20.5 million and $31.0 million, respectively, and the tax benefit realized for the tax deductions from option exercises and vesting of restricted stock was $1.6 million, $7.7 million and $6.4 million, respectively. The aggregate intrinsic value of exercisable options was $2.1 million, $12.5 million and $26.4 million as of December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, there was $10.3 million of total future compensation cost related to unvested share-based awards to be recognized over a weighted-average period of 1.24 years.

Restricted stock and restricted share units vest at a rate of 25% after the first year, 50% after the second year, 75% after the third year and 100% after the fourth year from the date of grant and are subject to forfeiture restrictions which lapse over time. The vesting of Performance-based restricted share units is determined in three years based on relative total shareholder return for Crane Co. compared to the S&P Midcap 400 Capital Goods Group, with payout potential ranging from 0% to 175% but capped at 100% if the Company’s three-year total shareholder return is negative.

Included in the Company’s share-based compensation was expense recognized for its restricted stock, restricted share unit and performance-based restricted share unit awards of $12.2 million, $10.9 million and $11.9 million in 2015, 2014 and 2013, respectively. As of December 31, 2015, there was $19.0 million of total future compensation cost related to restricted stock, restricted share unit and performance-based restricted share unit award over a weighted-average period of 1.15 years.

Changes in the Company’s restricted stock and restricted share units for the year ended December 31, 2015 were as follows:



Restricted Stock and Restricted Share Unit Activity	Restricted Stock and Restricted Share Units (in 000’s)		Weighted Average Grant-Date Fair Value
Restricted Stock and Restricted Share Units at January 1, 2015	650		$	52.92
Restricted Share Units granted	194		57.15
Restricted Share Units vested	(129	)	51.30
Restricted Share Units forfeited	(45	)	58.14
Performance-based Restricted Share Units granted	90		61.10
Performance-based Restricted Share Units vested	(97	)	47.07
Performance-based Restricted Share Units forfeited	(9	)	54.98
Restricted Stock and Restricted Share Units at December 31, 2015	654		$	56.16