12. Equity and Cash Incentive Program

The Company's share-based awards are typically granted annually at its regularly scheduled first quarter Compensation Committee meeting. Beginning in 2013, these awards were made pursuant to the terms of the Company's 2012 Equity and Cash Incentive Plan (the "2012 Plan"), which was approved by shareholders on May 3, 2012. This plan replaced the 2005 Equity and Cash Incentive Plan (the "2005 Plan"), which would have otherwise terminated according to its terms on January 31, 2015 and the 1996 Non-Employee Directors Stock Compensation Plan (the "Directors Plan"), which would have otherwise terminated according to its terms on December 31, 2012. Upon adoption of the 2012 Plan, no additional awards could be granted under the 2005 Plan. Officers and other key employees, as well as non-employee directors, are eligible to participate in the 2012 Plan, which has a ten year term and will terminate on May 3, 2022. The 2012 Plan provides for stock options and SARs grants, restricted stock awards, restricted stock unit awards, performance share awards, cash performance awards, directors' shares and deferred stock units. Under the 2012 Plan, a total of 17,000,000 shares of common stock are reserved for issuance, subject to adjustments resulting from stock dividends, stock splits, recapitalizations, reorganizations and other similar changes.

The exercise price per share for SARs is equal to the closing price of the Company’s stock on the New York Stock Exchange on the date of grant. New common shares are issued when SARs are exercised. The period during which SARs are exercisable is fixed by the Company’s Compensation Committee at the time of grant. Generally, the SARs vest after three years of service and expire at the end of ten years.

In connection with the separation of Knowles on February 28, 2014, the Company modified the outstanding equity awards for its employees. The awards were modified such that all individuals received an equivalent fair value both before and after the separation of Knowles. This modification resulted in the issuance of an additional 933,845 SARs, 20,523 stock options, 11,480 performance shares and 5,389 restricted stock units. The exercise price of these outstanding awards, where applicable, was adjusted to preserve the value of the awards immediately prior to the separation. As no incremental fair value was awarded as a result of the issuance of these additional shares, the modification did not result in additional compensation expense.

Stock-based compensation costs are reported within selling, general and administrative expenses. The following table summarizes the Company’s compensation expense relating to all stock-based incentive plans:



	Years Ended December 31,
	2016			2015			2014
Pre-tax compensation expense	$	21,015		$	30,697		$	31,628
Tax benefit	(7,399		)	(10,877		)	(11,201		)
Total stock-based compensation expense, net of tax	$	13,616		$	19,820		$	20,427

The Company recognized net tax benefits of $4,964, $661 and $15,110 during 2016, 2015 and 2014, respectively, for the exercise of SARs, stock options, restricted stock awards, restricted stock unit awards and performance share awards. These benefits have been recorded as an increase to additional paid-in capital and are reflected as financing cash inflows in the Consolidated Statements of Cash Flows.

SARs

In 2016, 2015 and 2014, the Company issued SARs covering 1,346,354, 1,144,529 and 1,043,734 shares, respectively. Since 2006, the Company has only issued SARs and does not anticipate issuing stock options in the future. The fair value of each SAR grant was estimated on the date of grant using a Black-Scholes option-pricing model with the following assumptions:



	2016			2015			2014
Risk-free interest rate	1.05		%	1.51		%	1.70		%
Dividend yield	3.09		%	2.24		%	1.98		%
Expected life (years)	4.6			5.1			5.3
Volatility	26.17		%	27.19		%	30.81		%
Grant price	$	57.25		$	73.28		$	82.51
Fair value at date of grant	$	9.25		$	14.55		$	19.84		⁽¹⁾


(1)	Updated to reflect the modification of grants issued prior to 2014 in connection with the separation of Knowles.

Expected volatilities are based on Dover's stock price history, including implied volatilities from traded options on Dover stock. The Company uses historical data to estimate SAR exercise and employee termination patterns within the valuation model. The expected life of SARs granted is derived from the output of the option valuation model and represents the average period of time that SARs granted are expected to be outstanding. The interest rate for periods within the contractual life of the awards is based on the U.S. Treasury yield curve in effect at the time of grant.

A summary of activity relating to SARs granted under the 2012 Plan and the predecessor plans for the year ended December 31, 2016 is as follows:



	SARs
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding at January 1, 2016	7,810,593		$	57.32
Granted	1,346,354		57.25
Forfeited / expired	(400,942	)	68.67
Exercised	(1,502,178	)	46.15
Outstanding at December 31, 2016	7,253,827		59.00		5.9

Exercisable at December 31, 2016	4,326,534		$	51.98	4.3

The following table summarizes information about outstanding SARs at December 31, 2016:



	SARs Outstanding						SARs Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Life in Years	Aggregate Intrinsic Value		Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Life in Years	Aggregate Intrinsic Value
$25.96 - $37.79	1,319,998	$	33.99	2.6	$	54,043	1,319,998	$	33.99	2.6	$	54,043
$40.54 - $58.69	3,084,531	$	57.67	6.3	53,247		1,879,310	$	57.94	4.7	31,698
$63.33 - $82.51	2,849,298	$	72.02	7.1	14,383		1,127,226	$	63.36	6.1	12,836
	7,253,827				$	121,673	4,326,534				$	98,577

Unrecognized compensation expense related to SARs not yet exercisable was $8,846 at December 31, 2016. This cost is expected to be recognized over a weighted average period of 1.6 years.

Other information regarding the exercise of SARs and stock options is listed below:



	2016		2015		2014
SARs
Fair value of SARs that became exercisable	$	24,843	$	25,380	$	26,796
Aggregate intrinsic value of SARs exercised	$	34,916	$	14,560	$	51,813

Stock Options
Cash received by Dover for exercise of stock options	$	—	$	1,468	$	5,227
Aggregate intrinsic value of options exercised	$	—	$	1,649	$	8,614

Performance Share Awards

Performance share awards granted are expensed over the three-year requisite performance and service period. Awards become vested if (1) the Company achieves certain specified internal metrics and (2) the employee remains continuously employed by the company during the performance period. Partial vesting may occur after separation from service in the case of certain terminations not for cause and for retirements.

In 2016, 2015 and 2014, the Company issued performance shares covering 79,561, 61,611 and 58,206 shares, respectively. The performance share awards granted in these years are considered performance condition awards as attainment is based on Dover's performance relative to established internal metrics. The fair value of these awards was determined using Dover's closing stock price on the date of grant. The expected attainment of the internal metrics for these awards is analyzed each reporting period, and the related expense is adjusted up or down based on expected attainment, if that attainment differs from previous estimates. The cumulative effect on current and prior periods of a change in attainment is recognized in compensation cost in the period of change.

The fair value and average attainment used in determining compensation cost of the performance shares issued in 2016, 2015 and 2014 are as follows for the year ended December 31, 2016:



	Performance shares
	2016			2015			2014
Fair value per share at date of grant	$	57.25		$	73.28		$	82.51
Average attainment rate reflected in expense	1.20		%	0		%	11.55		%

A summary of activity for performance share awards for the year ended December 31, 2016 is as follows:



	Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2016	116,060		$	77.61
Granted	79,561		57.25
Forfeited	(28,126	)	70.29
Vested	(45,329	)	82.51
Unvested at December 31, 2016	122,166		$	65.29

Unrecognized compensation expense related to unvested performance shares as of December 31, 2016 was $38, which will be recognized over a weighted average period of 2.0 years.

Restricted Stock Units

The Company also has restricted stock authorized for grant (as part of the 2005 and 2012 Plans). Under these Plans common stock of the Company may be granted at no cost to certain officers and key employees. In general, restrictions limit the sale or transfer of these shares during a two or three year period, and restrictions lapse proportionately over the two or three year period. The Company granted 249,263, 145,545 and 131,719 of restricted stock units in 2016, 2015 and 2014, respectively.

A summary of activity for restricted stock units for the year ended December 31, 2016 is as follows:



	Number of Shares		Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2016	254,572		$	75.07
Granted	249,263		57.25
Forfeited	(38,391	)	63.96
Vested	(128,898	)	73.81
Unvested at December 31, 2016	336,546		$	64.74

Unrecognized compensation expense relating to unvested restricted stock as of December 31, 2016 was $6,478, which will be recognized over a weighted average period of 1.7 years.

Directors' Shares

The Company issued the following shares to its non-employee directors under the 2012 Plan as partial compensation for serving as directors of the Company:



	Years ended December 31,
	2016		2015		2014
Aggregate shares granted	21,023		21,205		17,331
Shares deferred	(11,882	)	(11,196	)	(8,904	)
Shares withheld to satisfy tax obligations	—		—		(210	)
Net shares issued	9,141		10,009		8,217