13. 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.

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



	Years Ended December 31,
	2017			2016			2015
Pre-tax compensation expense	$	26,528		$	21,015		$	30,697
Tax benefit	(9,261		)	(7,399		)	(10,877		)
Total stock-based compensation expense, net of tax	$	17,267		$	13,616		$	19,820

On January 1, 2017, the Company adopted ASU 2016-09, Compensation: Stock Compensation (Topic 718). See Note 1 — Description of Business and Summary of Significant Accounting Policies. The adoption of the new standard resulted in the recognition of excess tax benefits in the Company's provision for income taxes within the Consolidated Statements of Earnings rather than paid-in capital of $8,365 for the year-ended December 31, 2017. The Company recognized net tax benefits of $4,964 and $661 during 2016 and 2015, 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 2017, 2016 and 2015, the Company issued SARs covering 1,028,116, 1,346,354 and 1,144,529 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:



	2017			2016			2015
Risk-free interest rate	1.80		%	1.05		%	1.51		%
Dividend yield	2.27		%	3.09		%	2.24		%
Expected life (years)	4.6			4.6			5.1
Volatility	21.90		%	26.17		%	27.19		%
Grant price	$	79.28		$	57.25		$	73.28
Fair value at date of grant	$	12.63		$	9.25		$	14.55

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, 2017 is as follows:



	SARs
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)
Outstanding at January 1, 2017	7,253,827		$	59.00
Granted	1,028,116		79.28
Forfeited / expired	(240,859	)	69.36
Exercised	(1,467,105	)	54.54
Outstanding at December 31, 2017	6,573,979		62.78		5.8

Exercisable at December 31, 2017	3,640,841		$	57.65	4.0

The following table summarizes information about outstanding SARs at December 31, 2017:



	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	927,723	$	33.98	1.8	$	62,170	929,840	$	33.98	1.8	$	62,170
$40.54 - $58.69	2,301,826	$	57.67	5.8	99,723		1,188,436	$	58.06	3.7	50,903
$63.33 - $82.51	3,344,430	$	74.30	7.0	89,274		1,522,565	$	71.77	5.6	44,446
	6,573,979				$	251,167	3,640,841				$	157,519

Unrecognized compensation expense related to SARs not yet exercisable was $8,428 at December 31, 2017. 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:



	2017		2016		2015
SARs
Fair value of SARs that became exercisable	$	16,006	$	24,843	$	25,380
Aggregate intrinsic value of SARs exercised	$	44,646	$	34,916	$	14,560

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

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 2017, 2016 and 2015, the Company issued performance shares covering 57,958, 79,561 and 61,611 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 Selling, general and administrative expenses in the Consolidated Statements of Earnings in the period of change.

The fair value and average attainment used in determining compensation cost of the performance shares issued in 2017, 2016 and 2015 are as follows for the year ended December 31, 2017:



	Performance shares
	2017			2016			2015
Fair value per share at date of grant	$	79.28		$	57.25		$	73.28
Average attainment rate reflected in expense	147.81		%	20.99		%	3.33		%

A summary of activity for performance share awards for the year ended December 31, 2017 is as follows:



	Number of Shares		Weighted Average Grant-Date Fair Value
Unvested at January 1, 2017	122,166		$	65.29
Granted	57,958		79.28
Forfeited	(6,123	)	69.41
Vested	(49,534	)	73.28
Unvested at December 31, 2017	124,467		$	65.80

Unrecognized compensation expense related to unvested performance shares as of December 31, 2017 was $3,270, which will be recognized over a weighted average period of 1.9 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 three-year period, and restrictions lapse proportionately over the three-year period. The Company granted 174,203, 249,263 and 145,545 of restricted stock units in 2017, 2016 and 2015, respectively. The fair value of these awards was determined using Dover's closing stock price on the date of grant.

A summary of activity for restricted stock units for the year ended December 31, 2017 is as follows:



	Number of Shares		Weighted Average Grant-Date Fair Value
Unvested at January 1, 2017	336,546		$	64.74
Granted	174,203		79.28
Forfeited	(27,590	)	71.16
Vested	(149,273	)	69.01
Unvested at December 31, 2017	333,886		$	70.06

Unrecognized compensation expense relating to unvested restricted stock units as of December 31, 2017 was $12,416, which will be recognized over a weighted average period of 1.6 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,
	2017		2016		2015
Aggregate shares granted	16,231		21,023		21,205
Shares deferred	(11,337	)	(11,882	)	(11,196	)
Net shares issued	4,894		9,141		10,009