8. Equity Compensation

We have several stock-based awards and programs, which are described below. Performance-based restricted stock awards, time-vested restricted stock and stock options are valued as liability awards, in accordance with fair value guidelines. We allow employees to elect to have taxes in excess of the minimum statutory requirements withheld from their awards and, therefore, the awards are classified as liability instruments under the ASC guidance on share based payment. Awards treated as liability instruments must be revalued each period until settled, and cost is accrued over the requisite service period and adjusted to fair value at each reporting period until settlement or expiration of the award.

We recognized the following amounts in compensation expense and tax benefits for all of our stock-based awards and programs for the applicable years ended December 31 (in thousands):

	2014		2013		2012
Compensation expense	$	3,688	$	2,577	$	1,863
Tax benefit recognized		1,359		929		649

Stock Incentive Plans

Our 2006 Stock Incentive Plan (the 2006 Incentive Plan), which was set to expire on December 31, 2015, was replaced by the 2015 Stock Incentive Plan (the 2015 Incentive Plan). The 2015 Incentive Plan was adopted by shareholders at the annual meeting on May 1, 2014 and provides for grants of up to 500,000 shares of common stock through January 2025. The 2015 Stock Incentive Plan permits (and the 2006 Incentive Plan permitted) grants of stock options and restricted stock to qualified employees and permits Directors and, if approved by the Compensation Committee of the Board of Directors, qualified employees to receive common stock in lieu of cash. Certain executive officers and other senior managers applied to receive annual incentive awards related to 2012, 2013 and 2014 performance in the form of Empire common stock rather than cash. These requests were granted by the Compensation Committee of the Board of Directors under the terms of our 2006 Stock Incentive Plan. The terms and conditions of any option or stock grant are determined by the Board of Directors Compensation Committee, within the provisions of these Stock Incentive Plans.

Time-Vested Restricted Stock Awards

Beginning in 2011, we began granting, to qualified individuals, time-vested restricted stock awards that vest after a three-year period, in lieu of stock options. No dividend rights accumulate during the vesting period. Time-vested restricted stock is valued at an amount equal to the fair market value of our common stock on the date of grant. If employment terminates during the vesting period because of death, retirement or disability, the participant is entitled to a pro-rata portion of the time-vested restricted stock awards such participant would otherwise have earned, which is distributed six months following the date of termination, with the remainder of the award forfeited. If employment is terminated during the vesting period for reasons other than those listed above, the time-vested restricted stock awards will be forfeited on the date of the termination, unless the Board of Directors' Compensation Committee determines, in its sole discretion, that the participant is entitled to a pro-rata portion of the award.

The fair value measurements for each grant year are noted in the following table:

	Fair Value of Grants Outstanding at December 31
	2014	2013
Total unrecognized compensation cost (in millions)	$0.4	$0.2
Recognition period	1.1 years to 2.1 years	0.1 years to 2.1 years
Fair value	$26.82	$19.88

No shares of time-vested restricted stock were granted in 2012 as a result of the limitation on incentive compensation in effect in 2011 given our 2011 dividend suspension. A summary of time vested restricted stock activity under the plan for 2014, 2013 and 2012 is presented in the table below:

	2014					2013				2012
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares		Weighted Average Grant Date Fair Value		Number Of Shares			Weighted Average Grant Date Fair Value
Outstanding at January 1,		24,900		$	21.42		3,300	$	21.84		3,433		$	21.84
Granted		22,600		$	22.40		21,600	$	21.36		—			—
Distributed		(4,010	)	$	21.77		—		—		(133	)	$	20.13
Forfeited		(2,490	)	$	21.99		—		—		—			—

Outstanding at December 31,		41,000		$	21.89		24,900	$	21.42		3,300		$	21.84
Vested during the year		6,500		$	21.86		—		—		—			—

Performance-Based Restricted Stock Awards

Performance-based restricted stock awards are granted to qualified individuals consisting of the right to receive a number of shares of common stock at the end of the restricted period assuming performance criteria are met. The performance measure for the award is the total return to our shareholders over a three-year period compared with an investor-owned utility peer group. The threshold level of performance under the 2012, 2013 and 2014 grants was set at the 20th percentile level of the peer group, target at the 50th percentile level, and the maximum at the 80th percentile level. Shares would be earned at the end of the three-year performance period as follows: 100% of the target number of shares if the target level of performance is reached, 50% if the threshold is reached, and 200% if the percentile ranking is at or above the maximum, with the number of shares interpolated between these levels. However, no shares would be payable if the threshold level is not reached. The fair value of the outstanding restricted stock awards was estimated as of December 31, 2014, 2013 and 2012 using a Monte Carlo option valuation model. The assumptions used in the model for each grant year are noted in the following table:

	Fair Value of Grants Outstanding at December 31,
	2014	2013	2012
Risk-free interest rate	0.25% to 0.67%	0.13% to 0.38%	0.16% to 0.25%
Expected volatility of Empire stock	14.5%	20.2%	20.6%
Expected volatility of peer group stock	12.4% to 24.8%	12.3% to 27.5%	12.4% to 29.2%
Expected dividend yield on Empire stock	3.5%	4.5%	4.9%
Expected forfeiture rates	3%	3%	3%
Plan cycle	3 years	3 years	3 years
Fair value percentage	140.0% to 157.0%	0.0% to 108.0%	18.0% to 96.0%
Weighted average fair value per share	$43.80	$18.47	$10.94

Non-vested performance-based restricted stock awards (based on target number) as of December 31, 2014, 2013 and 2012 and changes during the year ended December 31, 2014, 2013 and 2012 were as follows:

	2014					2013					2012
	Number of Shares			Weighted Average Grant Date Fair Value		Number of Shares			Weighted Average Grant Date Fair Value		Number Of Shares			Weighted Average Grant Date Fair Value
Outstanding at January 1,		47,200		$	21.39		33,900		$	20.25		37,400		$	19.28
Granted		27,000		$	22.40		26,300		$	21.36		10,000		$	20.97
Awarded		—			—		(4,460	)	$	18.36		(7,823	)	$	18.12
Not awarded		(10,900	)	$	21.84		(8,540	)	$	18.36		(5,677	)	$	18.12

Nonvested at December 31,		63,300		$	21.74		47,200		$	21.39		33,900		$	20.25

At December 31, 2014 and 2013, unrecognized compensation expense related to estimated outstanding awards was $1.1 million and $0.5 million, respectively.

Stock Options

Beginning in 2011, we began issuing time-vested restricted stock in lieu of stock options and dividend equivalents. Prior to 2011 stock options were issued with an exercise price equal to the fair market value of the shares on the date of grant. They became exercisable after three years and expired ten years after the date granted. Dividend equivalent awards, under which dividend equivalents accumulated during the vesting period, were also issued to recipients of the stock options. Participants' options and dividend equivalents that were not vested were forfeited when participants left Empire, except for terminations of employment under certain specified circumstances. There were no stock options or dividend equivalents granted in 2014, 2013, or 2012, and all outstanding options were exercised prior to December 31, 2014.

Stock option grants vest upon satisfaction of service conditions. The cost of the awards is generally recognized over the requisite (explicit) service period. There were no outstanding options at December 31, 2014. The fair value of the outstanding options was estimated as of December 31, 2013 and 2012, under a Black-Scholes methodology. The assumptions used in the valuations are shown below:

	Fair Value of Grants Outstanding at December 31,
	2014	2013	2012
Risk-free interest rate	—	0.10% to 0.38%	0.11% to 0.44%
Dividend yield	—	4.5%	4.9%
Expected volatility	—	24.0%	24.0%
Expected life in months	—	6.5 to 24.5	78
Market value	—	$22.69	$20.38
Weighted average fair value per option	—	$1.57	$1.34

A summary of option activity under the plan during the years ended December 31, 2014, 2013 and 2012 is presented below:

	2014				2013					2012
	Options		Weighted Average Exercise Price		Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at January 1,		112,500	$	23.27		163,300		$	22.13		190,300		$	21.56
Granted		—		—				$	—		0		$	—
Exercised		112,500	$	24.58		(50,800	)	$	21.78		(27,000	)	$	18.12

Outstanding at December 31,		—				112,500		$	23.27		163,300		$	22.13


Exercisable, end of year		—				112,500		$	23.27		128,500		$	23.15

The intrinsic value of the unexercised options is the difference between the Company's closing stock price on the last day of the period and the exercise price multiplied by the number of in-the-money options, had all option holders exercised their options on the last day of the period. The intrinsic value is zero if such closing price is less than the exercise price. The table below shows the aggregate intrinsic values at December 31, 2014, 2013, and 2012:

	2014	2013	2012
Aggregate intrinsic value (in millions)	—	Less than $0.1	$0.1
Weighted-average remaining contractual life of outstanding options	—	2.1 years	3.2 years
Range of exercise prices	—	$21.92 to $23.81	$18.36 to $23.81
Total unrecognized compensation expense (in millions) related to non-vested options and related dividend equivalents granted under the plan	—	—	Less than $0.1
Recognition period	—	—	1 month

Stock Unit Plan for Directors

Our Stock Unit Plan for directors (Stock Unit Plan) provides a stock-based compensation program for directors. This plan enhances our ability to attract and retain competent and experienced directors and allows the directors the opportunity to accumulate compensation in the form of common stock units. The Stock Unit Plan also provides directors the opportunity to convert previously earned cash retirement benefits to common stock units. All eligible directors who had benefits under the prior cash retirement plan converted their cash retirement benefits to common stock units.

As of December 31, 2014, a total of 900,000 shares were authorized under this plan. Each common stock unit earns dividends in the form of common stock units and can be redeemed for shares of common stock. The number of units granted annually is computed by dividing an annual credit (determined by the Compensation Committee) by the fair market value of our common stock on January 1 of the year the units are granted. Common stock unit dividends are computed based on the fair market value of our stock on the dividend's record date. We record the related compensation expense at the time we make the accrual for the directors' benefits as the directors provide services. Shares accrued to directors' accounts and shares available for issuance under this plan at December 31 are shown in the table below:

	2014		2013
Shares accrued to directors' accounts		164,085		154,402
Shares available for issuance		714,978		236,056

Units accrued for service and dividends as well as units redeemed for common stock at December 31 are shown in the table below:

	2014		2013		2012
Units accrued for service and dividends		30,765		34,252		30,426
Units redeemed for common stock		21,083		22,908		21,324