Stock-Based Compensation

During 2017, the Company’s stockholders and Board of Directors approved Amendment No. 1 to the 2013 Equity and Incentive Compensation Plan ("Amendment No. 1"). Amendment No. 1 increased the number of shares available for new awards and increased the number of shares that may be issued or transferred by the Company in connection with awards other than option rights or stock appreciation rights ("SARs"). The 2013 Equity and Incentive Plan, as amended (the "2013 Plan") authorizes the issuance of up to 7,800,000 shares of the Company's common stock for use in paying incentive compensation awards in the form of stock options or other equity awards such as restricted stock, restricted stock units ("RSUs"), SARs, or performance share units ("PSUs"). Of the 7,800,000 shares authorized, a maximum of 4,621,000 shares may be issued for awards other than option rights or SARs, as defined in the 2013 Plan. The 2016 Non-Employee Directors' Long-Term Equity Compensation Plan (the "2016 Plan") authorizes the issuance of up to 400,000 shares of the Company's common stock for equity awards. Both plans have been approved by the Company's stockholders. At December 31, 2017, there were 4,366,677 shares available for granting equity awards under the 2013 Plan, of which 2,834,345 shares were available for awards other than option rights or SARs. At December 31, 2017, there were 233,799 shares available for granting equity awards under the 2016 Plan.

Restricted Stock Units

The Company's Board approves the granting of performance-based RSUs as the long-term equity component of director, officer and certain key employee compensation. The RSUs require no payment from the recipient and compensation cost is measured based on the market price of the Company's common stock on the grant date and is generally recorded over the vesting period. RSUs granted to officers and certain key employees in 2015, either "cliff" vest at the end of three years, upon obtainment of specified retirement or years of service criteria. RSUs granted to officers and certain key employees in 2016 and 2017 either vest on a pro-rata basis over three years or upon obtainment of specified retirement or years of service criteria. Upon vesting, each RSU is exchanged for an equal number of shares of the Company's common stock. The vesting period for RSUs granted to non-employee directors is one year and each RSU is exchanged for an equal number of shares of the Company's common stock following the termination of the participant's service as a director. RSUs do not have an option for cash payment.

The following table summarizes RSUs issued and the compensation expense recorded for the years ended December 31, 2017, 2016 and 2015:



	RSUs (a)	Weighted Average Fair Value		Expense
(Dollars in thousands, except per unit)	RSUs (a)	Weighted Average Fair Value		2017		2016		2015
Directors:
2014	36,840	$	24.80	$	—	$	—	$	311
2015	59,985	$	15.69	—		314		627
2016	109,998	$	7.00	257		513		—
2017	56,203	$	13.70	641		—		—
Employees:
2012	141,486	$	18.75	—		—		(71		)	(b)
2013	170,582	$	20.63	—		66		87
2014	190,832	$	25.21	316		669		504
2015	239,679	$	16.53	597		880		919
2016	536,773	$	7.09	1,011		995		—
2017	286,251	$	13.70	1,417		—		—
Total				$	4,239	$	3,437	$	2,377


(a)	Represents number of awards originally issued.


(b)	Represents the impact of forfeitures during 2015.

RSU activity for the year ended December 31, 2017 was as follows:



	Number of Shares		Weighted Average Grant-Date Fair Value
Non-vested at December 31, 2016	927,082		$	11.19
Granted	342,454		13.70
Vested	(392,735	)	11.96
Forfeited	(74,862	)	12.96
Non-vested at December 31, 2017	801,939		11.73

At December 31, 2017, the total unrecognized compensation cost related to non-vested RSUs was $4.0 million, which will be recognized over a weighted-average period of 1.7 years. There was a $1.1 million decrease in excess tax benefits from RSUs recognized in equity in 2016 and none in 2015. Upon the adoption of changes issued by the FASB amending the accounting for stock-based compensation, the Company records any excess tax benefits or shortfalls as a component of income tax expense. See Note 1, Recently Adopted and Recently Issued Accounting Standards, for additional information.

Stock Appreciation Rights

The Company's Board approves the granting of SARs to officers and certain key employees under the 2013 Plan. The SARs generally vest on a pro-rata basis from three to five years from the grant date or upon specified retirement or years of service criteria and expire no later than ten years after the grant date. The exercise price of the SARs is equal to the fair value of Harsco common stock on the grant date. Upon exercise, shares of Company's common stock are issued based on the increase in the fair value of the Company's common stock over the exercise price of the SAR. SARs do not have an option for cash payment.

During 2015, the Company issued SARs covering 532,615 shares in May under the 2013 Plan. During 2016, the Company issued SARS covering 554,719 shares in May and 21,686 shares in November under the 2013 Plan. During 2017, the Company issued SARS covering 266,540 shares in March under the 2013 Plan.

The fair value of each SAR grant was estimated on the grant date using a Black-Scholes pricing model with the following assumptions:



	Risk-free Interest rate		Dividend Yield		Expected Life (Years)	Volatility		SAR Grant Price		Fair Value of SAR
May 2013 Grant	1.17	%	3.61	%	6.5	44.1	%	$	22.70	$	6.86
June 2013 Grant	1.41	%	3.56	%	6.5	44.1	%	23.03		7.07
November 2013 Grant	1.91	%	3.13	%	6.5	43.8	%	26.22		8.60
April 2014 Grant	1.98	%	3.53	%	6.0	44.3	%	23.25		7.25
May 2014 Grant (1st)	1.90	%	3.16	%	6.0	43.2	%	25.93		8.16
May 2014 Grant (2nd)	1.82	%	3.05	%	6.0	42.8	%	26.92		8.47
July 2014 Grant	2.00	%	3.24	%	6.0	41.2	%	25.27		7.55
August 2014 Grant	1.92	%	3.27	%	6.0	41.2	%	25.11		7.46
September 2014 Grant	2.03	%	3.50	%	6.0	40.6	%	23.43		6.72
November 2014 Grant	1.78	%	4.00	%	6.0	38.6	%	20.48		5.17
May 2015 Grant	1.70	%	4.96	%	6.0	35.8	%	16.53		3.39
May 2016 Grant	1.39	%	—	%	6.0	42.1	%	7.00		2.93
November 2016 Grant	1.74	%	—	%	6.0	43.8	%	12.25		5.38
March 2017 Grant	2.17	%	—	%	6.0	43.9	%	13.70		6.13

SARs activity for the years ended December 31, 2017 was as follows:



	Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions) (c)
Outstanding, December 31, 2016	1,535,873		$	15.81	$	3.4
Granted	266,540		13.70
Exercised	(32,703	)	10.73
Forfeited/Expired	(90,434	)	19.04
Outstanding, December 31, 2017	1,679,276		15.40		7.9


(c)	Intrinsic value is defined as the difference between the current market value and the exercise price, for those SARs where the market price exceeds the exercise price.

The total intrinsic value of SARs exercised in 2017 was $0.3 million. No SARs were exercised in 2016 and 2015.

The following table summarizes information concerning outstanding and exercisable SARs at December 31, 2017:



	SARs Outstanding					SARs Exercisable
Range of exercisable prices	Vested	Non-vested	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Life in Years	Number Exercisable	Weighted-Average Exercise Price per Share
$7.00 - $13.70	163,601	596,285	$	9.40	8.65	163,601	$	7.43
$16.53 - $22.70	377,147	255,269	18.29		6.66	377,147	18.26
$23.03 - $26.92	261,111	25,863	24.93		6.33	261,111	24.95
	801,859	877,417	15.40		7.51	801,859	18.23

Total compensation expense related to SARs was $2.0 million, $1.7 million and $1.2 million for the years ended December 31, 2017, 2016 and 2015, respectively. Vested and currently exercisable SARs have a weighted-average remaining contractual life of 7.51 years and an intrinsic value of $2.4 million at December 31, 2017 and total unrecognized compensation expense related to non-vested SARs was $2.1 million, which is expected to be recognized over a weighted average period of 1.7 years.

Weighted-average grant date fair value of non-vested SARs for the year ended December 31, 2017 was as follows:



	Number of Shares		Weighted-Average Grant Date Fair Value
Non-vested shares, December 31, 2016	1,014,524		$	3.84
Granted	266,540		6.13
Vested	(280,510	)	3.59
Exercised	(32,703	)	3.11
Forfeited	(90,434	)	5.96
Non-vested shares, December 31, 2017	877,417		4.42

Performance Share Units

The Company's Board approves the granting of PSUs to officers and certain key employees that may be earned based on the Company's total shareholder return over the three-year performance period. PSUs are paid out at the end of each performance period based on the Company’s performance, which is measured by determining the percentile rank of the total shareholder return of the Company's common stock in relation to the total shareholder return of a specific peer group of companies. For PSUs issued in 2015, the peer group of companies utilized was the S&P Midcap 400 Index. For PSUs issued in 2016 and 2017, the peer group of companies utilized is the S&P 600 Industrial Index. The payment of PSUs following the performance period will be based in accordance with the scale set forth in the PSU agreements, and may range from 0% to 200% of the initial grant. PSUs do not have an option for cash payment.

During the year ended December 31, 2015, the Company granted 237,063 shares in May under the 2013 Plan. During the year ended December 31, 2016, the Company granted 527,249 shares in May and 9,524 shares in November under the 2013 plan. During the year ended December 31, 2017 the Company granted 286,251 shares in March under the 2013 Plan. The fair value of PSUs granted was estimated on the grant date using a Monte Carlo pricing model with the following assumptions:



	Risk-free Interest rate		Dividend Yield		Expected Life (Years)	Volatility		Fair Value of PSU
April 2014 Grant	0.75	%	—	%	2.73	34.3	%	$	18.00
May 2014 Grant (1st)	0.70	%	—	%	2.65	31.8	%	25.26
May 2014 Grant (2nd)	0.63	%	—	%	2.61	30.1	%	27.53
July 2014 Grant	0.74	%	—	%	2.42	26.9	%	22.31
August 2014 Grant	0.67	%	—	%	2.42	26.9	%	21.86
September 2014 Grant	0.72	%	—	%	2.29	25.7	%	15.26
November 2014 Grant	0.55	%	—	%	2.10	26.3	%	7.42
May 2015 Grant	0.83	%	—	%	2.65	28.5	%	14.48
May 2016 Grant	0.84	%	—	%	2.65	33.3	%	7.19
November 2016 Grant	0.96	%	—	%	2.14	35.2	%	17.84
March 2017 Grant	1.54	%	—	%	2.83	34.2	%	17.05

Total compensation expense related to PSUs was $3.5 million, $2.5 million and $1.4 million for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017, total unrecognized compensation expense related to non-vested PSUs was $3.9 million, which is expected to be recognized over a weighted average period of 1.7 years.

A summary of the Company's non-vested PSU activity during the years ending December 31, 2017 was as follows:



	Number of Shares		Weighted-Average Grant Date Fair Value
Non-vested shares, December 31, 2016	692,562		$	9.25
Granted	286,251		17.05
Forfeited	(68,387	)	11.04
Cancellations (d)	(166,843	)	14.48
Non-vested shares, December 31, 2017	743,583		10.91


(d)	The measurement period for PSUs issued in 2015 ended on December 31, 2017. The Company's total shareholder return compared to the peer group of companies resulted in no shares being issued because no PSUs were earned.

Stock Options

The Company's Board approves the granting of incentive stock options and nonqualified stock options to officers, certain key employees and non-employee directors under the plans noted above. The stock options would generally vest three years from the grant date, which is the date the Board approved the grants and expire no later than seven years after the grant date. The exercise price of the stock option would be fair value on the grant date. Upon exercise, a new share of Company common stock is issued for each stock option. Stock option activity for the years ended December 31, 2017 was as follows:



	Number of Shares		Weighted Average Exercise Price		Aggregate Intrinsic Value (in millions)(e)
Outstanding, December 31, 2016	55,000		$	31.75	$	—
Forfeited	(12,500	)	31.75		—
Outstanding, December 31, 2017	42,500		31.75		—


(e)	Intrinsic value is defined as the difference between the current market value and the exercise price, for those options where the market price exceeds the exercise price.

All Stock options are vested and there was no compensation expense related to stock options in 2017, 2016 and 2015. There were no stock options exercised and no net cash proceeds from the exercise of stock options in 2017, 2016 and 2015.

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



	Stock Options Outstanding					Stock Options Exercisable
Range of Exercisable Prices	Vested	Non-vested	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life in Years	Number Exercisable	Weighted Average Exercise Price Per Share
$31.75 - $31.75	42,500	—	$	31.75	0.1	42,500	$	31.75