STOCK COMPENSATION PLANS

We have various equity plans under which our officers, senior management, other key employees and directors may be granted options to purchase IFF common stock or other forms of stock-based awards. Beginning in 2004, we granted Restricted Stock Units (“RSUs”) as the principal element of our equity compensation for all eligible U.S. based employees and a majority of eligible overseas employees. Vesting of the RSUs is solely time based; the vesting period is primarily 3 years from date of grant. For a small group of employees, primarily overseas, we granted stock options prior to 2008.

The cost of all employee stock-based awards are principally recognized on a straight-line attribution basis over their respective vesting periods, net of estimated forfeitures. Total stock-based compensation expense included in our Consolidated Statement of Income and Comprehensive Income was as follows:



	December 31,
(DOLLARS IN THOUSANDS)	2014			2013			2012
Equity-based awards	$	22,648		$	23,736		$	19,716
Liability-based awards	4,354			4,042			3,294
Total stock-based compensation	27,002			27,778			23,010
Less tax benefit	(8,018		)	(8,456		)	(7,228		)
Total stock-based compensation, net of tax	$	18,984		$	19,322		$	15,782

The shareholders of the Company approved the Company’s 2010 Stock Award and Incentive Plan (the “2010 Plan”) at the Annual Meeting of Shareholders held on April 27, 2010. The 2010 Plan replaced the Company’s 2000 Stock Award and Incentive Plan and the 2000 Supplemental Stock Award Plan (the “2000 Plans”) and provides the source for future deferrals of cash into deferred stock under the Company’s Deferred Compensation Plan (with the Deferred Compensation Plan being deemed a subplan under the 2010 Plan for the sole purpose of funding deferrals under the IFF Share Fund).

Under the 2010 Plan, a total of 2,749,669 shares are authorized for issuance, including 749,669 shares remaining available under a previous plan that were rolled into the 2010 Plan. At December 31, 2014, 1,206,380 shares were subject to outstanding awards and 1,546,494 shares remained available for future awards under all of the Company’s equity award plans, including the 2010 Plan (excluding shares not yet issued under open cycles of the Company’s Long-Term Incentive Plan).

The Company offers a Long-Term Incentive Plan (“LTIP”) for senior management. The targeted payout is 50% cash and 50% IFF stock at the end of the three-year cycle and provides for segmentation in which one-fourth of the award vests during each twelve-month period, with the final one-fourth segment vesting over the full three-year period. The 2011 grant was earned based on the achievement of defined EPS targets and our performance ranking of total shareholder return as a percentile of the S&P 500. Commencing with the 2012-2014 LTIP cycle, the Company used Economic Profit (“EP”), rather than EPS, as one of the two financial metrics of Company performance. EP measures operating profitability after considering (i) all our operating costs, (ii) income taxes and (iii) a charge for the capital employed in the business. When the award is granted, 50% of the target dollar value of the award is converted to a number of “notional” shares based on the closing price at the beginning of the cycle. For those shares whose payout is based on shareholder return as a percentile of the S&P 500, compensation expense is recognized using a graded-vesting attribution method, while compensation expense for the remainder of the performance shares (e.g., EPS targets) is recognized on a straight-line basis over the vesting period based on the probable outcome of the performance condition.

The 2010-2012 cycle concluded at the end of 2012 and an aggregate 119,561 shares of our common stock were issued in March 2013. The 2011-2013 cycle concluded at the end of 2013 and an aggregate 65,735 shares of our common stock were issued in March 2014. The 2012-2014 cycle concluded at the end of 2014 and an aggregate 90,062 shares of our common stock will be issued in March 2015.

In 2006, our Board approved the Equity Choice Program (the “Program”) for senior management. This program continues under the 2010 Plan. Eligible employees can choose from among three equity alternatives and will be granted such equity awards up to certain dollar awards depending on the participant’s grade level. A participant may choose among (1) Stock Settled Appreciation Rights ("SSARs"), (2) RSUs or (3) PRS. No stock options were granted in 2014, 2013 or 2012.

SSARs

SSARs granted become exercisable on the third anniversary of the grant date and have a maximum term of 7 years. No SSARs were granted in 2014 or 2013. We granted 54,307 SSARs during 2012.

We use the Binomial lattice-pricing model as our valuation model for estimating the fair value of SSARs granted. In applying the Binomial model, we utilize historical information to estimate expected term and post-vesting terminations within the model. The expected term of a SSAR is based on historical employee exercise behavior, vesting terms and a contractual life of primarily 7 years. The risk-free interest rate for periods within the expected term of the award is based on the U.S. Treasury yield curve in effect at the time of grant. Expected volatility is based on an average of implied and historical volatility of the price of our common stock over the calculated expected term. We anticipate paying cash dividends in the future and therefore use an expected dividend yield in the valuation model; the cash dividend in effect at the time of grant was employed in this calculation.

Principal assumptions used in applying the Binomial model in 2012 were:



	2012
Weighted average fair value of SSARs granted during the period	$	10.39
Assumptions:
Risk-free interest rate	0.9		%
Expected volatility	22.5		%
Expected dividend yield	2.1		%
Expected life, in years	5
Termination rate	1.05		%
Exercise multiple	1.44

SSARs and options activity were as follows:



(SHARE AMOUNTS IN THOUSANDS)	Shares Subject to SSARs/Options		Weighted Average Exercise Price		SSARs/ Options Exercisable
Balance at Balance at December 31, 2013	315		$	49.96	183
Exercised	(144	)	$	50.45
Cancelled	(20	)	$	60.39
Balance at Balance at December 31, 2014	151		$	51.13	116

The weighted average exercise price of our SSARs and options exercisable at December 31, 2014, 2013 and 2012 were $47.92, $41.70 and $37.64, respectively. The following tables summarize information concerning currently outstanding and exercisable SSARs and options.

SSARs and options outstanding at December 31, 2014 were as follows:



Price Range	Number Outstanding (in thousands)	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
$26 – $30	1	4.4	$	30.48
$31 – $35	18	0.9	$	35.03
$36 – $40	6	1.3	$	36.00
$41 – $50	39	1.9	$	44.56
$51 – $60	59	3.4	$	56.68
$61 – $65	28	1.6	$	62.13
	151		$	51.13	$	7,490

SSARs and options exercisable as of December 31, 2014 were as follows:



Price Range	Number Exercisable (in thousands)	Weighted Average Remaining Contractual Life (in years)	Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)
$26 – $30	1	4.4	$	30.48
$31 – $35	18	0.9	$	35.03
$36 – $40	6	1.3	$	36.00
$41 – $50	39	1.9	$	44.56
$51 – $55	25	2.0	$	49.58
$61 - $65	27	1.61	$	62.13
	116		$	47.92	$	6,050

The total intrinsic value of options/SSARs exercised during 2014, 2013 and 2012 totaled $7 million, $11 million and $11 million, respectively.

As of December 31, 2014, there was $0.1 million of total unrecognized compensation cost related to non-vested SSARs granted; such cost is expected to be recognized over a period of 0.3 years.

Restricted Stock Units

We have granted RSUs to eligible employees and directors. Such RSUs are subject to forfeiture if certain employment conditions are not met. RSUs principally vest 100% at the end of 3 years and contain no performance criteria provisions. An RSU’s fair value is calculated based on the market price of our stock at date of grant, with an adjustment to reflect the fact that such awards do not participate in dividend rights. The aggregate fair value is amortized to expense ratably over the vesting period.

RSU activity was as follows:



(SHARE AMOUNTS IN THOUSANDS)	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Balance at December 31, 2013	558		$	64.86
Granted	206		$	94.19
Vested	(200	)	$	59.43
Forfeited	(42	)	$	82.34
Balance at December 31, 2014	522		$	74.83

The total fair value of RSUs which vested during the year ended December 31, 2014 was $19.5 million.

As of December 31, 2014, there was $15.6 million of total unrecognized compensation cost related to non-vested RSUs granted under the equity incentive plans; such cost is expected to be recognized over a weighted average period of 1.8 years.

Purchased Restricted Stock

For awards issued in 2012 and prior, PRS provides for eligible employees to purchase restricted shares of IFF stock at 50% of the fair market value on the grant date of the award. The shares generally vest on the third anniversary of the grant date, are subject to continued employment and other specified conditions and pay dividends if and when paid by us. Holders of PRS have, in most instances, all of the rights of stockholders, except that they may not sell, assign, pledge or otherwise encumber such shares. RSUs provide no such rights. In 2013, the terms of PRS were modified such that, for each share put in escrow by the eligible employee, the Company matches with a grant of a share of restricted stock or, for non-U.S. participants, a restricted stock unit. We issued 99,091shares of PRS in 2014 for an aggregate purchase price of $9.7 million covering 49,545 purchased shares, 101,326 shares of PRS in 2013 for $7.8 million covering 50,633 purchased shares and 228,750 shares in 2012 for $6.9 million covering 114,375 purchased shares.

PRS activity was as follows:



(SHARE AMOUNTS IN THOUSANDS)	Number of Shares		Weighted Average Grant Date Fair Value Per Share
Balance at Balance at December 31, 2013	476		$	60.58
Granted	99		$	97.94
Vested	(155	)	$	62.13
Forfeited	(40	)	$	57.59
Balance at Balance at December 31, 2014	380		$	57.36

The total fair value of PRS which vested during the year ended December 31, 2014 was $14.9 million.

As of December 31, 2014, there was $6.8 million of total unrecognized compensation cost related to non-vested PRS granted under the equity incentive plans; such cost is expected to be recognized over a weighted average period of 1.8 years.

Liability Awards

We have granted Cash RSUs to eligible employees that are paid out 100% in cash upon vesting. Such RSUs are subject to forfeiture if certain employment conditions are not met. Cash RSUs principally vest 100% at the end of three years and contain no performance criteria provisions. A Cash RSU's fair value is calculated based on the market price of our stock at date of our closing period and is accounted for as a liability award. The aggregate fair value is amortized to expense ratably over the vesting period.

Cash RSU activity was as follows:



(SHARE AMOUNTS IN THOUSANDS)	Cash RSUs		Weighted Average Fair Value Per Share
Balance at Balance at December 31, 2013	112		$	85.94
Granted	35		$	100.85
Vested	(37	)	$	97.68
Cancelled	(4	)	$	99.73
Balance at Balance at December 31, 2014	106		$	100.85

The total fair value of Cash RSUs which vested during the year ended December 31, 2014 was $3.7 million.

As of December 31, 2014, there was $3.7 million of total unrecognized compensation cost related to non-vested Cash RSUs granted under the equity incentive plans; such cost is expected to be recognized over a weighted average period of 1.9 years. The aggregate compensation cost will be adjusted based on changes in the Company’s stock price.