( 9)	Share-Based Compensation

The Company measures and recognizes compensation expense for all share-based payments based on the grant-date fair value of those awards. All of the Company

’s existing stock option awards and non-vested stock awards have been determined to be equity-classified awards.

The

National Research Corporation

2001

Equity Incentive Plan

(“2001

Equity Incentive Plan”) provided for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of

1,800,000

shares of class A common stock and

300,000

shares of class B common stock. Stock options granted could have been either nonqualified or incentive stock options. Stock options vest over

one

five

years following the date of grant and option terms are generally

five

ten

years following the date of grant. Due to the expiration of the

2001

Equity Incentive Plan, at

December

31,

2015,

there were

shares of stock available for future grants. The Company has accounted for grants of

1,683,309

class A and

280,552

class B options and restricted stock under the

2001

Equity Incentive Plan using the date of grant as the measurement date for financial accounting purposes.

The Company

’s

2004

Non-Employee Director Stock Plan, as amended (the

“2004

Director Plan”), is a nonqualified plan that provides for the granting of options with respect to

3,000,000

shares of class A common stock and

500,000

shares of class B common stock. The

2004

Director Plan provides for grants of nonqualified stock options to each director of the Company who is not employed by the Company. On the date of each annual meeting of shareholders of the Company, options to purchase

36,000

shares of class A common stock and

6,000

shares of class B common stock are granted to directors that are elected or retained as a director at such meeting. Stock options vest

one

year following the date of grant and option terms are generally

ten

years following the date of grant, or

three

years in the case of termination of the outside director’s service. At

December

31,

2016,

there were

1,065,000

shares of class A common stock and

177,500

shares of class B common stock available for issuance pursuant to future grants under the

2004

Director Plan. The Company has accounted for grants of

1,935,000

class A and

322,500

class B options under the

2004

Director Plan using the date of grant as the measurement date for financial accounting purposes.

he National Research Corporation

2006

Equity Incentive Plan (the

“2006

Equity Incentive Plan”) provides for the granting of stock options, stock appreciation rights, restricted stock, performance shares and other share-based awards and benefits up to an aggregate of

1,800,000

shares of class A common stock and

300,000

shares of class B common stock. Stock options granted

may

be either incentive stock options or nonqualified stock options. Vesting terms vary with each grant and option terms are generally

five

ten

years following the date of grant. At

December

31,

2016,

there were

941,085

shares of class A common stock and

157,793

shares of class B common stock available for issuance pursuant to future grants under the

2006

Equity Incentive Plan. The Company has accounted for grants of

858,915

class A and

142,207

class B options and restricted stock under the

2006

Equity Incentive Plan using the date of grant as the measurement date for financial accounting purposes.

The

Company granted options to purchase

315,620

shares of class A common stock and

52,603

shares of class B common stock during

2016.

During

2015,

the Company granted options to purchase

261,306

shares of class A common stock and

43,551

shares of class B common stock, and during

2014

granted options to purchase

204,166

shares of class A common stock and

32,217

shares of class B common stock. Options to purchase shares of common stock are typically granted with exercise prices equal to the fair value of the common stock on the date of grant. The Company does, in certain limited situations, grant options with exercise prices that exceed the fair value of the common shares on the date of grant. The fair value of stock options granted was estimated using a Black-Scholes valuation model with the following assumptions:

	2016						2015						2014
	Class A			Class B			Class A			Class B			Class A			Class B
Expected dividend yield at date of grant	2.96	to	3.02%	6.67	to	8.12%	2.00	to	2.57%	5.29	to	5.72%	1.47	to	1.97%	4.03	to	4.87%
Expected stock price volatility	31.33	to	34.61%	27.64	to	31.77%	30.86	to	34.87%	29.72	to	33.94%	27.52	to	32.03%	30.13	to	32.65%
Risk-free interest rate	1.36	to	2.12%	1.36	to	2.12%	1.41	to	1.78%	1.41	to	1.78%	1.63	to	2.37%	1.63	to	2.37%
Expected life of options (in years)	6	to	8	6	to	8	5	to	7	5	to	7	5	to	7	5	to	7

The risk-free interest rate assumptions were based on the U.S. Treasury yield curve in effect at the time of the grant. The expected volatility was based on historical monthly price changes of the Company

’s stock based on the expected life of the options at the date of grant. The expected life of options is the average number of years the Company estimates that options will be outstanding. The Company considers groups of associates that have similar historical exercise behavior separately for valuation purposes.

The following table summarizes stock option activity

under the

2001

and

2006

Equity Incentive Plans and the

2004

Director Plan for the year ended

December

31,

2016:

	Number of Options			Weighted Average Exercise Price		Weighted Average Remaining Contractual Terms (Years)		Aggregate Intrinsic Value (In thousands)
Class A
Outstanding at December 31, 201 5		1,485,738		$	11.65
Granted		315,620		$	14.64
Exercised		(52,383	)	$	6.59			$	459
Forfeited		(43,492	)	$	13.25
Outstanding at December 31, 2016		1,705,483		$	12.31		5.87	$	11,404
Exercisable at December 31, 2016		1,250,793		$	11.64		4.96	$	9,203

Class B
Outstanding at December 31, 201 5		240,673		$	26.31
Granted		52,603		$	36.16
Exercised		(35,534	)	$	16.88			$	632
Forfeited		(7,249	)	$	26.90
Outstanding at December 31, 2016		250,493		$	29.70		6.32	$	3,066
Exercisable at December 31, 2016		175,659		$	27.82		5.43	$	2,500

During

2016

, the weighted average grant date fair value of the stock options granted was

$3.62

and

$3.90

for class A common stock and class B common stock respectively. The weighted average grant date fair value of stock options granted during

2015

was

$3.49

for class A common stock and

$5.45

for class B common stock. The weighted average grant date fair value of stock options granted during

2014

was

$2.14

for class A common stock and

$2.16

for class B common stock. The total intrinsic value of stock options exercised during

2016,

2015,

and

2014

was

$459,000,

$350,000

and

$1.5

million for the shares of class A common stock and

$632,000,

$151,000

and

$502,000

for the shares of class B common stock, respectively. The total intrinsic value of stock options vested during

2016,

2015

and

2014

was

$1.6

million,

$1.4

million and

$528,000

for the shares of class A common stock and

$535,000,

$415,000

and

$402,000

for the shares of class B common stock, respectively. As of

December

31,

2016,

the total unrecognized compensation cost related to non-vested stock option awards was approximately

$820,000

and

$152,000

for class A and class B common stock shares, respectively, which was expected to be recognized over a weighted average period of

2.78

years and

2.58

years for class A and class B common stock shares, respectively.

Cash received from stock options exercised for the

years ended

December

31,

2016

and

2014

was

$548,000

and

$408,000,

respectively. There was

cash received from stock options exercised for the year ended

December

31,

2015.

The Company recognized

$964,000,

$828,000

and

$707,000

of non-cash compensation for the years ended

December

31,

2016,

2015,

and

2014,

respectively, related to options, which is included in selling, general and administrative expenses.

The actual tax benefit realized for the tax deduction from stock options exercised was

$337,000,

$157,000

and

$622,000

for the years ended

December

31,

2016,

2015

and

2014,

respectively. The Company prospectively elected ASU

2016

09,

Compensation – Stock Compensation (Topic

718)

Improvements to Employee Share-Based Payment Accounting

(“ASU

2016

09”)

2016.

As a result, the tax benefit from stock options exercised was recognized as a reduction to our provision for income taxes for the year ended

December

31,

2016

rather than as an increase to additional paid-in capital for the years ended

December

31,

2015

and

2014

prior to adoption (See Note

13).

During

2016,

2015,

and

2014

the Company granted

20,578,

89,416,

and

73,506

non-vested shares of class A and

3,430,

14,902,

and

12,251

non-vested shares of class B common stock, respectively, under the

2006

Equity Incentive Plan. As of

December

31,

2016,

the Company had

174,487

and

29,081

non-vested shares of class A and class B common stock, respectively, outstanding under the

2006

Equity Incentive Plan. These shares vest over

one

five

years following the date of grant and holders thereof are entitled to receive dividends from the date of grant, whether or not vested. The fair value of the awards is calculated as the fair market value of the shares on the date of grant. The Company recognized

$966,000,

$555,000

and

$35,000

of non-cash compensation for the years ended

December

31,

2016,

2015,

and

2014,

respectively, related to this non-vested stock, which is included in selling, general and administrative expenses.

The following

table summarizes information regarding non-vested stock granted to associates under the

2001

and

2006

Equity Incentive Plans for the year ended

December

31,

2016:

	Class A Shares Outstanding			Class A Weighted Average Grant Date Fair Value Per Share		Class B Shares Outstanding			Class B Weighted Average Grant Date Fair Value Per Share
Outstanding at December 31, 201 5		183,814		$	12.78		30,635		$	36.93
Granted		20,578		$	15.23		3,430		$	34.00
Vested		(20,892	)	$	5.38		(3,482	)	$	32.31
Forfeited		(9,013	)	$	13.17		(1,502	)	$	35.48
Outstanding at December 31, 2016		174,487		$	13.93		29,081		$	37.21

As of

December

31,

2016,

the total unrecognized compensation cost related to non-vested stock awards was approximately

$1.8

million and is expected to be recognized over a weighted average period of

2.96

years.