Stock-Based Compensation

The Company grants stock-based compensation awards as an incentive for employees and directors to contribute to the Company’s long-term success. The Company currently awards stock-settled stock appreciation rights, service-based and performance-based restricted stock units, and common stock equivalents. As of September 30, 2017, the Company had 5.5 million shares of its common stock, par value $.0005 per share (the “Common Stock”), available for stock-based compensation awards under its 2014 Long-Term Incentive Plan.

The Company accounts for stock-based compensation awards in accordance with FASB ASC Topics 505 and 718 and SEC Staff Accounting Bulletins No. 107 and No. 110. Stock-based compensation expense is based on the fair value of the award on the date of grant. The Company recognizes stock-based compensation expense over the period that the related service is performed, which is generally the same as the vesting period of the underlying award. Currently, the Company issues treasury shares upon the exercise, release or settlement of stock-based compensation awards.

Determining the appropriate fair value model and calculating the fair value of stock-based compensation awards requires the use of certain complex and subjective assumptions, including the expected life of a stock-based compensation award and Common Stock price volatility. In addition, determining the appropriate periodic stock-based compensation expense requires management to estimate the likelihood of the achievement of certain performance targets. The assumptions used in calculating the fair values of stock-based compensation awards and the related periodic expense represent management’s best estimates, which involve inherent uncertainties and the application of judgment. As a result, if circumstances change and the Company deems it necessary in the future to modify the assumptions it made or to use different assumptions, or if the quantity and nature of the Company’s stock-based compensation awards changes, then the amount of expense may need to be adjusted and future stock-based compensation expense could be materially different from what has been recorded in the current period.

Stock-Based Compensation Expense

The Company recognized the following stock-based compensation expense by award type and expense category line item in the periods indicated (in millions):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Award type	2017		2016		2017		2016
Stock appreciation rights	$	1.1	$	1.3	$	5.2	$	4.3
Restricted stock units	13.2		8.0		62.3		31.3
Common stock equivalents	0.1		0.2		0.5		0.5
Total (1)	$	14.4	$	9.5	$	68.0	$	36.1



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
Expense category line item	2017		2016		2017		2016
Cost of services and product development	$	6.1	$	4.6	$	21.5	$	17.0
Selling, general and administrative	7.1		4.9		30.8		19.1
Acquisition and integration charges (2)	1.2		—		15.7		—
Total (1)	$	14.4	$	9.5	$	68.0	$	36.1

(1) Includes charges of $2.1 million and $2.5 million during the three months ended September 30, 2017 and 2016, respectively, and $22.6 million and $16.5 million during the nine months ended September 30, 2017 and 2016, respectively, for awards to retirement-eligible employees. Those awards vest on an accelerated basis.

(2) These charges are primarily the result of the acceleration of the vesting of certain restricted stock units related to the CEB acquisition.

As of September 30, 2017, the Company had $97.4 million of total unrecognized stock-based compensation cost, which is expected to be expensed over the remaining weighted-average service period of approximately 2.5 years.

Stock-Based Compensation Awards

The disclosures presented below provide information regarding the Company’s stock-based compensation awards, all of which are classified as equity awards in accordance with FASB ASC Topic 505.

Stock Appreciation Rights

Stock-settled stock appreciation rights ("SARs") permit the holder to participate in the appreciation of the value of the Common Stock. After the applicable vesting criteria have been satisfied, SARs are settled in shares of Common Stock upon exercise by the employee. SARs vest ratably over a four-year service period and expire seven years from the date of grant. The fair value of a SARs award is recognized as compensation expense on a straight-line basis over four years. SARs have only been awarded to the Company’s executive officers.

When SARs are exercised, the number of shares of Common Stock issued is calculated as follows: (1) the total proceeds from the exercise of the SARs award (calculated as the closing price of the Common Stock on the date of exercise less the exercise price of the SARs award, multiplied by the number of SARs exercised) is divided by (2) the closing price of the Common Stock as reported on the New York Stock Exchange on the date of exercise. The Company withholds a portion of the shares of the Common Stock issued upon exercise to satisfy statutory tax withholding requirements. SARs recipients do not have any stockholder rights until the shares of Common Stock are issued in respect of the award, which is subject to the prior satisfaction of the vesting and other criteria relating to such grants.

The following table summarizes changes in SARs outstanding during the nine months ended September 30, 2017:



	Stock Appreciation Rights ("SARs") (in millions)		Per Share Weighted Average Exercise Price		Per Share Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (Years)
Outstanding at December 31, 2016	1.3		$	66.22	$	15.77	4.40
Granted	0.3		99.07		22.02		6.35
Exercised	(0.3	)	51.25		14.74		n/a
Outstanding at September 30, 2017 (1) (2)	1.3		76.64		17.36		4.57
Vested and exercisable at September 30, 2017 (2)	0.6		$	64.71	$	15.60	3.49

n/a=not applicable.

(1) As of September 30, 2017, 0.7 million of the total SARs outstanding were unvested. The Company expects that substantially all of those unvested awards will vest in future periods.

(2) As of September 30, 2017, the total SARs outstanding had an intrinsic value of $62.8 million. On such date, SARs vested and exercisable had an intrinsic value of $33.4 million.

The fair value of a SARs award is determined on the date of grant using the Black-Scholes-Merton valuation model with the following weighted average assumptions:



	Nine Months Ended
	September 30,
	2017		2016
Expected dividend yield (1)	—	%	—	%
Expected stock price volatility (2)	22	%	22	%
Risk-free interest rate (3)	1.8	%	1.1	%
Expected life in years (4)	4.5		4.4


(1)	The expected dividend yield assumption was based on both the Company's historical and anticipated dividend payouts. Historically, the Company has not paid cash dividends on its Common Stock.


(2)	The determination of expected stock price volatility was based on both historical Common Stock prices and implied volatility from publicly traded options in the Common Stock.


(3)	The risk-free interest rate was based on the yield of a U.S. Treasury security with a maturity similar to the expected life of the award.


(4)	The expected life represents the Company’s estimate of the weighted average period of time the SARs are expected to be outstanding (that is, the period between the service inception date and the expected exercise date).

Restricted Stock Units

Restricted stock units ("RSUs") give the awardee the right to receive shares of Common Stock when the vesting conditions are met and certain restrictions lapse. Each RSU that vests entitles the awardee to one share of Common Stock. RSU awardees do not have any of the rights of a Gartner stockholder, including voting rights and the right to receive dividends and distributions, until the shares are released. The fair value of an RSU award is determined on the date of grant based on the closing price of the Common Stock as reported on the New York Stock Exchange on that date. Service-based RSUs vest ratably over four years and are expensed on a straight-line basis over the vesting period. Performance-based RSUs are subject to the satisfaction of both performance and service conditions, vest ratably over four years and are expensed on an accelerated basis over the vesting period.

The following table summarizes the changes in RSUs outstanding during the nine months ended September 30, 2017:



	Restricted Stock Units ("RSUs") (in millions)		Per Share Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	1.3		$	73.19
Granted (1) (2)	1.1		105.45
Vested and released	(0.7	)	78.44
Forfeited	(0.1	)	93.18
Outstanding at September 30, 2017 (3) (4)	1.6		$	91.37

(1)

The 1.1 million of RSUs granted during the nine months ended September 30, 2017 consisted of 0.2 million of performance-based RSUs awarded to executives and 0.9 million of service-based RSUs awarded to non-executive employees and non-management board members. The 0.2 million of performance-based RSUs represents the target amount of the grant for the year, which is tied to an increase in the Company's total contract value for 2017. Total contract value for this determination represents the value attributable to all of the Company's subscription-related contracts but not including CEB contract value. The final number of performance-based RSUs that will ultimately be awarded for 2017 ranges from 0% to 200% of the target amount, with the final number dependent on the actual increase in total contract value for 2017 as measured on December 31, 2017. If the specified minimum level of achievement is not met, the performance-based RSUs will be forfeited in their entirety and any previously recorded compensation expense will be reversed.


(2)	Includes 0.6 million of RSUs awarded to employees that joined Gartner as a result of the CEB acquisition.


(3)	The Company expects that substantially all of the RSUs outstanding will vest in future periods.


(4)	As of September 30, 2017, the weighted average remaining contractual term of the RSUs outstanding was approximately 1.4 years.

Common Stock Equivalents

Common stock equivalents ("CSEs") are convertible into Common Stock. Each CSE entitles the holder to one share of Common Stock. Members of our Board of Directors receive their directors’ fees in CSEs unless they opt to receive up to 50% of those fees in cash. Generally, CSEs have no defined term and are converted into shares of Common Stock when service as a director terminates unless the director has elected an accelerated release. The fair value of a CSE award is determined on the date of grant based on the closing price of the Common Stock as reported on the New York Stock Exchange on that date. CSEs vest immediately and as a result they are recorded as expense on the date of grant.

The following table summarizes the changes in CSEs outstanding during the nine months ended September 30, 2017:



	Common Stock Equivalents ("CSEs")		Per Share Weighted Average Grant Date Fair Value
Outstanding at December 31, 2016	107,338		$	20.74
Granted	4,382		118.75
Converted to shares of Common Stock upon grant	(3,177	)	118.71
Outstanding at September 30, 2017	108,543		$	21.82

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (the “ESP Plan”) under which eligible employees are permitted to purchase shares of Common Stock through payroll deductions, which may not exceed 10% of an employee’s compensation (or $23,750 in any calendar year), at a price equal to 95% of the closing price of the Common Stock as reported on the New York Stock Exchange at the end of each offering period. As of September 30, 2017, the Company had 0.8 million shares available for purchase under the ESP Plan. The ESP Plan is considered non-compensatory under FASB ASC Topic 718 and, as a result, the Company does not record stock-based compensation expense for employee share purchases. The Company received $8.6 million and $6.9 million in cash from employee share purchases under the ESP Plan during the nine months ended September 30, 2017 and 2016, respectively.