Share Plans

Share-based compensation expense

Total share-based compensation expense for 2017, 2016 and 2015 was as follows:



	December 31
In millions	2017		2016		2015
Restricted stock units	$	17.5	$	17.3	$	21.6
Stock options	10.5		10.4		11.4
Performance share units	11.6		6.5		—
Total share-based compensation expense	$	39.6	$	34.2	$	33.0

Share incentive plans

In 2012, our Board of Directors, and Tyco International Ltd. ("Tyco") as our sole shareholder at the time, approved the Pentair plc 2012 Stock and Incentive Plan (the "2012 Plan"). The 2012 Plan became effective on September 28, 2012 and authorizes the issuance of 9.0 million of our ordinary shares. The shares may be issued as new shares or from shares held in treasury. Prior to the cancellation of our shares held in treasury in August 2015, our practice was to settle equity-based awards from shares held in treasury. Subsequent to the cancellation, our practice is to settle equity-based awards by issuing new shares. The 2012 Plan terminates in September 2022. The 2012 Plan allows for the granting to our officers, directors, employees and consultants of non-qualified stock options, incentive stock options, stock appreciation rights, performance shares, performance units, restricted shares, restricted stock units, deferred stock rights, annual incentive awards, dividend equivalent units and other equity-based awards.

The 2012 Plan is administered by our compensation committee (the "Committee"), which is made up of independent members of our Board of Directors. Employees eligible to receive awards under the 2012 Plan are managerial, administrative or other key employees who are in a position to make a material contribution to the continued profitable growth and long-term success of our company. The Committee has the authority to select the recipients of awards, determine the type and size of awards, establish certain terms and conditions of award grants and take certain other actions as permitted under the 2012 Plan. The 2012 Plan prohibits the Committee from re-pricing awards or canceling and reissuing awards at lower prices.

The 2008 Omnibus Stock Incentive Plan as Amended and Restated (the "2008 Plan") terminated in 2012. Prior grants of restricted stock units and stock options made under the 2008 Plan and earlier stock incentive plans outstanding at the time of termination were converted into equity-based awards with respect to our ordinary shares and were assumed by us on the terms in effect at the time of grant and are outstanding under the 2012 Plan.

Non-qualified and incentive stock options

Under the 2012 Plan, we may grant stock options to any eligible employee with an exercise price equal to the market value of the shares on the dates the options were granted. Options generally vest one-third each year over a three-year period commencing on the grant date and expire 10 years after the grant date.

Restricted shares and restricted stock units

Under the 2012 Plan, eligible employees may be awarded restricted shares or restricted stock units of our common stock. Restricted shares and restricted stock units generally vest one-third each year over a three-year period commencing on the grant date, subject to continuous employment and certain other conditions. Restricted shares and restricted stock units are valued at market value on the date of grant and are expensed over the vesting period.

Stock appreciation rights, performance shares and performance units

Under the 2012 Plan, the Committee is permitted to issue these awards which are generally earned over a three-year vesting period and tied to specific financial metrics. In December 2015, the Committee approved the granting of performance share units to certain employees that vest based on the satisfaction of a three-year service period and the achievement of certain performance metrics over that same period. Upon vesting, PSU holders receive dividends that accumulate during the vesting period. The fair value of these PSUs is determined based on the closing market price of the Company's ordinary shares at the date of grant. Compensation expense is recognized over the period an employee is required to provide service based on the estimated vesting of the PSUs granted. The estimated vesting of the PSUs is based on the probability of achieving certain financial performance metrics during the three year vesting period.

Stock options

The following table summarizes stock option activity under all plans for the year ended December 31, 2017:



Shares and intrinsic value in millions	Number of shares		Weighted- average exercise price		Weighted- average remaining contractual life (years)	Aggregate intrinsic value
Outstanding as of January 1, 2017	5.7		$	45.72
Granted	0.9		59.09
Exercised	(1.2	)	37.00
Forfeited	(0.2	)	60.03
Expired	—		—
Outstanding as of December 31, 2017	5.2		$	49.49	5.5	$	113.7
Options exercisable as of December 31, 2017	3.4		$	46.00	4.0	$	87.5
Options expected to vest as of December 31, 2017	1.8		$	56.13	8.3	$	25.8

Fair value of options granted

The weighted average grant date fair value of options granted under Pentair plans in 2017, 2016 and 2015 was estimated to be $12.59, $9.74 and $16.40 per share, respectively. The total intrinsic value of options that were exercised during 2017, 2016 and 2015 was $34.3 million, $27.1 million and $20.8 million, respectively. At December 31, 2017, the total unrecognized compensation cost related to stock options was $9.8 million. This cost is expected to be recognized over a weighted average period of 2.0 years.

We estimated the fair value of each stock option award on the date of grant using a Black-Scholes option pricing model, modified for dividends and using the following weighted average assumptions:



	December 31
	2017		2016		2015
Risk-free interest rate	1.65	%	1.56	%	1.60	%
Expected dividend yield	2.35	%	2.49	%	1.97	%
Expected share price volatility	26.9	%	27.3	%	30.4	%
Expected term (years)	6.3		5.9		6.0

These estimates require us to make assumptions based on historical results, observance of trends in our share price, changes in option exercise behavior, future expectations and other relevant factors. If other assumptions had been used, share-based compensation expense, as calculated and recorded under the accounting guidance, could have been affected.

We based the expected life assumption on historical experience as well as the terms and vesting periods of the options granted. For purposes of determining expected volatility, we considered a rolling average of historical volatility measured over a period approximately equal to the expected option term. The risk-free rate for periods that coincide with the expected life of the options is based on the U.S. Treasury Department yield curve in effect at the time of grant.

Cash received from option exercises for the years ended December 31, 2017, 2016 and 2015 was $46.0 million, $31.6 million and $28.7 million, respectively. The actual tax benefit realized for the tax deductions from option exercises totaled $7.8 million, $5.5 million and $4.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.

Restricted stock units

The following table summarizes restricted stock unit activity under all plans for the year ended December 31, 2017:



Shares in millions	Number of shares		Weighted average grant date fair value
Outstanding as of January 1, 2017	0.7		$	55.31
Granted	0.4		61.27
Vested	(0.4	)	56.73
Forfeited	(0.1	)	54.35
Outstanding as of December 31, 2017	0.6		$	57.96

As of December 31, 2017, there was $39.6 million of unrecognized compensation cost related to restricted share compensation arrangements granted under the 2012 Plan and previous plans. That cost is expected to be recognized over a weighted-average period of 2.8 years. The total fair value of shares vested during the years ended December 31, 2017, 2016 and 2015, was $21.7 million, $27.2 million and $26.0 million, respectively. For the years ended December 31, 2017 and 2016, there was no actual tax benefit realized. The actual tax benefit realized for the years ended December 31, 2015 was $2.4 million.

Performance share units

The following table summarizes performance share unit activity under all plans for the year ended December 31, 2017:



Shares in millions	Number of shares	Weighted average grant date fair value
Outstanding as of January 1, 2017	0.3	$	49.54
Granted	0.2	58.40
Vested	—	—
Forfeited	—	—
Outstanding as of December 31, 2017	0.5	$	53.56

The expense recognized each period is dependent upon our estimate of the number of shares that will ultimately be issued. As of December 31, 2017, there was $10.5 million of unrecognized compensation cost related to performance share compensation arrangements granted under the 2012 Plan and previous plans. That cost is expected to be recognized over a weighted-average period of 1.6 years. There were no actual tax benefits realized related to performance share compensation arrangements for the year ended December 31, 2017.