Share-Based Compensation

2012 Equity Compensation Plan

The Company has granted equity-based compensation under the Equity Commonwealth 2012 Equity Compensation Plan (as amended, the 2012 Plan). The 2012 Plan authorizes grants of the Company’s restricted common shares and restricted share units (RSUs).

Recipients of the Company’s restricted shares have the same voting rights as any other common share holder. During the period of restriction, the Company’s unvested restricted shareholders are eligible to receive dividend payments on their shares at the same rate and on the same date as any other common share holder. Recipients of the Company’s RSUs are entitled to receive dividends with respect to the common shares underlying the RSUs if and when the RSUs are earned, at which time the recipient will be entitled to receive an amount in cash equal to the aggregate amount of ordinary cash dividends that would have been paid in respect of the common shares underlying the recipient’s earned RSUs had such common shares been issued to the recipient on the first day of the performance period.

Equity Grants for 2014 Performance

On January 28, 2015, the Committee approved a grant of 126,319 restricted common shares and 256,467 restricted share units at target to the Company’s officers, certain employees and to Mr. Zell, the Chairman of our Board of Trustees, as part of their compensation for fiscal year 2014.

The restricted shares are service based awards and vest over a four year period. The restricted shares were granted on January 28, 2015 and were valued at $26.58 per share, the closing price of our common shares on the NYSE on that day.

As of March 31, 2015, the estimated future compensation expense for all unvested restricted share grants was $18.8 million. Compensation expense for the restricted share awards is being recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The weighted average period over which the compensation expense will be recorded for the restricted shares is approximately 3.5 years.

The RSUs are market based awards with a service condition and grant recipients may earn between 0% - 100% of the RSU grant based on the Company’s total shareholder return (TSR) relative to the TSR's for the constituent REITs that comprise the NAREIT Office Index for the performance period of January 28, 2015 - January 28, 2018. Following the end of the performance period on January 28, 2018, the number of earned awards will be determined. The earned awards vest in two tranches with 50% of the earned award vesting on January 28, 2018 and the remaining 50% of the earned award vesting on January 28, 2019 subject to the grant recipient’s continued employment. Recipients of the Company’s RSUs are entitled to receive dividends with respect to the common shares underlying the RSUs if and when the RSUs are earned. To the extent that an award does not vest, the dividends will be forfeited. Compensation expense for the RSU awards was determined using a Monte Carlo simulation model and is being recognized ratably from the grant date to the vesting date of each tranche.

As of March 31, 2015, the estimated future compensation expense for all unvested RSUs was $27.2 million. The weighted average period over which the compensation expense will be recorded for the RSUs is approximately 3.0 years.

The assumptions and fair values for the RSUs granted for the three months ended March 31, 2015 are included in the following table on a per share basis.



	2015
Fair value of RSUs granted	$	38.55
Expected term (years)	4
Expected volatility	—
Expected dividend yield	1.88		%
Risk-free rate	0.81		%

During the three months ended March 31, 2015, we recorded $4.0 million of compensation expense in general and administrative expense for grants to our Board of Trustees and the Company's employees related to our Plan. At March 31, 2015, 84,000 common shares remain available for issuance under the Plan.

Prior Equity Grants:

As a result of the removal of our former Trustees on March 25, 2014, the vesting of 130,914 common shares previously issued to our former officers and certain employees of RMR pursuant to our equity compensation plans accelerated in accordance with the terms of their governing share grants. During the three months ended March 31, 2014, we recorded $3.4 million of general and administrative expense related to the vesting of these shares.