Share-Based Compensation

Equity Commonwealth 2015 Omnibus Incentive Plan

On June 16, 2015, at our 2015 annual meeting of shareholders, our shareholders approved the 2015 Incentive Plan. The 2015 Incentive Plan replaced the Equity Commonwealth 2012 Equity Compensation Plan (as amended, the 2012 Plan). The Board of Trustees approved the 2015 Incentive Plan, subject to shareholder approval, on March 18, 2015 (the Effective Date). On January 26, 2016, the Board of Trustees approved an amendment to the 2015 Incentive Plan to allow the Compensation Committee (Committee) to authorize in an award agreement a transfer of all or a part of certain equity awards not for value to a “family member” (as defined in the 2015 Incentive Plan). The following description of certain terms of the 2015 Incentive Plan is qualified in all respects by the terms of the 2015 Incentive Plan.

Eligibility. Awards may be granted under the 2015 Incentive Plan to employees, officers and non-employee directors of the Company, its subsidiaries or its affiliates, or consultants and advisors (who are natural persons) providing services to the Company, its subsidiaries or its affiliates, or any other person whose participation in the 2015 Incentive Plan is determined by the Committee to be in the best interests of the Company.

Term. The 2015 Incentive Plan terminates automatically ten years after the Effective Date, unless it is terminated earlier by the Board of Trustees.

Shares Available for Issuance. Subject to adjustment as provided in the 2015 Incentive Plan, the maximum number of common shares of the Company that are available for issuance under the 2015 Incentive Plan is 3,250,000 shares.

Awards. The following types of awards may be made under the 2015 Incentive Plan, subject to limitations set forth in the 2015 Incentive Plan:

· Stock options;

· Stock appreciation rights;

· Restricted stock;

· Restricted stock units;

· Unrestricted stock;

· Dividend equivalent rights;

· Performance shares and other performance-based awards;

· Limited partnership interests in any partnership entity through which the Company may conduct its business in the future;

· Other equity-based awards; and

· Cash bonus awards.

Recipients of the Company’s restricted shares have the same voting rights as any other common shareholder. 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 shareholder. Recipients of the Company’s restricted stock units (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 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. To the extent that an award does not vest, the dividends will be forfeited.

The RSUs are market based awards with a service condition and recipients may earn the RSU grants 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 a three year performance period. Following the end of the performance period, the number of earned awards will be determined. The earned awards vest in two tranches with 50% of the earned award vesting at the end of the performance period and the remaining 50% of the earned award vesting one year after the end of the performance period, subject to the grant recipient’s continued employment. Compensation expense for the RSU awards is determined using a Monte Carlo simulation model and is being recognized ratably from the grant date to the vesting date of each tranche.

Administration. The 2015 Incentive Plan will be administered by the Committee, which will determine all terms and recipients of awards under the 2015 Incentive Plan.

2016 Equity Award Activity

On June 15, 2016, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the nine independent Trustees $0.1 million in restricted shares as part of their compensation for the 2016-2017 year of service on the Board of Trustees. These awards equated to 3,463 shares per Trustee, for a total of 31,167 shares, valued at $28.88 per share, the closing price of our common shares on the New York Stock Exchange (NYSE) on that day. These shares vest one year after the date of the award.

On January 26, 2016, the Committee approved a grant of 136,623 restricted common shares and 277,386 RSUs at target (691,385 RSUs at maximum) 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 2015.

The restricted shares are service based awards and vest over a four-year period. The restricted shares were granted on January 26, 2016 and were valued at $26.93 per share, the closing price of our common shares on the NYSE on that day.

2015 Equity Award Activity

On June 16, 2015, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the nine independent Trustees $0.1 million in restricted shares as part of their compensation for the 2015-2016 year of service on the Board of Trustees. These awards equated to 3,843 shares per Trustee, for a total of 34,587 shares, valued at $26.02 per share, the closing price of our common shares on the NYSE on that day. These shares vest one year after the date of the award.

On January 28, 2015, the Committee approved a grant of 126,319 restricted common shares and 256,467 RSUs at target (639,250 RSUs at maximum) 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.

2014 Equity Award Activity

On October 28, 2014, the Committee approved the one-time grant of restricted common shares and restricted share units under the 2012 Plan to certain of the Company’s officers and employees and to Mr. Zell, the Chairman of our Board of Trustees. The Committee also approved the one-time grant of restricted common shares under the 2012 Plan to our independent Trustees, a grant of restricted common shares to each independent Trustee as annual compensation for his or her service as a Trustee, and a pro-rata grant of fully vested common shares for five of our independent Trustees for their service from May 23, 2014 through July 31, 2014.

Outstanding Equity Awards

The table below presents a summary of restricted share and RSU activity under the 2015 Incentive Plan and the 2012 Plan for the years ended December 31, 2016, 2015 and 2014, excluding restricted shares granted to our former Trustees, former officers and certain employees of RMR, our former manager, under the terms of our 2012 Plan (which grants are further described below):



	Number of Restricted Shares		Weighted Average Grant Date Fair Value		Number of RSUs		Weighted Average Grant Date Fair Value
Outstanding at December 31, 2013	—		$	—	—		$	—
Granted	713,727		26.66		1,266,237		15.99
Vested	(3,545	)	26.66		—		—
Outstanding at December 31, 2014	710,182				1,266,237
Granted	160,906		26.46		639,250		15.47
Vested	(86,517	)	26.02		—		—
Forfeited	(8,115	)	26.64		(21,377	)	15.80
Outstanding at December 31, 2015	776,456				1,884,110
Granted	167,790		27.29		691,385		15.57
Vested	(191,498	)	26.54		—		—
Forfeited	(539	)	26.82		(2,727	)	15.54
Outstanding at December 31, 2016	752,209				2,572,768

The 752,209 unvested restricted shares as of December 31, 2016 are scheduled to vest as follows: 216,486 shares in 2017, 373,140 shares in 2018, 95,554 shares in 2019 and 67,029 shares in 2020. As of December 31, 2016, the estimated future compensation expense for all unvested restricted share grants was $12.4 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 future compensation expense will be recorded for the restricted shares is approximately 2.1 years.

As of December 31, 2016, the estimated future compensation expense for all unvested RSUs was $19.2 million. The weighted average period over which the future compensation expense will be recorded for the RSUs is approximately 2.0 years.

The assumptions and fair values for the RSUs granted for the years ended December 31, 2016, 2015 and 2014 are included in the following table on a per share basis.



	2016			2015			2014
Fair value of RSUs granted at the target amount	$	38.80		$	—		$	—
Fair value of RSUs granted at the maximum amount	$	—		$	15.47		$	15.99
Expected term (years)	4			4			4
Expected volatility	—			—			—
Expected dividend yield	1.86		%	1.88		%	1.88		%
Risk-free rate	1.07		%	0.81		%	0.84		%

During the years ended December 31, 2016, 2015 and 2014, we recorded $18.5 million, $15.4 million and $2.6 million, respectively, of compensation expense, net of forfeitures, in general and administrative expense for grants to our Board of Trustees and the Company's employees related to our Plan. At December 31, 2016, 2,358,464 common shares remain available for issuance under the Plan.

2012 Equity Compensation Plan

Prior to the adoption of the 2015 Incentive Plan, we had common shares available for issuance under the 2012 Plan. The 2012 Plan was adopted in May 2012 and replaced our 2003 Incentive Share Award Plan, or the 2003 Plan. We awarded common shares to our former officers and certain employees of RMR pursuant to both of these plans. On January 28, 2014, we granted 2,000 common shares of beneficial interest, par value $0.01 per share, valued at $23.46 per share, the closing price of our common shares on the New York Stock Exchange, or NYSE, on that day, to two of our former Trustees as part of their then annual compensation. The common shares awarded to our former Trustees vested immediately. We include the value of awarded shares in general and administrative expenses at the time the awards vest. See Note 18 for further information regarding grants of restricted shares we made to our former officers and certain employees of RMR.

On October 28, 2014, the Board of Trustees approved an amendment to the 2012 Plan to permit the Company to issue RSUs. Additionally, on October 28, 2014, the Committee approved new forms of Restricted Share and Restricted Share Unit Agreements to be used for grants of restricted common shares to members of the Board of Trustees, as well as grants of restricted common shares and restricted share units to officers and employees of the Company.

The 2015 Incentive Plan replaced the 2012 Plan. No future grants will be made under the 2012 Plan, although the terms and conditions of the 2012 Plan will continue to govern any outstanding awards granted under the 2012 Plan. A summary of shares granted and vested to our former Trustees, former officers and certain employees of RMR under the terms of our 2012 Plan and our 2003 Plan for the year ended December 31, 2014, is as follows:



	Number of Shares		Weighted Average Grant Date Fair Value
Unvested shares at December 31, 2013	130,914		$	20.70
Granted	4,000		23.46
Vested	(134,914	)	25.79
Unvested shares at December 31, 2014	—		$	—

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 year ended December 31, 2014, we recorded $3.4 million of general and administrative expense related to the vesting of these shares.