Employee Incentive Plans

Short-Term Incentive Plans ("STI Plans")

We have annual short-term incentive compensation plans for senior management and certain other employees payable at our election in cash, shares of common stock, or a combination of cash and shares of common stock. Amounts earned under STI Plans are based on our adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), modified for certain safety, quality, delivery, cost and individual performance factors. The Adjusted EBITDA targets are determined based on the economic value added ("EVA") of our Fabricated Products business. Most of our production facilities have similar programs for both hourly and salaried employees. As of March 31, 2016, we had a liability of $4.9 million recorded within Accrued salaries, wages and related expenses for estimated probable future payments relating to the first quarter performance period of our 2016 STI Plans.

Long-Term Incentive Programs ("LTI Programs")

General. Executive officers and other key employees of the Company, as well as non-employee directors of the Company, are eligible to participate in the Kaiser Aluminum Corporation Amended and Restated 2006 Equity and Performance Incentive Plan (as amended, "Equity Incentive Plan"). Subject to certain adjustments that may be required from time to time to prevent dilution or enlargement of the rights of participants under the Equity Incentive Plan, a total of 2,722,222 common shares have been authorized for issuance under the Equity Incentive Plan. At March 31, 2016, 603,810 common shares were available for additional awards under the Equity Incentive Plan.

Non-vested Common Shares and Restricted Stock Units. We grant non-vested common shares and restricted stock units to our non-employee directors, executive officers and other key employees. The restricted stock units have rights similar to the rights of non-vested common shares and each restricted stock unit that becomes vested entitles the recipient to receive one common share. For both non-vested common shares and restricted stock units, the service period is generally one year for non-employee directors and three years for executive officers and other key employees.

In addition to non-vested common shares and restricted stock units, we grant performance shares to executive officers and other key employees. Each performance share that becomes vested entitles the recipient to receive one common share. Performance shares granted in 2014 and 2015 ("TSR-Based Performance Shares") are subject to performance conditions pertaining to our total shareholder return ("TSR") over a three-year performance period compared to the TSR of a specified group of peer companies. The number of TSR-Based Performance Shares that will ultimately vest under both the 2014-2016 and 2015-2017 LTI Plans and result in the issuance of common shares ranges between 0% to 200% of the target number of underlying common shares (constituting approximately one-half of the maximum payout) and depends on the percentile ranking of our TSR compared to the group of peer companies. Performance shares granted in 2016 consist of TSR-Based Performance Shares and performance shares subject to performance requirements ("CP-Based Performance Shares") pertaining to our cost performance as set forth in the 2016 LTI Program. The number of CP-Based Performance Shares that will ultimately vest and result in the issuance of common shares ranges between 0% to 200% of the target number of underlying common shares (constituting approximately one-half of the maximum payout) and depends on the average annual cost performance achieved for the specified three-year performance period.

During the first quarter of 2016, performance shares granted in 2013 ("EVA-Based Performance Shares") under the 2013-2015 LTI Program became fully vested (see "Summary of Activity" below). The EVA-Based Performance Shares were subject to performance conditions pertaining to our EVA performance, measured over the three-year performance period. The number of EVA-Based Performance Shares that vested and resulted in the issuance of common shares was dependent on the average annual EVA achieved for the specified three-year performance period.

The vesting of performance shares resulting in the issuance and delivery of common shares, if any, under the 2014-2016 and 2015-2017 LTI Programs will occur in 2017 and 2018, respectively.

ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, was issued and early adopted in March 2016. ASU 2016-09 eliminates the requirement to estimate and apply a forfeiture rate to reduce stock compensation expense during the vesting period and, instead, account for forfeitures as they occur. ASU 2016-09 requires that this change be adopted using the modified retrospective approach. As such, we recorded a cumulative-effect adjustment of $0.8 million during the quarter ended March 31, 2016 to reduce our December 31, 2015 Retained earnings and increase our December 31, 2015 Additional paid in capital balances. Additionally, ASU 2016-09 addresses the presentation of excess tax benefits and employee taxes paid on the statement of cash flows. We are now required to present excess tax benefits as an operating activity (combined with other income tax cash flows) on the statement of cash flows rather than as a financing activity, and we have adopted this change prospectively. ASU 2016-09 also requires the presentation of employee taxes as a financing activity on the statement of cash flows, which is where we had previously classified these items. This change, therefore, did not impact our financial statements.

Non-Cash Compensation Expense. Compensation expense relating to all awards under the Equity Incentive Plan is included in SG&A and R&D. Non-cash compensation expense by type of award under LTI Programs was as follows for each period presented (in millions of dollars):



	Quarter Ended
	March 31,
	2016		2015
Non-vested common shares and restricted stock units	$	1.1	$	1.1
EVA-Based Performance Shares	0.3		0.4
TSR-Based Performance Shares	1.1		0.6
CP-Based Performance Shares	$	0.1	$	—
Total non-cash compensation expense	$	2.6	$	2.1

The following table presents the allocation of the charges detailed above, by segment (in millions of dollars):



	Quarter Ended
	March 31,
	2016		2015
Fabricated Products	$	0.8	$	0.7
All Other	1.8		1.4
Total non-cash compensation expense	$	2.6	$	2.1

Unrecognized Gross Compensation Cost Data. The following table presents unrecognized gross compensation cost data by type of award as of March 31, 2016:



	Unrecognized gross compensation costs (in millions of dollars)		Expected period (in years) over which the remaining gross compensation costs will be recognized
Non-vested common shares and restricted stock units	$	8.3	2.3
CP-Based Performance Shares	$	4.7	2.9
TSR-Based Performance Shares	$	10.5	2.2

Summary of Activity. A summary of the activity with respect to non-vested common shares, restricted stock units, EVA-Based Performance Shares, CP-Based Performance Shares and TSR-Based Performance Shares for the quarter ended March 31, 2016 is as follows:



	Non-Vested Common Shares				Restricted Stock Units				EVA-Based Performance Shares				CP-Based Performance Shares				TSR-Based Performance Shares
	Shares		Weighted-Average Grant-Date Fair Value per Share		Units		Weighted-Average Grant-Date Fair Value per Unit		Shares		Weighted-Average Grant-Date Fair Value per Share		Shares		Weighted-Average Grant-Date Fair Value per Share		Shares		Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2015	156,553		$	67.20	5,521		$	66.64	155,105		$	57.76	—		$	—	299,877		$	89.43
Granted¹	—		—		52,705		74.49		—		—		63,983		80.46		95,974		93.02
Vested	(38,812	)	60.75		(1,762	)	63.18		(49,611	)	57.76		—		—		—		—
Forfeited¹	(172	)	68.99		(165	)	74.49		—		—		(164	)	80.46		(1,115	)	90.06
Canceled¹	—		—		—		—		(105,494	)	57.76		—		—		—		—
Outstanding at March 31, 2016	117,569		$	69.33	56,299		$	74.07	—		$	—	63,819		$	80.46	394,736		$	90.30

____________


¹	For EVA-Based Performance Shares, CP-Based Performance Shares and TSR-Based Performance Shares, the number of shares granted and forfeited are presented at their maximum payout; and the number of shares canceled includes the number of shares that did not vest due to EVA performance results falling below those required for maximum payout.

The weighted-average grant-date fair value per share for shares granted by type of award was as follows for each period presented:



	Quarter Ended
	March 31,
	2016		2015
Non-vested common shares	$	—	$	69.83
Restricted stock units	$	74.49	$	69.83
CP-Based Performance Shares	$	80.46	$	—
TSR-Based Performance Shares	$	93.02	$	95.68

Stock Options. We had 16,645 fully-vested stock options outstanding as of March 31, 2016 and December 31, 2015, in each case exercisable to purchase common shares at $80.01 per share and having a remaining contractual life of 1.00 and 1.25 years, respectively. During the quarter ended March 31, 2016, no options were granted, exercised or forfeited.

Vested Stock. From time to time, we issue common shares to non-employee directors electing to receive common shares in lieu of all or a portion of their annual retainer fees. The fair value of these common shares is based on the fair value of the shares at the date of issuance and is immediately recognized in Net income (loss) as a period expense. Such shares are generally issued during the second quarter of each fiscal year.

Under the Equity Incentive Plan, participants may elect to have us withhold common shares to satisfy minimum statutory tax withholding obligations arising in connection with the exercise of stock options and vesting of non-vested shares, restricted stock units and performance shares. We cancel any such shares withheld on the applicable vesting dates or earlier dates when service requirements are satisfied, which correspond to the times at which income to the employee is recognized. When we withhold these common shares, we are required to remit to the appropriate taxing authorities the fair value of the shares withheld as of the vesting date. During the quarters ended March 31, 2016 and March 31, 2015, 35,162 and 33,628 common shares, respectively, were withheld and canceled for this purpose. The withholding of common shares by us could be deemed a purchase of the common shares.