Share-Based Compensation

The Company maintains two share-based compensation plans for executives, non-employee directors and certain key employees that authorize the granting of stock options, restricted stock, performance share units and other types of awards consistent with the purpose of the plans. The number of shares authorized for issuance under the Company’s plans as of December 31, 2018 totaled 15.6 million, of which 4.3 million shares were available for future issuance. The Company’s policy is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire award.

Stock Options

Stock options granted under the Company’s plans are generally non-qualified and are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. The majority of the options issued to employees become exercisable in four equal installments, beginning one year from the date of grant, and generally expire 10 years from the date of grant. Stock options granted to non-employee directors cliff vest after one year.

Weighted average option fair values and assumptions for the period are as follows:



	Years Ended December 31,
	2018	2017	2016
Weighted average fair value of grants	$38.13	$24.19	$18.56
Dividend yield	1.07%	1.45%	1.69%
Volatility	28.46%	29.41%	29.70%
Risk-free interest rate	2.03% - 3.17%	0.83% - 3.04%	0.53% - 2.49%
Expected life (in years)	5.83	5.83	5.91

The assumptions are as follows:


•	The Company estimated volatility using its historical share price performance over the contractual term of the option.


•	The Company uses historical data to estimate the expected life of the option. The expected life assumption for the years ended December 31, 2018, 2017 and 2016 is an output of the Binomial lattice option-pricing model, which incorporates vesting provisions, rate of voluntary exercise and rate of post-vesting termination over the contractual life of the option to define expected employee behavior.


•	The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the contractual life of the option. For the years ended December 31, 2018, 2017 and 2016, we present the range of risk-free one-year forward rates, derived from the U.S. treasury yield curve, utilized in the Binomial lattice option-pricing model.


•	The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the contractual life of the option.

A summary of the Company’s stock option activity as of December 31, 2018, and changes during the year ended December 31, 2018 is presented as follows:



Stock Options	Shares		Weighted Average Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2018	1,924,683		$	71.07	6.87	$	117,209,218
Granted	314,895		138.40
Exercised	(455,558	)	60.81
Forfeited/Expired	(70,017	)	97.68
Outstanding at December 31, 2018	1,714,003		$	85.08	6.70	$	74,191,783
Vested and expected to vest at December 31, 2018	1,635,247		$	83.77	6.61	$	72,632,325
Exercisable at December 31, 2018	836,917		$	66.52	5.26	$	50,027,326

The intrinsic value for stock options outstanding and exercisable is defined as the difference between the market value of the Company’s common stock as of the end of the period and the grant price. The total intrinsic value of options exercised in 2018, 2017 and 2016 was $38.0 million, $26.1 million and $26.5 million, respectively. In 2018, 2017 and 2016, cash received from options exercised was $27.6 million, $22.9 million and $30.2 million, respectively, while the actual tax benefit realized for the tax deductions from stock options exercised totaled $8.0 million, $9.5 million and $9.6 million, respectively.

Total compensation cost for stock options is recorded in the Consolidated Statements of Operations as follows:



	Years Ended December 31,
	2018			2017			2016
	(In thousands)
Cost of goods sold	$	470		$	428		$	427
Selling, general and administrative expenses	8,313			7,347			6,561
Total expense before income taxes	8,783			7,775			6,988
Income tax benefit	(1,616		)	(2,485		)	(2,213		)
Total expense after income taxes	$	7,167		$	5,290		$	4,775

As of December 31, 2018, there was $13.7 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.3 years.

Restricted Stock

Restricted stock awards generally cliff vest after three years for employees and non-employee directors. Unvested restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. Dividends are paid on restricted stock awards and their fair value is equal to the market price of the Company’s stock at the date of the grant. A summary of the Company’s restricted stock activity as of December 31, 2018, and changes during the year ending December 31, 2018 is as follows:



Restricted Stock	Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2018	182,023		$	83.37
Granted	46,460		138.30
Vested	(68,172	)	79.19
Forfeited	(12,270	)	95.79
Unvested at December 31, 2018	148,041		$	101.50

Total compensation cost for restricted stock is recorded in the Consolidated Statements of Operations as follows:



	Years Ended December 31,
	2018			2017			2016
	(In thousands)
Cost of goods sold	$	367		$	335		$	390
Selling, general and administrative expenses	4,201			4,772			4,401
Total expense before income taxes	4,568			5,107			4,791
Income tax benefit	(825		)	(1,654		)	(1,410		)
Total expense after income taxes	$	3,743		$	3,453		$	3,381

As of December 31, 2018, there was $5.5 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.1 years.

Cash-Settled Restricted Stock

The Company also maintains a cash-settled share based compensation plan for certain employees. Cash-settled restricted stock awards generally cliff vest after three years. Dividend equivalents are paid on certain cash-settled restricted stock awards. A summary of the Company’s unvested cash-settled restricted stock activity as of December 31, 2018, and changes during the year ending December 31, 2018 is as follows:



Cash-Settled Restricted Stock	Shares		Weighted-Average Fair Value
Unvested at January 1, 2018	94,730		$	131.97
Granted	30,795		137.82
Vested	(27,880	)	137.11
Forfeited	(9,420	)	126.26
Unvested at December 31, 2018	88,225		$	126.26

Total compensation cost for cash-settled restricted stock is recorded in the Consolidated Statements of Operations as follows:



	Years Ended December 31,
	2018			2017			2016
	(In thousands)
Cost of goods sold	$	809		$	1,357		$	764
Selling, general and administrative expenses	2,391			3,241			2,224
Total expense before income taxes	3,200			4,598			2,988
Income tax benefit	(337		)	(808		)	(419		)
Total expense after income taxes	$	2,863		$	3,790		$	2,569

At December 31, 2018 and 2017, the Company has $4.5 million and $4.5 million, respectively, included in Accrued expenses in the Consolidated Balance Sheets and $2.4 million and $3.0 million, respectively, included in Other non-current liabilities.

Performance Share Units

Beginning in 2013, the Company granted performance share units to selected key employees that may be earned based on IDEX total shareholder return over the three-year period following the date of grant. Performance share units are expected to be made annually and are paid out at the end of a three-year period based on the Company’s performance. Performance is measured by determining the percentile rank of the total shareholder return of IDEX common stock in relation to the total shareholder return of the S&P Midcap 400 Industrial Group (for awards granted prior to 2016) or the Russell Midcap Index (for awards granted in 2016 - 2018) for the three-year period following the date of grant. The payment of awards following the three-year award period will be based on performance achieved in accordance with the scale set forth in the plan agreement and may range from 0 percent to 250 percent of the initial grant. A target payout of 100 percent is earned if total shareholder return is equal to the 50^th percentile of the peer group. Performance share units earn dividend equivalents for the award period, which will be paid to participants with the award payout at the end of the period based on the actual number of performance share units that are earned. Payments made at the end of the award period will be in the form of stock for performance share units and will be in cash for dividend equivalents. The Company’s performance share awards are considered performance condition awards and the grant date fair value of the awards, based on a Monte Carlo simulation model, is expensed ratably over the three-year term of the awards. The Company granted approximately 0.1 million of performance share units in each of 2018, 2017 and 2016.

Weighted average performance share unit fair values and assumptions for the period specified are as follows:



	Years Ended December 31,
	2018	2017	2016
Weighted average fair value of grants	$216.59	$115.74	$111.42
Dividend yield	—%	—%	—%
Volatility	17.42%	17.36%	17.99%
Risk-free interest rate	2.40%	1.45%	0.89%
Expected life (in years)	2.85	2.85	2.86

The assumptions are as follows:


•	The Company estimated volatility using its historical share price performance over the remaining performance period as of the grant date.


•	The Company uses a Monte Carlo simulation model that uses an expected life commensurate with the performance period. As a result, the expected life of the performance share units was assumed to be the period from the grant date to the end of the performance period.


•	The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with a term commensurate with the remaining performance period.


•	Total Shareholder Return is determined assuming that dividends are reinvested in the issuing entity over the performance period, which is mathematically equivalent to utilizing a 0% dividend yield.

A summary of the Company’s performance share unit activity as of December 31, 2018, and changes during the year ending December 31, 2018, is as follows:



Performance Share Units	Shares		Weighted-Average Grant Date Fair Value
Unvested at January 1, 2018	136,870		$	113.81
Granted	52,375		216.59
Vested	(69,995	)	111.42
Forfeited	(8,095	)	139.17
Unvested at December 31, 2018	111,155		$	142.42

Awards that vested in 2018 will result in 174,994 shares being issued in 2019.

Total compensation cost for performance share units is as follows:



	Years Ended December 31,
	2018			2017			2016
	(In thousands)
Cost of goods sold	$	—		$	—		$	—
Selling, general and administrative expenses	8,203			6,925			5,559
Total expense before income taxes	8,203			6,925			5,559
Income tax benefit	(1,586		)	(2,342		)	(1,859		)
Total expense after income taxes	$	6,617		$	4,583		$	3,700

As of December 31, 2018, there was $8.2 million of total unrecognized compensation cost related to performance shares that is expected to be recognized over a weighted-average period of 1.0 year.