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, unvested shares, unvested 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, 2013 totals 10.6 million, of which 2.7 million shares were available for future issuance. Stock options granted under these 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. Unvested share and unvested share unit awards generally cliff vest after three years for employees and non-employee directors. The Company issued 0.2 million, 0.2 million and 0.3 million of unvested shares as compensation to key employees in 2013, 2012 and 2011, respectively.

All unvested shares carry dividend and voting rights, and the sale of the shares is restricted prior to the date of vesting.

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 (referred to as “TSR awards”) 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 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 200 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 S&P Midcap 400 Industrial 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. During the year ended December 31, 2013, the Company granted approximately 0.1 million performance share units.

The Company expenses the fair value of awards made under its share-based plans. That cost is recognized in the consolidated financial statements over the requisite service period of the grants.

Weighted average option fair values and assumptions for the period specified are disclosed in the following table:



	Years Ended December 31,
	2013	2012	2011
Weighted average fair value of grants	$12.97	$11.40	$12.30
Dividend yield	1.57%	1.59%	1.46%
Volatility	30.92%	32.00%	32.72%
Risk-free interest rate	0.17% - 4.12%	0.17% - 3.96%	0.28% - 5.61%
Expected life (in years)	5.86	5.98	6.14

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, 2013, 2012 and 2011 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, 2013, 2012 and 2011, 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.

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. Additionally, the Company’s general policy is to issue new shares of common stock to satisfy stock option exercises or grants of unvested shares.

Weighted average performance share unit fair values and assumptions for the period specified are disclosed in the following table:



	Year Ended December 31,
	2013
Weighted average fair value of grants	$59.58
Dividend yield	—%
Volatility	28.99%
Risk-free interest rate	0.40%
Expected life (in years)	2.87

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.


•	Since Monte Carlo valuation is an open form model that uses an expected life commensurate with the performance period, 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.

Total compensation cost for stock options is as follows:



	Years Ended December 31,
	2013			2012			2011
	(In thousands)
Cost of goods sold	$	479		$	650		$	805
Selling, general and administrative expenses	5,789			5,642			6,153
Total expense before income taxes	6,268			6,292			6,958
Income tax benefit	(2,016		)	(1,988		)	(2,208		)
Total expense after income taxes	$	4,252		$	4,304		$	4,750

Total compensation cost for unvested shares is as follows:



	Years Ended December 31,
	2013			2012			2011⁽¹⁾
	(In thousands)
Cost of goods sold	$	1,380		$	991		$	684
Selling, general and administrative expenses	8,471			5,819			4,434
Total expense before income taxes	9,851			6,810			5,118
Income tax benefit	(2,296		)	(1,682		)	(1,827		)
Total expense after income taxes	$	7,555		$	5,128		$	3,291


(1)	Reflects the forfeiture of unvested shares related to the Company’s transition to a new CEO in August 2011.

Total compensation cost for performance share units is as follows:



	Year Ended December 31,
	2013
	(In thousands)
Cost of goods sold	$	—
Selling, general and administrative expenses	873
Total expense before income taxes	873
Income tax benefit	(280		)
Total expense after income taxes	$	593

Recognition of compensation cost was consistent with recognition of cash compensation for the same employees.

As of December 31, 2013, there was $9.1 million, $12.3 million and $1.8 million of total unrecognized compensation cost related to stock options, time based shares and performance shares, respectively, that is expected to be recognized over a weighted-average period of 1.3 years, 1.0 year and 1.1 years, respectively.

A summary of the Company’s stock option activity as of December 31, 2013, and changes during the year ended December 31, 2013 is presented in the following table:



Stock Options	Shares		Weighted Average Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2013	3,223,742		$	33.16	6.37	$	43,106,153
Granted	651,022		50.70
Exercised	(1,245,817	)	28.41
Forfeited/Expired	(112,329	)	43.23
Outstanding at December 31, 2013	2,516,618		$	39.60	6.87	$	86,200,655
Vested and expected to vest at December 31, 2013	2,400,548		$	39.23	6.78	$	83,095,331
Exercisable at December 31, 2013	1,086,636		$	32.47	5.05	$	44,963,329

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 2013, 2012 and 2011, was $34.3 million, $23.5 million and $21.9 million, respectively. In 2013, 2012 and 2011, cash received from options exercised was $35.3 million, $45.8 million and $33.1 million, respectively, while the actual tax benefit realized for the tax deductions from stock options exercised totaled $12.5 million, $8.6 million and $8.0 million, respectively.

A summary of the Company’s unvested share activity as of December 31, 2013, and changes during the year ending December 31, 2013 is presented in the following table:



Unvested Shares	Shares		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2013	589,986		$	40.27
Granted	232,418		56.20
Vested	(154,795	)	38.50
Forfeited	(48,930	)	53.58
Nonvested at December 31, 2013	618,679		$	40.27

Unvested share grants accrue dividends 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 performance share unit activity as of December 31, 2013, and changes during the year ending December 31, 2013 is presented in the following table:



Performance Share Units	Shares		Weighted-Average Grant Date Fair Value
Nonvested at January 1, 2013	—		$	—
Granted	54,065		59.58
Vested	—		—
Forfeited	(860	)	59.58
Nonvested at December 31, 2013	53,205		$	59.58

The Company also maintains a cash-settled share based compensation plan for certain employees. Total expense related to this plan was $3.6 million, $2.3 million and $0.8 million in 2013, 2012 and 2011 respectively. At December 31, 2013 and 2012, the Company has $2.0 million and $2.0 million, respectively, included in Accrued expenses in the Consolidated Balance Sheets and $1.0 million included in Other non-current liabilities at December 31, 2013.