The Company's stock-based compensation plans are described below. Shares issued in satisfaction of stock-based compensation may be made available from authorized but unissued shares, shares held by the Company in treasury or from shares purchased in the open market. In 2017, 2016 and 2015, the Company issued shares from treasury in satisfaction of stock-based compensation.

Stock-based compensation expense, included in insurance operating costs and other expenses in the consolidated statement of operations, was as follows:

Stock-Based Compensation Expense



	For the years ended December 31,
	2017			2016			2015
Stock-based compensation plans expense [1]	$	116		$	81		$	78
Income tax benefit	(41		)	(29		)	(27		)
Excess tax benefit on awards vested, exercised and expired	(15		)	—			—
Total stock-based compensation plans expense, after-tax	$	60		$	52		$	51


[1]	The increase in stock-based compensation plans expense in 2017 was largely due to a change made in 2017 to provide accelerated vesting of newly issued restricted stock unit and performance share awards to retirement eligible employees.

The Company did not capitalize any cost of stock-based compensation. As of December 31, 2017, the total compensation cost related to non-vested awards not yet recognized was $68, which is expected to be recognized over a weighted average period of 1.5 years.

Stock Plan

Future stock-based awards may be granted under The Hartford's 2014 Incentive Stock Plan (the "Incentive Stock Plan") other than the Subsidiary Stock Plan and the Employee Stock Purchase Plan described below. The Incentive Stock Plan provides for awards to be granted in the form of non-qualified or incentive stock options qualifying under Section 422 of the Internal Revenue Code, stock appreciation rights, performance shares, restricted stock or restricted stock units, or any other form of stock-based award. The maximum number of shares, subject to adjustments set forth in the Incentive Stock Plan, that may be issued to Company employees and third party service providers during the 10-year duration of the Incentive Stock Plan is 12,000,000 shares. If any award under an earlier incentive stock plan is forfeited, terminated, surrendered, exchanged, expires unexercised, or is settled in cash in lieu of stock (including to effect tax withholding) or for the net issuance of a lesser number of shares than the number subject to the award, the shares of stock subject to such award (or the relevant portion thereof) shall be available for awards under the Incentive Stock Plan and such shares shall be added to the maximum limit. As of December 31, 2017, there were 8,397,784 shares available for future issuance.

The fair values of awards granted under the Incentive Stock Plan are measured as of the grant date and expensed ratably over the awards’ vesting periods, generally 3 years. For stock option awards to retirement-eligible employees the Company recognizes the expense over a period shorter than the stated vesting period because the employees receive accelerated vesting upon retirement and therefore the vesting period is considered non-substantive. Beginning with awards granted in 2017, employees with restricted stock units and performance shares receive accelerated vesting upon meeting certain retirement eligibility criteria.

Stock Option Awards

Under the Incentive Stock Plan, options granted have an exercise price at least equal to the market price of the Company’s common stock on the date of grant, and an option’s maximum term is not to exceed 10 years. Options generally become exercisable over a three year period commencing one year from the date of grant. Certain other options become exercisable at the later of three years from the date of grant or upon specified market appreciation of the Company's common shares.

The Company uses a hybrid lattice/Monte-Carlo based option valuation model (the “valuation model”) that incorporates the possibility of early exercise of options into the valuation. The valuation model also incorporates the Company’s historical termination and exercise experience to determine the option value.

The valuation model incorporates ranges of assumptions for inputs, and those ranges are disclosed below. The term structure of volatility is generally constructed utilizing implied volatilities from exchange-traded options, CPP warrants related to the Company’s stock, historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the valuation model, and accommodates variations in employee preference and risk-tolerance by segregating the grantee pool into a series of behavioral cohorts and conducting a fair valuation for each cohort individually. The expected term of options granted is derived from the output of the option valuation model and represents, in a mathematical sense, the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Constant Maturity Treasury yield curve in effect at the time of grant.

Stock Options Valuation Assumptions



	For the years ended December 31,
	2017				2016				2015
Expected dividend yield	1.9%				2.0%				1.8%
Expected annualized spot volatility	21.8	%	-	37.9%	27.3	%	-	41.3%	22.1	%	-	39.4%
Weighted average annualized volatility	29.5%				34.1%				32.7%
Risk-free spot rate	0.4	%	-	2.4%	0.3	%	-	1.8%	—	%	-	2.6%
Expected term	5.0 years				5.0 years				5.0 years

Non-qualified Stock Option Activity Under the Incentive Stock Plan



	Number of Options (in thousands)		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	For the year ended December 31, 2017
Outstanding at beginning of year	4,599		$	34.31
Granted	988		$	48.89
Exercised	(330	)	$	26.47
Forfeited	(22	)	$	51.98
Expired	(23	)	$	90.26
Outstanding at end of year	5,212		$	37.25	6.2 years	$	97
Outstanding, fully vested and expected to vest	5,156		$	37.66	6.2 years	$	94
Exercisable at end of year	3,331		$	32.24	5.0 years	$	79

Aggregate intrinsic value represents the value of the Company's closing stock price on the last trading day of the period in excess of the exercise price multiplied by the number of options outstanding or exercisable. The aggregate intrinsic value excludes the effect of stock options that have a zero or negative intrinsic value. The weighted average grant-date fair value per share of options granted during the years ended December 31, 2017, 2016, and 2015 was $12.38, $12.14 and $10.60, respectively. The total intrinsic value of options exercised during the years ended December 31, 2017, 2016 and 2015 was $8, $1, and $16, respectively.

Share Awards

Share awards granted under the Incentive Stock Plan and outstanding include restricted stock units and performance shares.

Restricted Stock and Restricted Stock Units

Restricted stock units are share equivalents that are credited with dividend equivalents. Dividend equivalents are accumulated and paid in incremental shares when the underlying units vest. Restricted stock are shares of The Hartford's common stock with restrictions as to transferability until vested. Restricted stock units and restricted stock awards are valued equal to the market price of the Company’s common stock on the date of grant. Generally, restricted stock units vest at the end of or over three years; certain restricted stock units vest at the end of 5 years. Beginning in 2017, restricted stock units vest at the earlier of employees retirement eligibility date or three years. Equity awards granted to non-employee directors generally vest in one year and were made in the form of restricted stock units in 2017, 2016 and 2015.

Performance Shares

Performance shares become payable within a range of 0% to 200% of the number of shares initially granted based upon the attainment of specific performance goals achieved at the end of or over three years. While most performance shares vest at the end of or over three years, certain performance shares vest at the end of five years. Beginning in 2017, performance shares vest at the earlier of employees retirement eligibility date or three years.

Performance share awards that are not dependent on market conditions are valued equal to the market price of the Company's common stock on the date of grant less a discount for the absence of dividends. Stock-compensation expense for these performance share awards without market conditions is based on a current estimate of the number of awards expected to vest and, therefore, may change during the performance period as new estimates of performance are available.

Other performance share awards or portions thereof have a market condition based upon the Company's total shareholder return relative to a group of peer companies within a three year period. Stock compensation expense for these performance share awards is based on the number of awards expected to vest as estimated at the grant date and therefore does not change for changes in estimated performance. The Company uses a risk neutral Monte-Carlo valuation model that incorporates time to maturity, implied volatilities of the Company and the peer companies, and correlations between the Company and the peer companies and interest rates.

Assumptions



	For the years ended December 31,
	2017				2016				2015
Volatility of common stock	20.3%				22.2%				21.4%
Average volatility of peer companies	15.0	%	-	25.0%	15.0	%	-	26.0%	14.0	%	-	24.0%
Average correlation coefficient of peer companies	60.0%				56.0%				54.0%
Risk-free spot rate	1.5%				1.0%				1.1%
Term	3.0 years				3.0 years				3.0 years

Total Share Awards

Non-vested Share Award Activity Under the Incentive Stock Plan



	Restricted Stock and Restricted Stock Units				Performance Shares
	Number of Shares (in thousands)		Weighted-Average Grant-Date Fair Value		Number of Shares (in thousands)		Weighted-Average Grant date Fair Value
Non-vested shares	For the year ended December 31, 2017
Non-vested at beginning of year	4,913		$	39.87	941		$	40.72
Granted	1,425		$	48.90	404		$	48.89
Performance based adjustment					353		$	42.40
Vested	(1,496	)	$	35.97	(721	)	$	42.40
Forfeited	(398	)	$	42.86	(182	)	$	42.95
Non-vested at end of year	4,444		$	43.94	795		$	45.16

The weighted average grant-date fair value per share of restricted stock units and restricted stock granted during the years ended December 31, 2017, 2016, and 2015 was $48.90, $42.87 and $42.25, respectively. The weighted average grant-date fair value per share of performance shares granted during the years ended December 31, 2017, 2016, and 2015 was $48.89, $41.50 and $42.40, respectively.

The total fair value of shares vested during the years ended December 31, 2017, 2016 and 2015 was $94, $128 and $144, respectively, based on actual or estimated performance factors. The Company did not make cash payments in settlement of stock compensation during the years ended December 31, 2017, 2016 and 2015.

Subsidiary Stock Plan

In 2013 the Company established a subsidiary stock-based compensation plan similar to The Hartford Incentive Stock Plan except that it awards non-public subsidiary stock as compensation. The Company recognized stock-based compensation plan expense of $9, $7 and $7 in the years ended December 31, 2017, 2016 and 2015, respectively, for the subsidiary stock plan. Upon employee vesting of subsidiary stock, the Company recognizes a noncontrolling equity interest. Employees are restricted from selling vested subsidiary stock to anyone other than the Company and the Company has discretion on the amount of stock to repurchase. Therefore the subsidiary stock is classified as equity because it is not mandatorily redeemable. For the year ended December 31, 2017, the Company repurchased $2 in subsidiary stock.

Employee Stock Purchase Plan

The Company sponsors The Hartford Employee Stock Purchase Plan (“ESPP”). Under this plan, eligible employees of The Hartford purchase common stock of the Company at a discount rate of 5% of the market price per share on the last trading day of the offering period. Accordingly, the plan is a noncompensatory plan. Employees purchase a variable number of shares of stock through payroll deductions elected as of the beginning of the offering period. The Company may sell up to 15,400,000 shares of stock to eligible employees under the ESPP. As of December 31, 2017, there were 4,517,633 shares available for future issuance. During the years ended December 31, 2017, 2016 and 2015, 204,533 shares, 222,113 shares, and 249,344 shares were sold, respectively. The weighted average per share fair value of the discount under the ESPP was $2.63, $2.26 and $2.15 during the years ended December 31, 2017, 2016 and 2015, respectively. The fair value is estimated based on the 5% discount off the market price per share on the last trading day of the offering period.