Share-Based Compensation and Other Employee Plans

The Taubman Company LLC 2008 Omnibus Long-Term Incentive Plan (2008 Omnibus Plan), as amended, which is shareowner approved, provides for the award to directors, officers, employees, and other service providers of the Company of restricted shares, restricted TRG Units, options to purchase common shares or TRG Units, share appreciation rights, performance share units, unrestricted shares or TRG Units, and other awards to acquire up to an aggregate of 8.5 million common shares or TRG Units. TRG Units to be awarded also include "TRG Profits Units", which are intended to constitute "profits interests" within the meaning of Treasury authority under the Internal Revenue Code of 1986, as amended. In addition, non-employee directors have the option to defer their compensation under a deferred compensation plan.

Non-option awards granted after an amendment of the 2008 Omnibus Plan in 2010 are deducted at a ratio of 1.85 common shares or TRG Units. Options are deducted on a one-for-one basis. The amount available for future grants is adjusted when the number of contingently issuable common shares or units are settled, for grants that are forfeited, and for options that expire without being exercised.

TRG Profits Units

In 2016 and 2017, the following types of TRG Profits Units awards were granted to certain senior management individuals: (1) a time-based award with a three-year cliff vesting period (Restricted TRG Profits Units); (2) a performance-based award that is based on the achievement of relative total shareholder return (TSR) over a three-year period (Relative TSR Performance-based TRG Profits Units); and (3) a performance-based award that is based on the achievement of net operating income (NOI) over a three-year period (NOI Performance-based TRG Profits Units). The maximum number of Relative TSR and NOI Performance-based TRG Profits Units are issued at grant, eventually subject to a recovery and cancellation of previously granted amounts depending on actual performance against TSR and NOI measures over the three-year performance measurement period. NOI Performance-based TRG Profits Units provide for a cap on the maximum number of units vested if a specified absolute TSR level is not achieved. Relative TSR and NOI Performance-based TRG Profits Units are generally subject to the same performance measures as the TSR-Based and NOI-Based Performance Share Units (see Other Management Employee Grants below). Despite the difference in scaling of the grant programs, the final outcome of the TSR and NOI performance measures will result in similar numbers of TRG Units being issued at vesting under both the TRG Profits Units and the Performance Share Unit programs.

Each such award represents a contingent right to receive a TRG Unit upon vesting and the satisfaction of certain tax-driven requirements and, as to the TSR and NOI Performance-based TRG Profits Units the satisfaction of certain performance-based requirements. Until vested, a TRG Profits Unit entitles the holder to only one-tenth of the distributions otherwise payable by TRG on a TRG Unit. Therefore, the Company accounts for these TRG Profits Units as participating securities in the Operating Partnership. A portion of the TRG Profits Units award represents estimated cash distributions that otherwise would have been payable during the vesting period and, upon vesting, there will be an adjustment in actual number of TRG Profits Units realized under each award to reflect the Operating Partnership's actual cash distributions during the vesting period.

The TRG Profits Units issued in 2017 and 2016 vest in March 2020 and March 2019, respectively, if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier. Each holder of a TRG Profits Unit will be treated as a limited partner in TRG from the date of grant. To the extent the vested TRG Profits Units have not achieved the applicable criteria for conversion to TRG Units, vesting and economic equivalence to a TRG Unit prior to the tenth anniversary of the date of grant, the awards will be forfeited pursuant to the terms of the award agreement.

Other Management Employee Grants

During 2017, 2016, and 2015, other types of awards granted to management employees include those described below. These generally vest in March 2020, March 2019, and March 2018, respectively, if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier.

TSR - Based Performance Share Units (TSR PSU) - Each TSR PSU represents the right to receive, upon vesting, shares of common stock ranging from 0-300% of the TSR PSU based on the Company's market performance relative to that of a peer group. The TSR PSU grants include a cash payment upon vesting equal to the aggregate cash dividends that would have been paid on such shares of common stock during the vesting period.

NOI - Based Performance Share Units (NOI PSU) - Each NOI PSU represents the right to receive, upon vesting, shares of common stock ranging from 0-300% of the NOI PSU based on the Company's NOI performance, as well as a cash payment upon vesting equal to the aggregate cash dividends that would have been paid on such shares of common stock during the vesting period. These awards also provide for a cap on the maximum number of units vested if a specified absolute TSR level is not achieved.

Restricted Share Units (RSU) - Each RSU represents the right to receive upon vesting one share of common stock, as well as a cash payment upon vesting equal to the aggregate cash dividends that would have been paid on such shares of common stock during the vesting period.

Expensed and Capitalized Costs

The compensation cost charged to income for the Company’s share-based compensation plans was $10.8 million, $11.8 million, and $12.1 million for the years ended December 31, 2017, 2016, and 2015, respectively. During the year ended December 31, 2015, a reversal of $2.0 million of prior period share-based compensation expense was recognized upon the announcement of an executive management transition as a reduction of General and Administrative expense on the Company’s Consolidated Statement of Operations and Comprehensive Income. Compensation cost capitalized as part of properties and deferred leasing costs was $0.9 million, $1.3 million, and $2.3 million for the years ended December 31, 2017, 2016, and 2015, respectively.

Valuation Methodologies

The Company estimated the grant-date fair values of share-based grants using the methods as follows. Expected volatility and dividend yields are based on historical volatility and yields of the Company’s common stock, respectively, as well as other factors. The risk-free interest rates used are based on the U.S. Treasury yield curves in effect at the grant date. The Company assumes no forfeitures for failure to meet the service requirement of Performance Share Units (PSU) or TRG Profits Units, due to the small number of participants and low turnover rate.

The valuations of all grants utilized the Company's common stock price at the grant date. Common stock prices when used in valuing TRG Profits Units are further adjusted by the present value of expected differences in dividends payable on the common stock versus the distributions payable on the TRG Profits Units over the vesting period. The Company estimated the value of grants dependent on TSR performance using a Monte Carlo simulation and considering historical returns of the Company and the peer group.

For awards dependent on NOI performance, the Company considers the NOI measure a performance condition under applicable accounting standards, and as such, has estimated a grant-date fair value for each of its possible outcomes. The compensation cost ultimately will be recognized equal to the grant-date fair value of the award that coincides with the actual outcome of the NOI performance. The weighted average grant-date fair value shown for NOI-dependent awards corresponds with management's current expectation of the probable outcome of the NOI performance measure. The product of the NOI-dependent awards outstanding and the grant-date fair value represents the compensation cost being recognized over the service periods.

The valuations of TRG Profits Units consider the possibility that sufficient share price appreciation will not be realized, such that the conversion to TRG Units will not occur and the awards will be forfeited.

Summaries of Activity for the years ended December 31, 2017, 2016, and 2015

Restricted TRG Profits Units



	Number of Restricted TRG Profits Units			Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2016	—			$	—
Granted	68,045			59.89
Forfeited	(22,105	)		60.71
Outstanding at December 31, 2016	45,940			$	59.49
Granted	46,076			57.84
Forfeited	(30,885	)		57.85
Outstanding at December 31, 2017	61,131			$	59.08

Fully vested at December 31, 2017	3,826		⁽¹⁾	$	59.03


(1)	These Restricted TRG Profits Units vested as a result of the Company's restructuring and reduction in its workforce (Note 1).

Based on the Company's common stock price as of December 31, 2017, the total current intrinsic value of Restricted TRG Profits Units fully vested as of December 31, 2017 was $0.3 million. No Restricted TRG Profits Units vested in 2016 or 2015.

As of December 31, 2017, there was $1.7 million of total unrecognized compensation cost related to nonvested Restricted TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 1.5 years.

Relative TSR Performance-based TRG Profits Units



	Number of relative TSR Performance-based TRG Profits Units			Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2016	—			$	—
Granted	119,123			26.42
Forfeited	(15,754	)		26.42
Outstanding at December 31, 2016	103,369			$	26.42
Granted	103,666			23.14
Forfeited	(77,302	)		23.42
Outstanding at December 31, 2017	129,733			$	25.59

Fully vested at December 31, 2017	797		⁽¹⁾	$	23.14


(1)	These Relative TSR Performance-based TRG Profits Units vested as a result of the Company's restructuring and reduction in its workforce (Note 1).

Based on the Company's common stock price as of December 31, 2017, the total current intrinsic value of Relative TSR Performance-based TRG Profits Units fully vested as of December 31, 2017 was $0.1 million. No Relative TSR Performance-based TRG Profits Units vested in 2016 or 2015.

As of December 31, 2017, there was $1.6 million of total unrecognized compensation cost related to nonvested Relative TSR Performance-based TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 1.5 years.

NOI Performance-based TRG Profits Units



	Number of NOI Performance-based TRG Profits Units			Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2016	—			$	—
Granted	119,123			41.87
Forfeited	(15,754	)		19.41
Outstanding at December 31, 2016	103,369			$	41.87
Granted	103,666			19.35
Forfeited	(75,431	)		$	20.59
Outstanding at December 31, 2017	131,604			$	19.69

Fully vested at December 31, 2017	2,668		⁽¹⁾	$	33.56


(1)	These NOI Performance-based TRG Profits Units vested as a result of the Company's restructuring and reduction in its workforce (Note 1).

Based on the Company's common stock price as of December 31, 2017, the total current intrinsic value of NOI Performance-based TRG Profits Units fully vested as of December 31, 2017 was $0.2 million. No NOI Performance-based TRG Profits Units vested in 2016 or 2015.

As of December 31, 2017, there was $1.2 million of total unrecognized compensation cost related to nonvested NOI Performance-based TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 1.5 years.

TSR - Based Performance Share Units



	Number of TSR PSU			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2015	254,651			$	132.86
Granted	50,256			112.30
Forfeited	(5,854	)		174.95
Vested	(43,575	)	⁽¹⁾	97.44
Outstanding at December 31, 2015	255,478			$	134.52
Forfeited	(44,585	)		149.43
Vested	(44,866	)	⁽¹⁾	96.61
Outstanding at December 31, 2016	166,027			$	138.93
Granted	5,046			80.16
Vested - three-year grants	(50,459	)	⁽²⁾	90.51
Vested - 2012 and 2013 special grants	(79,764	)	⁽³⁾	181.99
Outstanding at December 31, 2017	40,850			$	107.38

(1) Based on the Company's market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting during the years ended December 31, 2016 and 2015 was zero shares in both years. That is, despite the completion of applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period.

(2)

Based on the Company's market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting during the year ended December 31, 2017 was 30,601 shares for the TSR PSU three-year grants. The shares of common stock were issued at a weighted average rate of 0.60x and in the range of 0.00x to 1.00x. That is, despite the completion of the applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period. Included in the vested PSUs are awards that vested early due to a retirement and as a result of the Company's restructuring and reduction in its workforce (Note 1).

(3)

Based on the Company's market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting during the year ended December 31, 2017 was zero shares for the 2012 and 2013 TSR PSU special grants. That is, despite the completion of the applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period.

The total intrinsic value of TSR PSU vested during the years ended December 31, 2017, 2016, and 2015 was $2.1 million, zero, and zero, respectively.

None of the TSR PSU outstanding at December 31, 2017 were vested. As of December 31, 2017, there was $0.4 million of total unrecognized compensation cost related to nonvested TSR PSU outstanding. This cost is expected to be recognized over an average period of 0.4 years.

NOI - Based Performance Share Units



	Number of NOI PSU			Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2017	—			$	—
Granted	5,046			67.04
Vested	(1,242	)	⁽¹⁾	67.50
Outstanding at December 31, 2017	3,804			$	67.00

(1)

The actual number of shares of common stock issued upon vesting during the year ended December 31, 2017 was 1,242 shares (1.0x). That is, despite the completion of applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which NOI was achieved during the performance period. These NOI PSU vested as a result of the Company's restructuring and reduction in its workforce (Note 1).

The total intrinsic value of NOI PSU vested during the year ended December 31, 2017 was $0.1 million. No NOI PSU vested in 2016 or 2015.

None of the NOI PSU outstanding at December 31, 2017 were vested. As of December 31, 2017, there was $0.2 million of total unrecognized compensation cost related to nonvested NOI PSU outstanding. This cost is expected to be recognized over an average period of 2.2 years.

Restricted Share Units



	Number of RSU		Weighted average Grant Date Fair Value
Outstanding at January 1, 2015	293,651		$	67.00
Granted	100,682		74.36
Forfeited	(14,542	)	69.87
Vested	(96,438	)	65.60
Outstanding at December 31, 2015	283,353		$	69.93
Granted	55,888		73.42
Forfeited	(17,012	)	69.20
Vested	(90,326	)	71.57
Outstanding at December 31, 2016	231,903		$	70.40
Granted	110,210		63.33
Forfeited	(12,499	)	67.78
Vested	(126,951	)	66.98
Outstanding at December 31, 2017	202,663		$	68.86

Based on an analysis of historical employee turnover, the Company has made an annual forfeiture assumption of 2.00% of grants when recognizing compensation costs relating to the RSU.

The total intrinsic value of RSU vested during the years ended December 31, 2017, 2016, and 2015 was $8.6 million, $6.6 million, and $7.0 million, respectively.

None of the RSU outstanding at December 31, 2017 were vested. As of December 31, 2017, there was $5.7 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected to be recognized over an average period of 1.8 years.

Options

Options were granted to purchase TRG Units, which are exchangeable for new shares of the Company’s common stock under the Continuing Offer (Note 15). The options had ten-year contractual terms.



	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Range of Exercise Prices
Outstanding at January 1, 2015	521,293	$	39.20	1.6	$	26.56	-	$	51.15
Exercised	(228,750)	29.72
Outstanding at December 31, 2015	292,543	$	46.60	1.4	$	35.50	-	$	51.15
Exercised	(89,957)	42.66
Outstanding at December 31, 2016	202,586	$	48.35	0.7	$	45.90	-	$	51.15
Exercised	(202,586)	48.35
Outstanding at December 31, 2017	—	$	—

The total intrinsic value of options exercised during the years ended December 31, 2017, 2016, and 2015 was $3.5 million, $2.4 million, and $10.0 million, respectively. Cash received from option exercises for the years ended December 31, 2017, 2016, and 2015 was $9.8 million, $3.8 million, and $6.8 million, respectively.

Unit Option Deferral Election

Under both a prior option plan and the 2008 Omnibus Plan, vested unit options can be exercised by tendering mature units with a market value equal to the exercise price of the unit options. In 2002, Robert S. Taubman, the Company’s chief executive officer, exercised options for 3.0 million units by tendering 2.1 million mature units and deferring receipt of 0.9 million units under the unit option deferral election. As the Operating Partnership pays distributions, the deferred option units receive their proportionate share of the distributions in the form of cash payments. Under an amendment executed in January 2011 and subsequent deferral elections (the latest being made in September 2016), beginning in December 2022 (unless Mr. Taubman retires earlier), the deferred options units will be issued as TRG Units in five annual installments. The deferred option units are accounted for as participating securities of the Operating Partnership.

Non-Employee Directors’ Stock Grant and Deferred Compensation

The 2008 Omnibus Plan provides a quarterly grant to each non-employee director of the Company shares of the Company's common stock based on the fair value of the Company's common stock on the last business day of the preceding quarter. The annual fair market value of the grant was $125,000 in 2017, 2016, and 2015. As of December 31, 2017, 19,532 shares have been issued under the 2008 Omnibus Plan. Certain directors have elected to defer receipt of their shares as described below.

The Non-Employee Directors’ Deferred Compensation Plan (DCP), which was approved by the Company’s Board of Directors, allows each non-employee director of the Company the right to defer the receipt of all or a portion of his or her annual director retainer fee until the termination of his or her service on the Company’s Board of Directors and for such deferred amount to be denominated in restricted stock units. The number of restricted stock units received equals the amount of the deferred retainer fee divided by the fair market value of the common stock on the business day immediately before the date the director would otherwise have been entitled to receive the retainer fee. The restricted stock units represent the right to receive equivalent shares of common stock at the end of the deferral period. During the deferral period, when the Company pays cash dividends on its common stock, the directors’ notional deferral accounts will be credited with dividend equivalents on their deferred restricted stock units, payable in additional restricted stock units based on the fair market value of the Company’s common stock on the business day immediately before the record date of the applicable dividend payment. There were 144,420 restricted stock units outstanding under the DCP at December 31, 2017.

Other Employee Plan

The Company has a voluntary retirement savings plan established in 1983 and amended and restated effective January 1, 2012 (the Plan). The Company believes the Plan is qualified in accordance with Section 401(k) of the Internal Revenue Code (the Code). The Company contributes an amount ranging from 0% to 4% of the qualified wages of all qualified employees depending on the Company's performance and matches employee contributions in excess of 2% for a total contribution in the range of 0% to 9% of qualified wages. In addition, the Company may make discretionary contributions within the limits prescribed by the Plan and imposed in the Code. The Company’s contributions and costs relating to the Plan were $2.5 million in 2017, $3.1 million in 2016, and $2.9 million in 2015.