8. Share-based Compensation and Non-Qualified Deferred Compensation Plan

Incentive Compensation. During the second quarter of 2011, our Board of Trust Managers adopted, and our shareholders approved, the 2011 Share Incentive Plan of Camden Property Trust (as amended, the "2011 Share Plan"). Under the 2011 Share Plan, we may issue up to a total of approximately 9.1 million fungible units (the "Fungible Pool Limit"), which is comprised of approximately 5.8 million new fungible units plus approximately 3.3 million fungible units previously available for issuance under our 2002 share incentive plan based on a 3.45 to 1.0 fungible unit to full value award conversion ratio. Fungible units represent the baseline for the number of shares available for issuance under the 2011 Share Plan. Different types of awards are counted differently against the Fungible Pool Limit, as follows:


•	Each share issued or to be issued in connection with an award, other than an option, right or other award which does not deliver the full value at grant of the underlying shares, will be counted against the Fungible Pool Limit as 3.45 fungible pool units;


•	Options and other awards which do not deliver the full value at grant of the underlying shares and which expire more than five years from date of grant will be counted against the Fungible Pool Limit as one fungible pool unit; and


•	Options, rights and other awards which do not deliver the full value at grant and expire five years or less from the date of grant will be counted against the Fungible Pool Limit as 0.83 of a fungible pool unit.

At September 30, 2015, approximately 4.6 million fungible units were available under the 2011 Share Plan, which results in approximately 1.3 million common shares which may be granted pursuant to full value awards based on the 3.45 to 1.0 fungible unit to full value award conversion ratio.

Awards which may be granted under the 2011 Share Plan include incentive share options, non-qualified share options (which may be granted separately or in connection with an option), share awards, dividends and dividend equivalents and other equity based awards. Persons eligible to receive awards under the 2011 Share Plan are trust managers, directors of our affiliates, executive and other officers, key employees and consultants, as determined by the Compensation Committee of our Board of Trust Managers. The 2011 Share Plan will expire on May 11, 2021.

Options. New options are exercisable, subject to the terms and conditions of the plan, in increments ranging from 20% to 33.33% per year on each of the anniversaries of the date of grant. The plan provides that the exercise price of an option will be determined by the Compensation Committee of the Board of Trust Managers on the day of grant, and to date all options have been granted at an exercise price that equals the fair market value on the date of grant. Approximately 0.1 million and 0.4 million options were exercised during the nine months ended September 30, 2015 and 2014, respectively. The total intrinsic value of options exercised was approximately $2.0 million and $6.9 million during the nine months ended September 30, 2015 and 2014, respectively. At September 30, 2015, there was no unrecognized compensation cost related to unvested options. At September 30, 2015, all options outstanding were exercisable and had a weighted average remaining life of approximately 3.4 years.

The following table summarizes outstanding share options, all of which were exercisable, at September 30, 2015:



	Options Outstanding and Exercisable (1)
Range of Exercise Prices	Number	Weighted Average Price
$30.06	105,015	$	30.06
$41.16 - $43.94	119,242	42.46
$48.02 - $75.17	70,948	60.92
Total options	295,205	$	42.49


(1)	The aggregate intrinsic value of options outstanding and exercisable at September 30, 2015 was $9.3 million. The aggregate intrinsic value was calculated as the excess, if any, between our closing share price of $73.90 per share on September 30, 2015 and the strike price of the underlying award.

Options Granted and Valuation Assumptions. During the nine months ended September 30, 2015, we granted approximately 26.8 thousand reload options. Reload options are granted for the number of shares tendered as payment for the exercise price upon the exercise of an option with a reload provision. The reload options granted have an exercise price equal to the fair market value of a common share on the date of grant and expire on the same date as the original options which were exercised. The reload options granted during the nine months ended September 30, 2015 vested immediately and approximately $0.2 million was expensed on the reload date. We estimate the fair values of each option award including reloads on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for the reload options granted during the nine months ended September 30, 2015:



	Nine Months Ended September 30, 2015
Weighted average fair value of options granted	$5.52 - $7.38
Expected volatility	16.5% - 18.8%
Risk-free interest rate	1.0% - 1.3%
Expected dividend yield	3.5% - 3.7%
Expected life	3 years - 4 years

Our computation of expected volatility for 2015 is based on the historical volatility of our common shares over a time period equal to the expected life of the option and ending on the grant date, and the interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield on our common shares is based on the historical dividend yield over the expected term of the options granted. Our computation of expected life is based upon historical experience of similar awards, giving consideration to the contractual terms of the share-based awards.

Share Awards and Vesting. Share awards for employees generally have a vesting period of three to five years. The compensation cost for share awards is generally based on the market value of the shares on the date of grant and is amortized over the vesting period. In the event the holder of the share awards will reach both the retirement eligibility age of 65 years and the service requirements as defined in the 2011 Share Plan before the term in which the awards are scheduled to vest, the value of the share awards is amortized from the date of grant to the individual's retirement eligibility date. To estimate forfeitures, we use actual forfeiture history. At September 30, 2015, the unamortized value of previously issued unvested share awards was approximately $37.1 million, which is expected to be amortized over the next three years. The total fair value of shares vested during the nine months ended September 30, 2015 and 2014 was approximately $18.1 million and $16.0 million, respectively.

Total compensation cost for option and share awards charged against income was approximately $4.8 million and $4.2 million for the three months ended September 30, 2015 and 2014, respectively, and approximately $13.7 million and $12.1 million for the nine months ended September 30, 2015 and 2014, respectively. Total capitalized compensation cost for option and share awards was approximately $0.9 million and $0.7 million for the three months ended September 30, 2015 and 2014, respectively, and approximately $2.6 million and $2.0 million for the nine months ended September 30, 2015 and 2014, respectively.

The following table summarizes activity under our share incentive plans for the nine months ended September 30, 2015:



	Options Outstanding		Weighted Average Exercise / Grant Price		Nonvested Share Awards Outstanding		Weighted Average Exercise / Grant Price
Options and nonvested share awards outstanding at December 31, 2014	321,811		$	38.97	818,943		$	63.39
Granted	26,752		75.17		256,599		74.53
Exercised/Vested	(53,358	)	37.69		(299,806	)	60.42
Forfeited	—		—		(9,297	)	67.78
Total options and nonvested share awards outstanding at September 30, 2015	295,205		$	42.49	766,439		$	68.22

Non-Qualified Deferred Compensation Plan. In February 2014, we adopted the Second Amended and Restated Camden Property Trust Non-Qualified Deferred Compensation Plan to clarify certain terms in the existing plan relating to the deferral of performance based compensation. As a result of such action, the fully vested awards and the proportionate share of nonvested awards eligible for diversification were reclassified from additional paid in capital to temporary equity in our condensed consolidated balance sheets. The share awards are adjusted to their redemption value at each reporting period, with the redemption value based on the market value of the shares at the end of the reporting period. Changes in value from period to period are charged to distributions in excess of net income attributable to common shareholders in our condensed consolidated statements of equity.

The following table summarizes the eligible share award activity as recorded in temporary equity for the nine months ended September 30, 2015:



(in thousands)	Nine Months Ended September 30, 2015
Temporary equity:
Balance at December 31, 2014	$	68,134
Change in classification	7,924
Change in redemption value	(184		)
Diversification of share awards	(3,558		)
Balance at September 30, 2015	$	72,316