COMPENSATION

2003 Stock Plan

On May 5, 2003, the Board of Directors ("Board") adopted the Plantronics, Inc. 2003 Stock Plan ("2003 Stock Plan") which was approved by the stockholders in June 27, 2003. The 2003 Stock Plan, which will continue in effect until terminated by the Board, allows for the issuance of the Company's common stock through the granting of non-qualified stock options, restricted stock, restricted stock units, and performance shares with performance-based conditions on vesting. As of March 31, 2019, there have been 17,400,000 shares of common stock (which number is subject to adjustment in the event of stock splits, reverse stock splits, recapitalization or certain corporate reorganizations) cumulatively reserved since inception of the 2003 Stock Plan for issuance to employees, non-employee directors, and consultants of the Company. The Company settles stock option exercises, grants of restricted stock, and releases of vested restricted stock units with newly issued common shares.

The exercise price of stock options may not be less than 100% of the fair market value of the Company's common stock on the date of grant. The term of an option may not exceed 7 years from the date it is granted. Stock options granted to employees vest over a three-year period, and stock options granted to non-employee directors vest over a four-year period.

Restricted stock and restricted stock units under our share-based plans are granted to directors, executives, and employees. The estimated fair value of the restricted stock and restricted stock unit grants is determined based on the market price of Plantronics common stock on the date of grant. Restricted stock and restricted stock units granted to employees vest over a three-year period to non-employee directors over a one-year period.

Performance-based restricted stock units ("PSUs") are granted to executives of the Company and contain a market condition based on Total Shareholder Return ("TSR"). The Compensation Committee sets a target and maximum value that each Executive could earn based on an annual comparison of the total stockholder return on our common stock against the iShares S&P North American Tech-Multimedia Networking Index ("Index"), an index the Committee determined appropriate to compare to the total stockholder return on our stock. Performance shares will be delivered in common stock over the vesting period of three-years based on the Company’s actual performance compared to the target performance criteria and may equal from zero percent (0%) to one hundred fifty percent (150%) of the target award. The fair value of a performance share with a market condition is estimated on the date of award, using a Monte Carlo simulation model to estimate the total return ranking of the Company’s stock among the Index companies over each performance period.

At March 31, 2019, options to purchase 627,321 shares of common stock and 1,617,118 shares of unvested restricted stock and restricted stock units were outstanding. There were 2,879,253 shares available for future grant under the 2003 Stock Plan.

2002 ESPP

On June 10, 2002, the Board adopted the 2002 Employee Stock Purchase Plan ("ESPP"), which was approved by the stockholders on July 17, 2002, to provide eligible employees with an opportunity to purchase the Company's common stock through payroll deductions. The ESPP qualifies under Section 423 of the Internal Revenue Code. Under the ESPP, which is effective until terminated by the Board, the purchase price of the Company's common stock is equal to 85% of the lesser of the closing price of the common stock on (i) the first day of the offering period or (ii) the last day of the offering period. Each offering period is six months long. There were 151,648, 156,355, and 138,133 shares issued under the ESPP in Fiscal Years 2017, 2018, and 2019 respectively. At March 31, 2019, there were 436,190 shares reserved for future issuance under the ESPP. The total cash received from employees as a result of stock issuances under the ESPP during Fiscal Year 2019 was $6.2 million, net of taxes.

Stock-based Compensation

The following table summarizes the amount of stock-based compensation expense included in the consolidated statements of operations for the periods presented:



	Fiscal Year Ended March 31,
(in thousands)	2017			2018			2019
Cost of revenues	$	3,244		$	3,622		$	4,176

Research, development and engineering	8,616			8,071			11,699
Selling, general and administrative	21,679			22,266			26,059
Stock-based compensation expense included in operating expenses	30,295			30,337			37,758
Total stock-based compensation	33,539			33,959			41,934
Income tax benefit	(10,768		)	(7,880		)	(9,891		)
Total stock-based compensation expense, net of tax	$	22,771		$	26,079		$	32,043

Stock Plan Activity

Stock Options

The following is a summary of the Company’s stock option activity during Fiscal Year 2019:



	Options Outstanding
	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value
	(in thousands)				(in years)	(in thousands)
Outstanding at March 31, 2018	923		$	47.53
Options granted	—		$	—
Options exercised	(277	)	$	45.07
Options forfeited or expired	(18	)	$	46.06
Outstanding at March 31, 2019	627		$	48.66	2.4	$	670
Vested or expected to vest at March 31, 2019	627		$	48.66	2.4	$	670
Exercisable at March 31, 2019	594		$	48.80	2.2	$	640

The total intrinsic values of options exercised during Fiscal Years 2017, 2018, and 2019 were $5.5 million, $9.4 million, and $5.8 million respectively. Intrinsic value is defined as the amount by which the fair value of the underlying stock exceeds the exercise price at the time of option exercise. The total cash received from employees as a result of employee stock option exercises during Fiscal Year 2019 was $12.5 million, net of taxes. The total net tax benefit attributable to stock options exercised during the year ended March 31, 2019 was $1.4 million.

As of March 31, 2019, the total unrecognized compensation cost related to unvested stock options was $0.3 million and is expected to be recognized over a weighted average period of 0.6 years.

Restricted Stock

Restricted stock consists of awards of restricted stock, restricted stock units ("RSUs"), and performance-based RSUs ("PSUs"). The following table summarizes the changes in unvested restricted stock, RSUs, and PSUs, for Fiscal Year 2019:



	Number of Shares		Weighted Average Grant Date Fair Value
	(in thousands)
Unvested at March 31, 2018	1,254		$	51.09
Granted	1,171		$	68.68
Vested	(572	)	$	50.24
Forfeited	(235	)	$	60.44
Non-vested at March 31, 2019	1,618		$	62.77

The weighted average grant-date fair value of restricted stock is based on the quoted market price of the Company's common stock on the date of grant. The weighted average grant-date fair values of restricted stock granted during Fiscal Years 2017, 2018, and 2019 were $44.82, $53.62, and $68.68, respectively. The total grant-date fair values of restricted stock that vested during Fiscal Years 2017, 2018, and 2019 were $28.9 million, $27.8 million, and $28.7 million, respectively.

As of March 31, 2019, the total unrecognized compensation cost related to non-vested restricted stock awards was $60.0 million and is expected to be recognized over a weighted average period of 1.7 years.

Valuation Assumptions

The Company estimates the fair value of stock options and ESPP shares using a Black-Scholes option valuation model. At the date of grant, the Company estimated the fair value of each stock option grant and purchase right granted under the ESPP using the following weighted average assumptions:



	Employee Stock Options							ESPP
Fiscal Year Ended March 31,	2017			2018			2019	2017			2018			2019
Expected volatility	31.1		%	29.1		%	n/a	28.8		%	30.5		%	40.8		%
Risk-free interest rate	1.1		%	1.7		%	n/a	0.6		%	1.5		%	2.4		%
Expected dividends	1.4		%	1.2		%	n/a	1.1		%	1.2		%	1.1		%
Expected life (in years)	4.4			4.6			n/a	0.5			0.5			0.5
Weighted-average grant date fair value	$	10.39		$	12.58		n/a	$	12.03		$	11.78		$	14.44

The expected stock price volatility for the years ended March 31, 2017, 2018, and 2019 was determined based on an equally weighted average of historical and implied volatility. Implied volatility is based on the volatility of the Company’s publicly traded options on its common stock with terms of six months or less. The Company determined that a blend of implied volatility and historical volatility is more reflective of market conditions and a better indicator of expected volatility than using exclusively historical volatility. The expected life was determined based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules, and expectations of future 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 corresponding with the expected life of the option. The dividend yield assumption is based on our current dividend and the market price of our common stock at the date of grant.

Long Term Incentive Plan (LTIP)

Prior to the Company's acquisition of Polycom, certain Polycom employees were granted incentive rights under the Polycom, Inc. 2016 Long-Term Incentive Plan (“2016 LTIP”). As of the date of acquisition, Plantronics assumed the role of payer to participants of the plan through its payroll but is indemnified by Triangle for obligations under the plan. The acquisition accelerated vesting at 75% of awards held by participants in service as of that date and triggered an initial amount due to such participants. The cash purchase price of the acquisition was reduced by this initial obligation. The remaining 25% of awards will vest upon one-year anniversary of the acquisition. Any future payments above the initial obligation under the plan, provided that the vesting requirements are satisfied, require Triangle to fund Plantronics in order to pay participants for any amount in excess of the purchase price reduction.

At July 2, 2018, $7.9 million was recognized in Accrued liabilities assumed from Polycom and was paid in the second quarter of fiscal 2019. The Company recognized an immaterial amount of compensation expense during the fiscal year ended March 31, 2019 in respect of the awards vesting on the one-year anniversary, which will be payable in the second quarter of fiscal 2020. The amount due as of the acquisition date is based on cash paid to Triangle that was distributed to its parents. Future distributions to its parents of cash made available to Triangle from the release of escrow accounts or the sale of shares issued in the transaction would trigger further compensation due to incentive rights holders under the plan. Plantronics is indemnified for any obligations in excess of the reduction to purchase price.