(19) Employee and Non‑Employee Director Stock and Benefit Plans

The 2007 Omnibus Equity Compensation Plan (the “2007 Plan”) was approved by the Company’s stockholders and became effective on May 8, 2007 (the “Effective Date”) and was last amended and restated effective January 23, 2017. As of the Effective Date, the Amended and Restated Investment Technology Group, Inc. Directors’ Retainer Fee Subplan (the “Directors’ Retainer Fee Subplan”) and the Amended and Restated Investment Technology Group, Inc. Directors’ Equity Subplan (the “Directors’ Equity Subplan,” and collectively with the Directors’ Retainer Fee Subplan, the “Subplans”) were merged with and into the 2007 Plan. Since the Effective Date, the Subplans have continued to be, and shall continue to be, in effect as subplans of the 2007 Plan and grants and/or deferrals may continue to be made. In October 2008, the Compensation Committee of the Company's Board of Directors adopted the Equity Deferral Award Program, another subplan under the 2007 Plan. This subplan, last amended and restated on January 23, 2017, is now known as the Variable Compensation Stock Unit Award Program Subplan, and continues to be a subplan under the 2007 Plan (the “VCSUA Subplan”).

Under the 2007 Plan, 13,068,208 shares of the Company’s common stock are authorized. Shares of common stock which are attributable to awards which have expired, terminated, cash settled or been canceled or forfeited during any calendar year are generally available for issuance or use in connection with future awards. Shares of common stock surrendered in payment of the exercise price of a stock option and shares withheld or surrendered for payment of taxes are not available for re-issuance under the 2007 Plan. Options outstanding as of December 31, 2016 that have been granted under the 2007 Plan are exercisable on dates ranging through January 2024. The 2007 Plan will remain in effect until June 10, 2025, unless terminated, or extended, by the Board of Directors with the approval of the Company’s stockholders. After this date, no further awards shall be granted pursuant to the 2007 Plan, but previously‑granted awards will remain outstanding in accordance with their applicable terms and conditions.

In January 2006, the Board of Directors adopted the Directors’ Equity Subplan which became effective January 1, 2006 and merged into the 2007 Plan as referenced above. The Directors’ Equity Subplan was last amended and restated on January 23, 2017. The Directors’ Equity Subplan provides for the grant of restricted stock unit awards to non‑employee directors of the Company. Under the Directors’ Equity Subplan, a newly appointed non‑employee director will be granted restricted stock unit awards valued at $100,000 at, or shortly after, the time of appointment to the Board of Directors. Such initial restricted stock unit awards will vest annually in three equal installments, beginning on the first anniversary of the date of grant so long as the director has continued to serve on the Board of Directors from the grant date to the applicable vesting date. In addition, non‑employee directors have been granted restricted stock unit awards valued at $72,000 annually on the day of each of the Company’s annual meetings of stockholders at which directors are elected or reelected by the Company’s stockholders. In August 2016, the Board amended the Directors’ Equity Subplan to provide that these annual restricted stock unit awards will be valued as determined by the Compensation Committee. Currently, the value of restricted stock unit awards to be granted to the Chairman of the Board of Directors is $120,000 and the value of restricted stock unit awards to be granted to the other non-employee directors is $80,000. Such annual restricted stock unit awards will vest in full on the day immediately preceding the Company’s next annual meeting of stockholders at which directors are elected or reelected by the Company’s stockholders so long as the director has continued to serve on the Board of Directors from the grant date through the vesting date.

Under the 2007 Plan, the Company is permitted to grant time‑based stock options, in addition to performance-based option awards to employees and directors. In 2016, the Company granted time-based options for 196,851 shares to the Company’s new Chief Executive Officer. These stock options have an eight-year term and vest annually in three equal installments, beginning on the first anniversary of the grant date, if the Chief Executive Officer remains continuously employed by the Company, and is in good standing on, each applicable vesting date. The Company did not grant any option awards under the 2007 Plan during 2015 or 2014. The Company recognizes share‑based compensation expense (see Note 2, Summary of Significant Accounting Policies) for time‑based option awards over the vesting period.

The tables below summarize the Company’s outstanding stock options as of December 31, 2016, 2015 and 2014 and changes during the years then ended:


		Weighted
Options	Number of	Average
Outstanding	Shares	Exercise Price
Outstanding at December 31, 2013	343,326	$	17.29
Granted	—		—
Exercised	(14,228)		14.28
Forfeited	(22,245)		20.09
Outstanding at December 31, 2014	306,853	$	17.23
Granted	—		—
Exercised	(71,455)		16.26
Forfeited	(192,733)		18.71
Outstanding at December 31, 2015	42,665	$	12.17
Granted	196,851		16.18
Exercised	(42,665)		12.17
Forfeited	—		—
Outstanding at December 31, 2016	196,851	$	16.18
Amount exercisable at December 31,
2016	—	$	—
2015	42,665	$	12.17
2014	306,853	$	17.23

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Remaining

Average

Number

Contractual

Exercise

Number

Exercise

Exercise Price

Outstanding

Life (Years)

Price

Exercisable

Price

16.18

196,851

4.04

16.18

—

For the year ended December 31, 2016, the Company recorded share-based compensation expense of $0.3 million related to outstanding stock options, which was offset by related income tax benefits of $0.1 million. For the year ended December 31, 2015, the Company recorded no share-based compensation expense related to outstanding stock options. For the year ended December 31, 2014, the Company recorded share‑based compensation expense of $0.1 million related to outstanding stock options, which was offset by related income tax benefits of less than $0.1 million.

There were no stock options currently exercisable at December 31, 2016.

All of the stock options outstanding at December 31, 2016 were time‑based.

The provision for income taxes excludes excess current tax benefits related to the exercise of stock options. During 2016, the exercise of 42,655 stock options gave rise to an excess current tax benefit of $0.1 million. During 2015, the exercise of 71,455 stock options gave rise to an excess current tax benefit of less than $0.1 million, however, this amount was offset by a tax shortfall on exercises and cancellations totaling $0.6 million. During 2014, the exercise of 14,228 stock options did not give rise to an excess current tax benefit, however a tax shortfall that occurred on exercises and cancellations totaling $0.1 million was recognized.

The following table summarizes information about stock options at December 31, 2016, 2015 and 2014:


($ in thousands)	2016		2015		2014
Total intrinsic value of stock options exercised	$	220	$	370	$	74
Weighted average grant date fair value of stock options granted during period, per share		16.18		—		—
Cash received from stock option exercises	$	208	$	298	$	203

The total intrinsic value for stock options exercisable at December 31, 2016 was $0 because there were no outstanding stock options that were exercisable on that date.

As of December 31, 2016, there was $0.7 million of unrecognized compensation costs related to outstanding stock options. These costs are expected to be recognized ratably over a weighted average period of approximately 2.0 years.

Stock option exercises are settled from issuance of shares of the Company’s common stock held in treasury to the extent available.

Under the 2007 Plan, the Company is permitted to grant restricted stock unit awards to employees. Generally, and except for awards granted under the VCSUA Subplan, restricted stock unit awards granted since 2007 vest in one of the following manners: (a) cliff vest on the second or third anniversary of the grant date, depending on the terms of the award, so long as the award recipient is employed on such date, or (b) serial vest on each of the second, third and fourth anniversaries of the date of grant so long as the award recipient is employed on the applicable vesting date and the 90-day average of the Company’s common stock price preceding each of the vesting dates is greater than the 90-day average of the Company’s common stock price preceding the grant date (market-based restricted stock units). Accordingly, not all restricted stock units awarded will vest and be delivered. The Company recognizes share-based compensation expense (see Note 2, Summary of Significant Accounting Policies) over this two, three - or four-year period, as applicable.

Under the VCSUA Subplan, each eligible participant was granted a number of basic stock units on the date the year-end cash bonus was paid to the participant equal to (i) the amount by which the participant’s variable compensation is reduced as determined by the Compensation Committee of the Board of Directors, divided by (ii) the fair market value of a share of the Company’s common stock on the date of grant. In January 2017, the Board amended the VCSUA Subplan to provide, among other things, that basic stock units will be granted on the date the year-end variable compensation is communicated to participants. In addition, each participant is granted an additional number of matching stock units on the date of grant equal to 10% of the number of time-based or market-based basic stock units granted. Basic stock units under the VCSUA Subplan that are time-based typically vest in equal annual installments on each of the first, second and third anniversaries of the date of grant, if the participant remains continuously employed by the Company, and is in good standing on, each applicable vesting date. Time-based matching stock units will vest 100% on the third anniversary of the date of grant, if the participant remains continuously employed by the Company through, and is in good standing on, such vesting date. Basic units under the VCSUA Subplan that are market-based vest in equal installments on each of the second, third and fourth anniversaries of the date of grant so long as the award recipient is employed on the applicable vesting date and the 90‑day average of the Company’s common stock price preceding each of the vesting dates is greater than the 90‑day average of the Company’s common stock price preceding the grant date. Matching stock units on market-based awards will vest 100% on the fourth anniversary of the date of grant so long as the award recipient is employed on the applicable vesting date and the 90‑day average of the Company’s common stock price preceding the vesting date is greater than the 90‑day average of the Company’s common stock price preceding the grant date.

The Company has also issued to members of its senior management basic stock units under the VCSUA that vest in one of the following manners: (a) in equal installments on each of the first, second, and third anniversaries of the date of grant based upon the level of the Company's adjusted return-on-equity ("ROE") achieved for each of the three fiscal years, respectively, that ends immediately prior to the applicable vesting date or (b) in equal installments on each of the second and third anniversaries of the date of grant based upon the level of ROE achieved for each of the two fiscal years, respectively, that ends immediately prior to the applicable vesting date (each ROE-based restricted stock units). In addition to the ROE performance criteria being achieved, the participant must remain continuously employed by the Company through, and be in good standing on, each applicable vesting date. The number of ROE-based restricted basic stock units awarded will be earned in each of the relevant performance periods if the target ROE is achieved at 100% and such number may increase or decrease if the actual ROE achieved is above or below the target ROE. In addition, certain senior employees have received matching ROE-based restricted stock units and such awards vest on the third anniversary of the date of grant based upon the average of the ROE achieved during the three-year period that ends immediately prior to the applicable vesting date. The number of matching ROE-based restricted stock units awarded will be earned if the target average ROE is achieved at 100% and such number may increase or decrease if the actual average ROE achieved is above or below the target average ROE. All vested stock units are settled in shares of ITG common stock within 30 days after the date on which such stock units vest.

During 2010, in conjunction with the acquisition of Majestic Research Corp. (“Majestic”), the Company granted “employment inducement awards” under Section 303A.08 of the New York Stock Exchange Listed Company Manual (“Inducement Awards”) to certain Majestic employees. Stock units for 319,674 shares vested in equal installments on each of the first four anniversaries of the grant date of the awards. Stock units for 415,579 shares were performance‑based and vested over the first four anniversaries of the award grant dates, based upon achievement of certain metrics as of the first and second anniversaries of the award grant dates.

During 2016, the Company granted two Inducement Awards in conjunction with the hiring of its new Chief Executive Officer, which replaced awards he forfeited at his former employer. Under the first inducement award, the Chief Executive Officer was granted 135,353 restricted stock units that vest in three equal annual installments beginning on the first anniversary of the grant date. Under the second inducement award, the Chief Executive Officer was granted 156,051 restricted stock units which vest on the following vesting dates: (i) 38% vested on January 31, 2016 and are subject to a 12-month holding requirement; (ii) 41% vested on January 31, 2017; and (iii) the remaining 21% will vest on January 31, 2018.

The Company recorded share‑based compensation expense of $24.9 million, $16.4 million and $15.0 million for the years ended December 31, 2016, 2015 and 2014, respectively, related to restricted stock unit awards which were offset by related income tax benefits of approximately $8.9 million, $6.6 million and $6.0 million, respectively.

A summary of the status of the Company’s restricted stock unit awards as of December 31, 2016, 2015 and 2014 and changes during the years then ended are presented below:


	Number of
	Shares	Number of
	underlying	Shares		Weighted
	Performance-	underlying Time-		Average
	Based Restricted	Based Restricted	Total Number of	Grant Date
	Stock Units	Stock Units	Shares	Fair Value
Outstanding at December 31, 2013	458,743	1,979,484	2,438,227	$	12.31
Granted	219,644	1,257,745	1,477,389		15.45
Vested	(145,786)	(977,934)	(1,123,720)		13.63
Forfeited	(94,579)	(38,089)	(132,668)		12.10
Outstanding at December 31, 2014	438,022	2,221,206	2,659,228	$	13.51
Granted	263,766	1,932,425	2,196,191		18.79
Vested	(97,112)	(1,061,935)	(1,159,047)		13.49
Forfeited	(227,201)	(298,135)	(525,336)		16.10
Outstanding at December 31, 2015	377,475	2,793,561	3,171,036	$	16.75
Granted	228,895	1,437,021	1,665,916		16.16
Vested	(73,243)	(968,995)	(1,042,238)		16.06
Forfeited	(190,757)	(540,693)	(731,450)		16.88
Outstanding at December 31, 2016	342,370	2,720,894	3,063,264	$	16.63

At December 31, 2016, 96,563 of the outstanding performance-based restricted stock unit awards were market‑based restricted stock units and 245,807 were ROE-based restricted stock units.

On May 27, 2016, the Company sold Investment Research (See Note 4, Divestitures and Acquisitions). Upon the closing of the transaction, the Company accelerated the vesting of 226,802 restricted stock unit awards held by employees that were part of Investment Research and are included in the table above. The cost to modify the vesting schedule of these shares resulted in an expense reversal of $0.7 million that is included as part of the gain in other revenues in the Consolidated Statement of Operations.

On December 22, 2015, the Company sold its energy research operations (See Note 4, Divestitures and Acquisitions). Upon the closing of the transaction, the Company accelerated the vesting of 113,718 restricted stock unit awards held by employees that were part of the energy research business and are included in the table above. The cost to modify the vesting schedule of these shares was $1.4 million and is included as a direct cost of the sale that reduced the gain included in other revenues in the Consolidated Statement of Operations.

As of December 31, 2016, there was $23.7 million of total unrecognized compensation cost related to outstanding restricted stock unit awards. These costs are expected to be recognized over a weighted average period of approximately 1.8 years. During 2016, restricted stock unit awards with a fair value of approximately $18.1 million vested.

The provision for income taxes excludes excess current tax benefits related to the vesting of restricted stock unit awards. For the year ended December 31, 2016, the excess tax benefits totaled $0.8 million while tax shortfalls (arising from cancellations or deficits due to the vest date fair market value being less than the grant date fair market value) were $0.7 million. Such tax benefits are reflected as an increase in additional paid-in capital while tax shortfalls arising from the tax deduction being less than the cumulative book compensation cost is reflected as a decrease in additional paid-in capital. For the year ended December 31, 2015, the excess tax benefits totaled $2.9 million while tax shortfalls were $0.3 million. During 2014, the excess tax benefits totaled $1.3 million while tax shortfalls were $0.4 million.

Under the 2007 Plan and the VCSUA Subplan, the Company is permitted to grant phantom share awards. Phantom share awards vest like any other award granted under the 2007 Plan and VCSUA Subplan as described above and are settled in cash. The Company recognizes share‑based compensation expense (see Note 2, Summary of Significant Accounting Policies) over the applicable vesting period. For the years ended December 31, 2016, 2015 and 2014, the Company recorded share‑based compensation expense of $0.1 million, $2.2 million and $3.5 million, respectively, related to phantom share awards offset by related tax benefits of less than $0.1 million, $0.8 million and $0.9 million, respectively.

A summary of the status of the Company’s phantom share awards as of December 31, 2016, 2015 and 2014 and changes during the years then ended are presented below:


		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
Outstanding at December 31, 2013	671,762	$	12.74
Granted	—		—
Vested	(310,121)		14.06
Forfeited	(3,292)		11.73
Outstanding at December 31, 2014	358,349	$	11.61
Granted	—		—
Vested	(257,279)		11.58
Forfeited	(43,272)		10.99
Outstanding at December 31, 2015	57,798	$	12.24
Granted	—		—
Vested	(57,798)		12.24
Forfeited	—		—
Outstanding at December 31, 2016	—	$	—

At December 31, 2016, there were no outstanding phantom share awards. The Company discontinued granting phantom share awards effective January 1, 2014 and the remaining awards outstanding vested on February 22, 2016.

ITG Employee and Non‑Employee Director Benefit Plans

All U.S. employees are eligible to participate in the Investment Technology Group, Inc. Retirement Savings Plan (“RSP”). The RSP applies to all eligible compensation up to the Internal Revenue Service annual maximum which was $265,000 during 2016. Since January 1, 2012, the Company matching contribution applies to 50% of voluntary employee contributions, on a maximum of 4% of eligible compensation per year. The Company may still make discretionary contributions based on consolidated profits. Most of the Company’s international employees are eligible to participate in similar defined contribution plans. The costs for these benefits were approximately $4.4 million, $4.9 million, and $4.3 million in 2016, 2015 and 2014, respectively, and are included in compensation and employee benefits in the Consolidated Statements of Operations.

During 2016, non‑employee directors receive an annual retainer fee of $60,000, with the exception of the chairman who received $160,000 under the Directors’ Retainer Fee Subplan, which was adopted in 2002. This retainer fee is payable, at the election of each director, either in (i) cash, (ii) Company common stock with a value equal to the retainer fee on the grant date or (iii) under a deferred compensation plan which provides deferred share units with a value equal to the retainer fee on the grant date which convert to freely sellable shares when the director retires from the Board of Directors. Directors who chose common stock or deferred share units, in the aggregate, received 12,363 units or shares, 13,846 units or shares, and 18,716 units or shares in 2016, 2015 and 2014, respectively. At December 31, 2016, there were 110,456 deferred share units outstanding. The cost of the Directors’ Retainer Fee Subplan including share based awards and cash fees was approximately $0.8 million, $1.2 million, and $0.7 million in 2016, 2015 and 2014, respectively, and is included in other general and administrative expenses in the Consolidated Statements of Operations.

In November 1997, the Board of Directors approved the ITG Employee Stock Purchase Plan (“ESPP”), an employee stock purchase plan qualified under Section 423 of the Internal Revenue Code. The ESPP became effective February 1, 1998 and allows all full‑time employees to purchase shares of ITG common stock at a 15% discount. In accordance with the provisions of ASC 718, the ESPP is compensatory. The Company recorded share‑based compensation expense related to the ESPP of $0.4 million, $0.3 million and $0.3 million for the years ended December 31, 2016, 2015 and 2014, respectively. Shares distributed under the ESPP are newly‑issued shares.