(21) 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 June 8, 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”).

As of December 31, 2018, there were 2,068,246 shares of common stock remaining available for issuance under the 2007 Plan. 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, 2018 that have been granted under the 2007 Plan are exercisable until 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 are granted restricted stock unit awards 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. The value of these annual restricted stock unit awards is determined by the Compensation Committee. Currently, the value of restricted stock unit awards granted to the Chairman of the Board of Directors is $120,000 and the value of restricted stock unit awards granted to the other non-employee directors is $80,000. Such annual restricted stock unit awards 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 2017 or 2018. The Company recognizes share‑based compensation expense (see Note 2, Summary of Significant Accounting Policies) for time‑based option awards over the vesting period.

On December 13, 2018, the Compensation Committee of the Board of Directors of the Company took certain actions, effective on December 17, 2018, to preserve certain compensation-related corporate income tax deductions for the Company that might otherwise be disallowed through the operation of Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), in connection with the Merger. Specifically, the Committee approved the accelerated vesting of equity awards held by certain senior executives (the “280G Accelerated Vesting Actions”). These actions were also taken to mitigate or eliminate the amount of excise tax that may be payable by these employees pursuant to Sections 280G and 4999 of the Code.

Pursuant to the 280G Accelerated Vesting Actions, the Committee approved the accelerated vesting of stock options to purchase 65,611 shares of common stock of the Company at an exercise price of $16.18 per share, which were scheduled to vest on January 15, 2019.

The tables below summarize the Company’s outstanding stock options as of December 31, 2018, 2017 and 2016 and changes during the years then ended:


		Weighted
Options	Number of	Average
Outstanding	Shares	Exercise Price
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
Granted	—		—
Exercised	—		—
Forfeited	—		—
Outstanding at December 31, 2017	196,851	$	16.18
Granted	—		—
Exercised	(65,611)		16.18
Forfeited	—		—
Outstanding at December 31, 2018	131,240	$	16.18
Amount exercisable at December 31,
2018	131,240	$	16.18
2017	65,630	$	16.18
2016	—	$	—

Options Outstanding

Options Exercisable

Weighted

Average

Weighted

Remaining

Average

Number

Contractual

Exercise

Number

Exercise

Exercise Price

Outstanding

Life (Years)

Price

Exercisable

Price

16.18

131,240

5.04

16.18

131,240

16.18

For the years ended December 31, 2018, 2017 and 2016, the Company recorded share-based compensation expense of $1.1 million (including $0.8 million related to the 280G Accelerated Vesting Actions described above), $0.3 million and $0.3 million, respectively, related to outstanding stock options, which had no income tax benefit in 2018 or 2017 and which was offset by a benefit of $0.1 million in 2016. There were 131,240 stock options exercisable at December 31, 2018. The weighted average remaining contractual term of stock options currently exercisable is 5.0 years.

All of the stock options outstanding at December 31, 2018 were time‑based.

Prior to the adoption of ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, the provision for income taxes excluded excess current tax benefits related to the exercise of stock options. Effective January 1, 2017, all subsequent excess tax benefits and deficiencies are recognized in the statement of operations as an increase or decrease in income taxes when the awards vest or are settled. See discussion in Note 2, Summary of Significant Accounting Policies. During 2018, the exercise of 65,611 stock options gave rise to a current tax shortfall of $0.1 million. During 2017, there were no exercises of stock options and therefore no corresponding excess tax benefits or deficiencies. During 2016, the exercise of 42,655 stock options gave rise to an excess tax benefit of $0.1 million.

The following table summarizes information about stock options at December 31, 2018, 2017 and 2016:


($ in thousands)	2018		2017		2016
Total intrinsic value of stock options exercised	$	908	$	—	$	220
Weighted average grant date fair value of stock options granted during period, per share		—		—		16.18
Cash received from stock option exercises	$	1,062	$	—	$	208

The total intrinsic value for outstanding and exercisable stock options at December 31, 2018 was $1.8 million.

As of December 31, 2018, all compensation costs related to outstanding stock options had been recognized. 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 vest in one of the following manners: (a) serial vesting on each of the first, second and third anniversaries of the grant date, (b) one-third on the second anniversary of the grant date and two-thirds on the third anniversary of the grant date, (c) cliff vesting on the third anniversary of the grant date, (d) for new hire awards only, vesting terms that closely parallel the vesting terms of any awards that the new hire will forfeit upon joining the Company, except that no such new hire award or portion thereof shall vest prior to the one-year anniversary of the date of grant unless otherwise permitted by the 2007 Plan, or (e) 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 the vesting period.

Under the VCSUA Subplan, each eligible participant was granted a number of basic stock units on the date the year-end variable compensation is communicated to participants 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 addition, each participant may be 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 (which were granted in February 2014 to members of senior management) 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) for awards granted in February 2015, 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, (b) for awards granted in February 2016, 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 of (a) and (b), ROE-based restricted stock units), (c) for awards granted in January 2017, in equal installments on February 5, 2019 and February 5, 2020 based on the levels of revenue and pre-tax margin achieved for the 2018 fiscal year, or (d) for awards granted in January 2018, in equal installments on February 5, 2019, February 5, 2020 and February 5, 2021 based on the levels of revenue and pre-tax margin achieved for each of the three fiscal years, respectively, that ends immediately prior to the applicable vesting date (each of (c) and (d), performance-based restricted stock units). In addition to the performance criteria being achieved under each of these awards, 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. The number of performance-based restricted stock units earned is determined pursuant to a payout matrix established by the Committee that sets forth a range of payout percentages relative to the Company’s actual revenue and pre-tax margin results achieved for the relevant fiscal year, with each performance metric weighted equally. 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 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 vested 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 vested on the following vesting dates: (i) 38% vested on January 31, 2016 and were subject to a 12-month holding requirement; (ii) 41% vested on January 31, 2017; and (iii) the remaining 21% vested on January 31, 2018.

Pursuant to the 280G Accelerated Vesting Actions taken by the Compensation Committee described above, with respect to restricted stock unit awards, the Committee approved the accelerated vesting of an aggregate of (a) 39,815 time-based restricted stock units, which were scheduled to vest on January 24, 2019, (b) 4,509 time-based restricted stock units, which were scheduled to vest on February 11, 2019, (c) 45,804 time-based restricted stock units, which were scheduled to vest on January 24, 2020 and (d) 25,796 time-based restricted stock units, which were scheduled to vest on January 24, 2021.

The Company recorded share‑based compensation expense of $28.4 million (including $2.6 million related to the 280G Accelerated Vesting Actions described above), $19.6 million and $24.9 million for the years ended December 31, 2018, 2017 and 2016, respectively, related to restricted stock unit awards which were offset by related income tax benefits of approximately $1.2 million, $0.9 million and $8.9 million respectively.

A summary of the status of the Company’s restricted stock unit awards as of December 31, 2018, 2017 and 2016 and changes during the years then ended are presented below:


	Number of
	Shares
	Underlying
	ROE-Based,	Number of
	Market-Based or	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, 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
Granted	140,796	1,118,596	1,259,392		19.81
Vested	(51,498)	(1,279,523)	(1,331,021)		16.60
Forfeited	(38,324)	(45,766)	(84,090)		18.99
Outstanding at December 31, 2017	393,344	2,514,201	2,907,545	$	18.10
Granted	122,424	1,184,933	1,307,357		21.18
Vested	(45,065)	(1,232,484)	(1,277,549)		18.84
Forfeited	(144,715)	(112,384)	(257,099)		19.35
Outstanding at December 31, 2018	325,988	2,354,266	2,680,254	$	19.50

At December 31, 2018, 62,768 of the outstanding awards were ROE-based restricted stock units and 263,220 were performance-based restricted stock units.

On May 27, 2016, the Company sold Investment Research (See Note 6, Divestitures). 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 Statements of Operations.

As of December 31, 2018, there was $25.2 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 1.2 years. During 2018, restricted stock unit awards with a fair value of approximately $23.9 million vested.

For the year ended December 31, 2018, the excess tax benefits totaled $0.6 million and 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 $0.1 million. For the year ended December 31, 2017, the excess tax benefits totaled $1.5 million while tax shortfalls were $0.1 million. For the year ended December 31, 2016, the excess tax benefits totaled $0.8 million while tax shortfalls were $0.7 million. For 2016, 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.

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 year ended December 31, 2016, the Company recorded share‑based compensation expense of $0.1 million related to phantom share awards offset by related tax benefits of less than $0.1 million.

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


		Weighted
		Average
	Number of	Grant Date
	Shares	Fair Value
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 and none were granted in 2017 or 2018. The Company discontinued granting phantom share awards effective January 1, 2014 and the remaining awards outstanding vested on February 22, 2016.

Notwithstanding the foregoing, at the Effective Time of the Merger, (i) each stock option of the Company that was outstanding and unexercised was converted at the Effective Time into an option to purchase Class A common stock, par value $0.00001 per share, of Virtu (“Virtu Common Stock”), with the number of shares of Virtu Common Stock and the exercise price applicable to such option based on an exchange ratio, the numerator of which is the Merger Consideration and the denominator of which is the volume-weighted average price per share of Virtu Common Stock for the ten trading days prior to the Effective Time (the “Exchange Ratio”); (ii) each outstanding award of restricted stock units or deferred stock units with respect to shares of the Company’s common stock (other than awards with performance-based vesting or delivery requirements) (a “Company RSU Award”) that was granted on or after January 23, 2017 and was not held by a non-employee director, former employee or employee whose employment was terminated involuntarily without cause immediately following the Effective Time was converted into the right to receive restricted stock units of Virtu on the same terms and conditions as were applicable under the Company RSU Award, with the number of shares of Virtu Common Stock subject to such replacement restricted stock unit award based on the number of shares of the Company’s common stock subject to such Company RSU Award and the Exchange Ratio; (iii) each outstanding Company RSU Award other than those described in the preceding clause (ii) became fully vested at the Effective Time and converted into the right to receive the Merger Consideration with respect to the number of shares of the Company’s common stock subject to such Company RSU Award; (iv) each outstanding award of restricted stock units with respect to shares of the Company’s common stock with performance-based vesting or delivery requirements (a “Company PSU Award”) that was granted on or after January 23, 2017 and was not held by a non-employee director, former employee or employee whose employment was terminated involuntarily without cause immediately following the Effective Time was converted into the right to receive restricted stock units of Virtu on the same terms and conditions as were applicable under the Company PSU Award (other than the performance-based vesting schedule, which was converted into a service-based vesting schedule in accordance with the applicable award agreement), with the number of shares of Virtu Common Stock subject to such replacement restricted stock unit award based on the number of shares of the Company’s common stock deemed earned at the Effective Time and the Exchange Ratio; and (v) each outstanding Company PSU Award other than those described in the preceding clause (iv) became fully vested at the Effective Time and converted into the right to receive the Merger Consideration with respect to the number of shares of the Company’s common stock deemed earned at the Effective Time.

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 $275,000 during 2018. 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 $4.0 million, $4.3 million, and $4.4 million in 2018, 2017 and 2016, respectively, and are included in compensation and employee benefits 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 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 $0.2 million, $0.3 million and $0.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. Shares distributed under the ESPP are newly-issued shares. The ESPP was suspended after the Company entered into the Merger Agreement with Virtu.

During 2018, each non‑employee director received a general Board retainer fee of $70,000, with the exception of the Chairman who received $105,000. Each non-employee director was also eligible to receive a Committee Chair retainer fee and Committee member retainer fee depending on their role on the Board’s Committees. Under the Directors’ Retainer Fee Subplan, which was adopted in 2002, these retainer fees are 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 13,812 units or shares, 11,115 units or shares and 12,363 units or shares in 2018, 2017 and 2016, respectively. At December 31, 2018, there were 150,765 deferred share units outstanding, of which 19,825 shares were vested and deferred in 2018. The cost of the Directors’ Retainer Fee Subplan including share based awards and cash fees was approximately $0.8 million, $0.8 million and $0.8 million in 2018, 2017 and 2016, respectively, and is included in other general and administrative expenses in the Consolidated Statements of Operations.