10. Employee Incentive Plans

Defined Contribution Plan

The Company offers substantially all employees of U.S.-based Operating Companies who have met minimum service requirements the opportunity to participate in defined contribution retirement plans qualifying under the provisions of Section 401(k) of the Internal Revenue Code. The general purpose of this plan is to provide employees with an incentive to make regular savings in order to provide additional financial security during retirement. This plan provides for the Company to match 50% of the employees’ pre-tax contribution, up to a maximum of 10% of eligible earnings. The employee is vested in the matching contribution incrementally over six years of service. Included in employee compensation and benefits expenses in the consolidated statements of comprehensive income were $3 million of plan contributions for the three years ended December 31, 2016, 2015, and 2014, respectively.

2007 ROI Unit Stock Plan

In connection with the IPO, the Company adopted the IBG, Inc. 2007 ROI Unit Stock Plan (“ROI Unit Stock Plan”). An aggregate of 1,271,009 shares of restricted common stock (consisting of 1,250,000 shares issued under the ROI Unit Stock Plan and 21,009 shares under the 2007 Stock Incentive Plan, as described below), with a fair value at the date of grant of $38 million were issued to IBG LLC and held as treasury stock.

As of December 31, 2016, the Company has 4,994 shares of common stock remaining to be distributed to former employees under the ROI Unit Stock Plan.

2007 Stock Incentive Plan

Under the Company’s 2007 Stock Incentive Plan (the “Stock Incentive Plan”), up to 30 million shares of the Company’s common stock may be granted and issued to directors, officers, employees, contractors and consultants of the Company. The purpose of the Stock Incentive Plan is to promote the Company’s long‑term financial success by attracting, retaining and rewarding eligible participants.

As a result of the Company’s organizational structure, a description of which can be found in “Business – Our Organizational Structure” in Part I Item 1 of this Annual Report on Form 10-K, there is no dilutive effect upon ownership of common stockholders of issuing shares under the Stock Incentive Plan. The issuances do not dilute the book value of the ownership of common stockholders since the restricted stock units are granted at market value, and upon their vesting and the related issuance of shares of common stock, the ownership of IBG, Inc. in IBG LLC, increases proportionately to the shares issued. As a result of such proportionate increase in share ownership, the dilution upon issuance of common stock is borne by IBG LLC’s majority member (i.e., noncontrolling interest), Holdings, and not by IBG, Inc. or its common stockholders. Additionally, dilution of earnings that may take place after issuance of common stock is reflected in EPS reported in the Company’s financial statements. The EPS dilution can be neither estimated nor projected, but historically it has not been material.

The Stock Incentive Plan is administered by the Compensation Committee of the Company’s Board of Directors. The Compensation Committee has discretionary authority to determine the eligibility to participate in the Stock Incentive Plan and establishes the terms and conditions of the stock awards, including the number of awards granted to each participant and all other terms and conditions applicable to such awards in individual grant agreements. Awards are expected to be made primarily through grants of restricted common stock. Stock Incentive Plan awards are subject to issuance over time. All previously granted but not yet earned awards may be cancelled by the Company upon the participant’s termination of employment or violation of certain applicable covenants prior to issuance, unless determined otherwise by the Compensation Committee.

The Stock Incentive Plan provides that, upon a change in control, the Compensation Committee may, at its discretion, fully vest any granted but not yet earned awards under the Stock Incentive Plan, or provide that any such granted but not yet earned awards will be honored or assumed, or new rights substituted by the new employer on a substantially similar basis and on terms and conditions substantially comparable to those of the Stock Incentive Plan.

The Company expects to continue to grant awards on or about December 31 of each year to eligible participants as part of an overall plan of equity compensation. Shares of common stock vest, and become distributable to participants in accordance with the following schedule:

•10% on the first vesting date, which is on or about May 9 of each year; and

•an additional 15% on each of the following six anniversaries of the first vesting, assuming continued employment with the Company and compliance with non-competition and other applicable covenants.

Awards granted to external directors vest, and are distributed, over a five‑year period (20% per year) commencing one year after the date of grant. A total of 22,996 shares have been granted to the external directors cumulatively since the plan inception.

Stock Incentive Plan share grants (excluding 21,009 shares issued pursuant to the ROI Unit Stock Plan described above) and the related fair values since the plan inception are presented in the table below:



			Fair Value at
			Date of Grant
	Shares		($ millions)
Prior periods (since inception)	19,178,500		$	348
December 31, 2014	1,709,968			49
December 31, 2015	1,211,533	1		52
December 31, 2016	1,445,479			55
	23,545,480		$	504

(1)

Stock Incentive Plan number of granted shares related to 2015 was adjusted by 12,454 additional shares during the year ended December 31, 2016.

Estimated future grants under the Stock Incentive Plan are accrued for ratably during each year (see Note 2). In accordance with the vesting schedule, outstanding awards vest and are distributed to participants yearly on or about May 9 of each year. At the end of each year, there are no vested awards that remain undistributed.

Compensation expense related to the Stock Incentive Plan recognized in the consolidated statements of comprehensive income was $51 million, $50 million, and $41 million for the years ended December 31, 2016, 2015, and 2014, respectively. Estimated future compensation costs for unvested awards, net of credits for cancelled awards, as of December 31, 2016 are $39 million.

The following summarizes the Stock Incentive Plan and ROI Unit Stock Plan activities from December 31, 2013 through December 31, 2016:



		Intrinsic Value
		of SIP Shares
	Stock	which Vested		ROI Unit
	Incentive Plan	and were Distributed		Stock Plan
	Shares	($ millions) (1)		Shares
Balance, December 31, 2013	11,647,117			—
Granted	1,709,968			—
Cancelled	(535,085)			15,518	(2)
Distributed	(2,445,200)	$	56	(5,904)
Balance, December 31, 2014	10,376,800			9,614
Granted	1,211,533			—
Cancelled	(163,221)			—
Distributed	(2,487,127)	$	86	(3,244)
Balance, December 31, 2015	8,937,985			6,370
Granted	1,445,479			—
Cancelled	(69,340)			—
Distributed	(2,402,062)	$	88	(1,376)
Balance, December 31, 2016	7,912,062			4,994

(1)

Intrinsic value of SIP shares distributed represents the compensation value reported to the participants.

(2)

ROI Unit Stock Plan number of cancelled unearned shares related to prior years was adjusted by 15,518 shares during the period

Awards previously granted but not yet earned under the stock plans are subject to the plans’ post-employment provisions in the event a participant ceases employment with the Company. Through December 31, 2016, a total of 447,374 shares have been distributed under these post‑employment provisions. These distributions are included in the table above.