13.

Long-Term Compensation

In May 2012, stockholders approved the 2012 LTIP. All outstanding awards granted under the previous plans remain outstanding in accordance with their terms. The 2012 LTIP provides for grants of awards to officers, directors, employees, and consultants of the Parent or its subsidiaries. Awards can be in the form of stock options (non-qualified options and incentive stock options), stock appreciation rights and full value awards (restricted stock, restricted stock units (“RSUs”) and performance-based shares, restricted Operating Partnership units (“LTIP Units”) and cash incentive awards). No participant can be granted more than 1.5 million awards under the 2012 LTIP in any one calendar year. Awards may be made under the 2012 LTIP until it is terminated by the Board or until the ten-year anniversary of the effective date of the plan. We began granting awards in the form of LTIP Units during 2014. An LTIP Unit represents a partnership interest in the Operating Partnership. After vesting and the satisfaction of certain conditions, an LTIP Unit may be exchangeable for a common unit in the Operating Partnership and then redeemable for a share of common stock.

We have 27.2 million shares reserved for issuance, of which 23.1 million shares of common stock were available for future issuance at December 31, 2014. Each LTIP Unit counts as one share of common stock for purposes of calculating the limit on shares that may be issued.

Out-Performance Plan (“OPP”)

We grant awards in the form of points under our OPP corresponding to three-year performance periods. The fair value of the awards are measured at the grant date and amortized over the performance period. OPP awards are earned to the extent our total stockholder return (“TSR”) for the performance period exceeds the TSR for the MSCI US REIT Index for the same period plus 100 basis points. If this outperformance hurdle is met, the compensation pool is equal to 3% of the excess value created, subject to a maximum of the greater of $75 million or 0.5% of our equity market capitalization at the start of the performance period. Each participant is allocated a percentage of the total compensation pool. Awards earned at the end of the performance period cannot be paid to participants unless our absolute TSR, as defined in the plan, is positive for the performance period. If we outperform the TSR for the MSCI US REIT Index plus 100 basis points, but the absolute TSR is not positive, payment will be delayed until such time as our absolute TSR becomes positive. If after seven years our absolute TSR has not become positive, the awards will be forfeited.

We used the Monte Carlo valuation model to value the points granted in 2014, 2013 and 2012. The points relate to a three-year performance period that begins on January 1 of the year granted. If the performance criteria are met, the participants’ points will be paid in the form of common stock or LTIP Units. In 2014, we gave certain participants the election to choose the form of payment of awards earned, if any, in common stock of the Parent or a special OPP type of LTIP Units (the “OPP LTIP Units”) that represents restricted operating partnership units in the Operating Partnership. For future performance periods, a participant may elect to receive common stock in the event that the performance criteria under the OPP are met or OPP LTIP Units upon the award of participation points. If the performance criteria are not met, the participation points and the OPP LTIP Units will be forfeited. At December 31, 2014, all awards are equity classified.

The 2012 grant was originally liability classified as the payment was expected to be in cash and the fair value was re-measured on a quarterly basis and the expense was adjusted. On May 1, 2013, the compensation committee of the Board approved a modification of the settlement terms for the awards to be paid in shares of common stock. The award was reclassified from liability to equity based on the fair value at the date of modification date. At December 31, 2014, the performance criteria were not met for the 2012 grant, and, therefore, no awards were earned and the points and OPP LTIP Units for the 2012-2014 performance period were forfeited.

The following table details the assumptions of each grant based on the year it was granted (dollars in thousands):


	2014		2013		2012 (1)
Risk free interest rate		0.67%		0.39%		0.17%
Expected volatility		38%		38%		23%
Aggregate fair value	$	23,100	$	23,900	$	36,100

(1)	These assumptions are based on the date the grant was modified in 2013.

Prologis Promote Plan (“PPP”)

Under the PPP, we established a compensation pool equal to 40% of the aggregate promotes earned by Prologis under agreements with our co-investment ventures, representing the third-party portion. The awards may be settled in cash or RSUs and, as of August 2014, participants may elect to receive LTIP Units in lieu of RSUs. The RSUs and LTIP Units have a three-year vesting period. At the beginning of each year, each participant is allocated a percentage of the total compensation pool for each applicable new co-investment venture.

A compensation pool was funded in August 2014 and 2013 associated with promotes earned from two of our co-investment ventures, as discussed in Note 5. The total value of the awards in the third quarter of 2014 was $11.3 million, of which $4.2 million was paid in cash, approximately 57,000 RSUs were issued with a grant date fair value of $2.4 million and approximately 113,000 LTIP Units were issued with a grant date fair value of $4.7 million. The total value of the awards issued in the third quarter of 2013 was $5.3 million, of which $2.7 million was paid in cash and approximately 69,000 RSUs were issued with a grant date fair value of $2.6 million.

We record an accrual for the estimated cash portion of the PPP at the same time the revenue is recognized.

Restricted Stock Units (“RSUs”)

In addition to the RSU’s granted under the OPP and PPP, we grant RSUs to certain employees, generally on an annual basis. Each award represents one share of common stock of the Parent and generally vests over a continued service period. The RSUs earn cash dividends during the vesting period and are, therefore, considered participating securities. We charge the value of the dividend to retained earnings. The fair value of the RSU is generally based on the market price of the Parent’s common stock on the date the award is granted and is charged to compensation expense during the vesting period, which is generally three years.

The activity for the year ended December 31, 2014 with respect to our RSUs was as follows (awards in thousands):


	Number of Unvested RSUs		Weighted Average Grant-Date Fair Value		Number of Awards Vested
Balance at January 1, 2014		2,266	$	36.82		79

Granted		1,329		40.85
Vested and distributed		(1,019)		35.70
Forfeited		(55)		38.20

Balance at December 31, 2014		2,521	$	39.38		106

Total remaining compensation cost related to RSUs outstanding at December 31, 2014 was $52.4 million, prior to adjustments for capitalized amounts due to our development and leasing activities. The remaining compensation cost will be recognized through 2018, with a weighted average period of 1.4 years.

Restricted Operating Partnership Units (“LTIP Units”)

LTIP Units are valued based on the market price of the Parent’s common stock on the date the award is granted and generally vest ratably over three years. Distributions are paid with respect to the LTIP Units during the vesting period and, therefore, such LTIP Units are considered participating securities. OPP LTIP Units are paid distributions during the performance period equal to one tenth of a common stock dividend and may not be exchanged for a common unit in the Operating Partnership until earned and certain conditions are met. OPP LTIP units are therefore not considered a participating security. The value of the distribution is charged to Net Income Attributable to Noncontrolling Interest in the Operating Partnership in the Consolidated Statements of Operations.

The activity for the year ended December 31, 2014 with respect to the LTIP Units issued under the PPP (as explained above) was as follows (units in thousands):


	Number of Unvested LTIP Units		Weighted Average Grant-Date Fair Value
Balance at January 1, 2014		-	$	-
Granted		113		41.43
Vested and distributed		-		-
Forfeited		-		-

Balance at December 31, 2014		113	$	41.43

Total remaining compensation cost related to LTIP Units at December 31, 2014 was $4.2 million, prior to adjustments for capitalized amounts due to our development and leasing activities. The remaining compensation cost will be recognized through 2017, with a weighted average period of 1.9 years.

During 2014, certain participants of the 2012 LTIP were offered the election to exchange outstanding but unvested full value awards for LTIP Units, which exchange was completed in January 2015. In addition, in 2014, certain participants were offered an election to receive grants of LTIP Units in lieu of future grants of RSUs under the 2012 LTIP and PPP. The LTIP Units issued pursuant to such elections will have the same vesting period and grant date fair value as the RSUs issuable under such awards.

In December 2014, participants in the OPP were offered the election to exchange their previously granted participation points into OPP LTIP Units. In such election, participation points were exchanged into 2.8 million OPP LTIP Units with respect to the 2012-2014, 2013-2015 and 2014-2016 performance periods. The performance criteria for the 2012-2014 performance period was not met. As a result, no OPP awards for the 2012-2014 performance period were earned and, in January 2015, all OPP LTIP Units that were associated 2012-2014 performance period were forfeited with no impact in 2014.

Stock Options

We have 5.3 million stock options outstanding and exercisable at December 31, 2014 with a weighted average exercise price of $34.80 and a weighted average life of 3.8 years. The aggregate intrinsic value of exercised options was $5.8 million, $9.6 million, and $21.3 million for the years ended December 31, 2014, 2013 and 2012, respectively. No stock options were granted in the three-year period ended December 31, 2014.

Other Plans

The Prologis 401(k) Plan ( the “401(k) Plan”) provides for matching employer contributions of 50 cents for every dollar contributed by an employee, up to 6% of the employee’s annual compensation (within the statutory compensation limit). In the 401(k) Plan, vesting in the matching employer contributions is based on the employee’s years of service, with 100% vesting at the completion of one year of service. Our contributions under the matching provisions were $2.2 million, $2.1 million and $1.8 million for 2014, 2013 and 2012, respectively.

We have a non-qualified savings plan that allows highly compensated employees the opportunity to defer the receipt and income taxation of a certain portion of their compensation in excess of the amount permitted under the 401(k) Plan. There has been no employer matching in the three-year period ended December 31, 2014.