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Common Stock Incentive Plan | 12 Months Ended
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Dec. 31, 2016
Common Stock Incentive Plan |
Common Stock Incentive Plan | 17. Common Stock Incentive Plan In 2012, our Board of Directors adopted and stockholders approved the Realty Income Corporation 2012 Incentive Award Plan, or the 2012 Plan, to enable us to motivate, attract and retain the services of directors and employees considered essential to our long-term success. The 2012 Plan offers our directors and employees an opportunity to own our stock or rights that will reflect our growth, development and financial success. Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units and other awards, will be no more than 3,985,734 shares. The 2012 Plan has a term of ten years from the date it was adopted by our Board of Directors. The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income was $12.0 million during 2016, $10.4 million during 2015, and $12.0 million during 2014. A. Restricted Stock The following table summarizes our common stock grant activity under our 2012 Plan. Our outstanding restricted stock vests over periods ranging from immediately to five years.
|  | 2016 |  | 2015 |  | 2014
|  |  |  | Weighted |  |  |  | Weighted |  |  |  | Weighted
|  | Number of shares |  | average price(1) |  | Number of shares |  | average price(1) |  | Number of shares |  | average price(1)
Outstanding nonvested shares, beginning of year |  | 456,282 |  | $ | 30.46 |  | 527,176 |  | $ | 29.02 |  | 722,263 |  | $ | 23.37
Shares granted |  | 260,171 |  | $ | 54.14 |  | 161,949 |  | $ | 50.87 |  | 262,655 |  | $ | 39.87
Shares vested |  | (200,066 | ) | $ | 43.26 |  | (205,248 | ) | $ | 37.70 |  | (440,348 | ) | $ | 36.88
Shares forfeited |  | (2,864 | ) | $ | 48.15 |  | (27,595 | ) | $ | 45.58 |  | (17,394 | ) | $ | 39.07
Outstanding nonvested shares, end of each period |  | 513,523 |  | $ | 48.33 |  | 456,282 |  | $ | 30.46 |  | 527,176 |  | $ | 29.02
(1) Grant date fair value. |  |  |  |  |  |  |  |  |  |  |  |
The vesting schedule for shares granted to non-employee directors is as follows: – For directors with less than six years of service at the date of grant, shares vest in 33.33% increments on each of the first three anniversaries of the date the shares of stock are granted; – For directors with six years of service at the date of grant, shares vest in 50% increments on each of the first two anniversaries of the date the shares of stock are granted; – For directors with seven years of service at the date of grant, shares are 100% vested on the first anniversary of the date the shares of stock are granted; and – For directors with eight or more years of service at the date of grant, there is immediate vesting as of the date the shares of stock are granted. During 2016, 28,000 shares were granted to our Board of Directors, of which 20,000 vested immediately and 8,000 shares vest annually in equal parts over a three-year service period. For shares granted on or after January 1, 2015, shares granted to employees typically vest in 20% increments on each of the first five anniversaries of the grant date. For shares granted prior to December 2014, the typical vesting schedule for shares granted to employees was as follows: – For employees age 55 and below at the grant date, shares vest in 20% increments on each of the first five anniversaries of the grant date; – For employees age 56 at the grant date, shares vest in 25% increments on each of the first four anniversaries of the grant date; – For employees age 57 at the grant date, shares vest in 33.33% increments on each of the first three anniversaries of the grant date; – For employees age 58 at the grant date, shares vest in 50% increments on each of the first two anniversaries of the grant date; – For employees age 59 at the grant date, shares are 100% vested on the first anniversary of the grant date; and – For employees age 60 and above at the grant date, shares vest immediately on the grant date. Of the 232,171 shares granted to employees during 2016, 143,739 will vest over a five-year service period and 88,432 will vest over a four-year service period. As of December 31, 2016, the remaining unamortized share-based compensation expense related to restricted stock totaled $18.7 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and condition of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares. As of December 31, 2016, 2015 and 2014, there were no common stock options outstanding for any of the periods presented. B. Performance Shares During 2016, 2015 and 2014, we granted performance share awards, as well as dividend equivalent rights, to our executive officers. The number of performance shares that vest is based on the achievement of the following performance goals:
2016 & 2015 Performance Awards |  |
Metrics |  | Weighting
Total shareholder return (“TSR”) relative to MSCI US REIT Index |  | 50%
TSR relative to NAREIT Freestanding Index |  | 20%
Dividend per share growth rate |  | 20%
Debt-to-EBITDA ratio |  | 10%
2014 Performance Awards |  |
Metrics |  | Weighting
TSR relative to MSCI US REIT Index |  | 60%
TSR relative to NAREIT Freestanding Index |  | 20%
Debt-to-EBITDA ratio |  | 20%
The performance shares are earned based on our performance, and vest 50% on the first and second January 1 after the end of the three year performance period, subject to continued service. The performance period for the 2014 performance awards began on January 1, 2014 and ended on December 31, 2016. The performance period for the 2015 performance awards began on January 1, 2015 and will end on December 31, 2017. The performance period for the 2016 performance awards began on January 1, 2016 and will end on December 31, 2018. The fair value of the performance shares was estimated on the date of grant using a Monte Carlo Simulation model. The following table summarizes our performance share grant activity:
|  | 2016 |  | 2015 |  | 2014
|  | Number of |  | Weighted |  | Number of |  | Weighted |  | Number of |  | Weighted
|  | performance |  | average |  | performance |  | average |  | performance |  | average
|  | shares |  | price(1) |  | shares |  | price(1) |  | shares |  | price(1)
Outstanding nonvested shares, beginning of year |  | 115,121 |  | $ | 46.94 |  | 59,405 |  | $ | 41.46 |  | - |  | $ | -
Shares granted |  | 58,575 |  | $ | 55.07 |  | 55,716 |  | $ | 52.78 |  | 71,705 |  | $ | 41.46
Shares vested |  | (10,454 | ) | $ | 44.54 |  | - |  | $ | - |  | (4,067) |  | $ | 41.46
Shares forfeited |  | (3,491 | ) | $ | 52.55 |  | - |  | $ | - |  | (8,233) |  | $ | 41.46
Outstanding nonvested shares, end of each period |  | 159,751 |  | $ | 49.95 |  | 115,121 |  | $ | 46.94 |  | 59,405 |  | $ | 41.46
(1) Grant date fair value. |  |  |  |  |  |  |  |  |  |  |  |
As of December 31, 2016, the remaining share-based compensation expense related to the performance shares totaled $3.7 million and is being recognized on a tranche-by-tranche basis over the service period. C. Restricted Stock Units During 2016 and 2015 we also granted restricted stock units that vest over a five-year service period and have the same economic rights as shares of restricted stock.
|  | 2016 |  | 2015 |  |  |  |
|  | Number of |  | Weighted |  | Number of |  | Weighted |  |  |  |
|  | restricted stock |  | average |  | restricted stock |  | average |  |  |  |
|  | units |  | price(1) |  | units |  | price(1) |  |  |  |
Outstanding nonvested shares, beginning of year |  | 10,136 |  | $ | 52.21 |  | - |  | $ | - |  |  |  |
Shares granted |  | 14,783 |  | $ | 52.76 |  | 10,136 |  | $ | 52.21 |  |  |  |
Shares vested |  | (6,459 | ) | $ | 52.21 |  | - |  | $ | - |  |  |  |
Shares forfeited |  | - |  | $ | - |  | - |  | $ | - |  |  |  |
Outstanding nonvested shares, end of each period |  | 18,460 |  | $ | 52.65 |  | 10,136 |  | $ | 52.21 |  |  |  |
(1) Grant date fair value. |  |  |  |  |  |  |  |  |  |  |  |
As of December 31, 2016, the remaining share-based compensation expense related to the restricted stock units totaled $752,000 and is being recognized on a straight-line basis over the service period.

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