10.	STOCKHOLDERS’ EQUITY AND STOCK-BASED COMPENSATION

We have historically issued shares of restricted stock under the Paycom Software, Inc. 2014 Long-Term Incentive Plan (the “LTIP”) that are subject to either time-based vesting conditions or market-based vesting conditions. The market-based vesting conditions are based on our total enterprise value (“TEV”) exceeding certain specified thresholds. Compensation expense related to the issuance of shares with time-based vesting conditions is measured based on the fair value of the award on the grant date and recognized over the requisite service period on a straight-line basis. Compensation expense related to the issuance of shares with market-based vesting conditions is measured based upon the fair value of the award on the grant date and recognized on a straight-line basis over the vesting period based upon the probability that the vesting condition will be met.

The following table presents a summary of the grant-date fair values of restricted stock granted during the years ended December 31, 2017, 2016 and 2015 and the related assumptions:

	Year Ended December 31,
	2017		2016		2015
Grant-date fair value of restricted stock	$46.78 - $60.67		$23.15 - $49.34		$21.76 - $33.33
Risk-free interest rates	1.85%		1.28% - 1.36%		2.2%
Estimated volatility	23.0%		21.0% - 23.0%		26.0%
Expected life (in years)		2.3		2.7		3.6

The following table summarizes restricted stock awards activity for the year ended December 31, 2017:

	Time-Based Restricted Stock Awards					Market-Based Restricted Stock Awards
	Shares			Weighted Average Grant Date Fair Value		Shares			Weighted Average Grant Date Fair Value
Unvested shares of restricted stock outstanding at December 31, 2016		1,429,514		$	20.56		738,425		$	28.68
Granted		309,526		$	60.00		314,021		$	48.63
Vested		(681,699	)	$	6.67		(1,014,429	)	$	34.44
Forfeited		(168,661	)	$	35.20		(38,017	)	$	39.87
Unvested shares of restricted stock outstanding at December 31, 2017		888,680		$	42.17		-		$	-

On April 26, 2017, we issued an aggregate of 613,677 shares of restricted stock under the LTIP to our executive officers and certain other employees, consisting of a combination of shares subject to market-based vesting conditions and shares subject to time-based vesting conditions. Shares subject to market-based vesting conditions were scheduled to vest 50% if the Company’s TEV (as defined in the applicable award agreement) equaled or exceeded $4.15 billion and the remaining 50% were scheduled to vest if the Company’s TEV equaled or exceeded $4.45 billion. Shares subject to market-based vesting conditions would be forfeited if they did not vest within six years of the date of grant. Shares subject to time-based vesting conditions were issued with vesting periods ranging from 2 to 5 years.

On May 1, 2017, we issued an aggregate of 9,870 shares of restricted stock under the LTIP to members of our board of directors. Such shares of restricted stock cliff-vest on the seventh (7^th) day following the first (1^st) anniversary of the grant date, provided that the director is providing services to the Company through the applicable vesting date.

The following table summarizes market-based restricted stock vesting activity during the year ended December 31, 2017, the associated compensation cost recognized in connection with the vesting event and the number of shares withheld to satisfy tax withholding obligations:

Vesting Condition	Date Vested	Number of Shares Vested		Compensation Cost Recognized Upon Vesting (in millions)	Shares Withheld for Taxes¹
Market-based (TEV = $3.5 billion)	May 13, 2017		229,075	$2.9		91,274
Market-based (TEV = $3.9 billion)	June 20, 2017		248,250	$5.2		103,907
Market-based (TEV = $4.15 billion)	August 25, 2017		153,764	$5.5		65,309
Market-based (TEV = $4.2 billion)	September 7, 2017		244,850	$4.2		102,548
Market-based (TEV = $4.45 billion)	October 13, 2017		138,490	$4.3		57,916

¹ All shares withheld to satisfy tax withholding obligations are held as treasury stock.

Our total compensation expense related to restricted stock was $38.5 million and $22.5 million for the years ended December 31, 2017 and 2016, respectively. There was $30.3 million of unrecognized compensation cost, net of estimated forfeitures, related to unvested shares of restricted stock outstanding as of December 31, 2017. The unrecognized compensation cost is expected to be recognized over a weighted average period of 2.1 years as of December 31, 2017.

We capitalized stock-based compensation costs related to software developed for internal use of $3.3 million, $1.8 million and $0.2 million for the years ended December 31, 2017, 2016 and 2015, respectively.

The following table presents non-cash stock-based compensation expense resulting from restricted stock awards, which is included in the following line items in the accompanying consolidated statements of income for the years ended December 31, 2017, 2016 and 2015 (dollars in thousands):

	Year Ended December 31,
	2017		2016		2015
Operating expense	$	3,950	$	2,217	$	235
Sales and marketing		6,086		3,656		559
Research and development		1,912		836		104
General and administrative		26,565		15,837		2,112
Total non-cash stock-based compensation expense	$	38,513	$	22,546	$	3,010