10. Share-based Compensation and Benefit Plans

Incentive Compensation. During the second quarter of 2011, our Board of Trust Managers adopted, and on May 11, 2011 our shareholders approved, the 2011 Share Incentive Plan of Camden Property Trust (as amended, the “2011 Share Plan”). Under the 2011 Share Plan, we may issue up to a total of approximately 9.1 million fungible units (the “Fungible Pool Limit”), which is comprised of approximately 5.8 million new fungible units plus approximately 3.3 million fungible units previously available for issuance under our 2002 share incentive plan based on a 3.45 to 1.0 fungible unit to full value award conversion ratio. Fungible units represent the baseline for the number of shares available for issuance under the 2011 Share Plan. Different types of awards are counted differently against the Fungible Pool Limit, as follows:


•	Each share issued or to be issued in connection with an award, other than an option, right or other award which does not deliver the full value at grant of the underlying shares, will be counted against the Fungible Pool Limit as 3.45 fungible pool units;


•	Options and other awards which do not deliver the full value at grant of the underlying shares and which expire more than five years from date of grant will be counted against the Fungible Pool Limit as one fungible pool unit; and


•	Options, rights and other awards which do not deliver the full value at grant and expire five years or less from the date of grant will be counted against the Fungible Pool Limit as 0.83 of a fungible pool unit.

At December 31, 2014, approximately 5.5 million fungible units were available under the 2011 Share Plan, which results in approximately 1.6 million common shares which may be granted pursuant to full value awards based on the 3.45 to 1.0 fungible unit to full value award conversion ratio.

Awards which may be granted under the 2011 Share Plan include incentive share options, non-qualified share options (which may be granted separately or in connection with an option), share awards, dividends and dividend equivalents and other equity based awards. Persons eligible to receive awards under the 2011 Share Plan are trust managers, directors of our affiliates, executive and other officers, key employees and consultants, as determined by the Compensation Committee of our Board of Trust Managers. The 2011 Share Plan will expire on May 11, 2021.

Options. New options are exercisable, subject to the terms and conditions of the plan, in increments ranging from 20% to 33.33% per year on each of the anniversaries of the date of grant. The plan provides that the exercise price of an option will be determined by the Compensation Committee of the Board of Trust Managers on the day of grant, and to date all options have been granted at an exercise price that equals the fair market value on the date of grant. Approximately 0.4 million and 0.2 million options were exercised during the years ended December 31, 2014 and 2013, respectively. The total intrinsic value of options exercised was approximately $7.4 million, $5.3 million, and $12.2 million during the years ended December 31, 2014, 2013 and 2012, respectively. At December 31, 2014, there was no unrecognized compensation cost related to unvested options. Options generally have a vesting period of three to five years. At December 31, 2014, all options outstanding were exercisable and had a weighted average remaining life of approximately 4.1 years.

The following table summarizes outstanding share options and exercisable options at December 31, 2014:



	Options Outstanding and Exercisable (1)
Range of Exercise Prices	Number	Weighted Average Price
$30.06	135,709	$	30.06
$41.16-$43.94	119,242	42.46
$48.02-$64.75	66,860	50.84
Total options	321,811	$	38.97


(1)	The aggregate intrinsic value of options outstanding and exercisable at December 31, 2014 was approximately $11.2 million. The aggregate intrinsic value was calculated as the excess, if any, between our closing share price of $73.84 per share on December 31, 2014 and the strike price of the underlying award.

Options Granted and Valuation Assumptions. During the year ended December 31, 2014, we granted approximately 0.1 million reload options. Reload options are granted for the number of shares tendered as payment for the exercise price upon the exercise of an option with a reload provision. The reload options granted have an exercise price equal to the fair market value of a common share on the date of grant and expire on the same date as the original options which were exercised. The reload options granted during the year ended December 31, 2014 vested immediately and approximately $0.3 million was expensed on the reload date. We estimate the fair values of each option award including reloads on the date of grant using the Black-Scholes option pricing model. The following assumptions were used for the reload options granted during the year ended December 31, 2014:



	Year Ended December 31, 2014
Weighted average fair value of options granted	$3.55 - $8.17
Expected volatility	22.6% - 23.2%
Risk-free interest rate	0.1% - 1.1%
Expected dividend yield	3.5%
Expected life	6 months - 4 years

Our computation of expected volatility for 2014 is based on the historical volatility of our common shares over a time period equal to the expected life of the option and ending on the grant date. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield on our common shares is based on the historical dividend yield over the expected term of the options granted. Our computation of expected life is based upon historical experience of similar awards, giving consideration to the contractual terms of the share-based awards.

Share Awards and Vesting. Share awards for employees generally have a vesting period of three to five years. The compensation cost for share awards is based on the market value of the shares on the date of grant and is generally amortized over the vesting period. In the event the holder of the share awards is reaching retirement eligibility age of 65 years and has met the service requirements as defined in the 2011 Share Plan, the value of the share awards is amortized from the date of grant to the retirement eligibility date. To estimate forfeitures, we use actual forfeiture history. At December 31, 2014, the unamortized value of previously issued unvested share awards was approximately $35.7 million which is expected to be amortized over the next four years. The total fair value of shares vested during the years ended December 31, 2014, 2013 and 2012 was approximately $17.1 million, $15.9 million, and $13.9 million, respectively.

Total compensation cost for option and share awards charged against income was approximately $16.0 million, $14.7 million, and $13.7 million for 2014, 2013 and 2012, respectively. Total capitalized compensation cost for option and share awards was approximately $2.7 million, $2.2 million, and $1.4 million for 2014, 2013 and 2012, respectively.

The following table summarizes activity under our share incentive plans for the three years ended December 31:



	Options Outstanding		Weighted Average Exercise / Grant Price		Nonvested Share Awards Outstanding		Weighted Average Exercise / Grant Price
Options and nonvested share awards outstanding at December 31, 2011	1,339,536		$	42.27	818,754		$	46.88
Granted	—		—		346,330		63.51
Exercised/Vested	(468,839	)	40.86		(282,552	)	49.28
Forfeited	(31,943	)	60.56		(20,279	)	52.05
Balance at December 31, 2012	838,754		$	42.36	862,253		$	52.64
Granted	—		—		350,615		69.56
Exercised/Vested	(183,871	)	41.56		(309,396	)	51.41
Forfeited	(20,522	)	73.32		(72,174	)	58.08
Balance at December 31, 2013	634,361		$	41.59	831,298		$	59.77
Granted	84,452		64.75		314,614		65.78
Exercised/Vested	(375,316	)	47.85		(305,372	)	55.97
Forfeited	(21,686	)	62.32		(21,597	)	64.14
Total options and nonvested share awards outstanding at December 31, 2014	321,811		$	38.97	818,943		$	63.39

Employee Share Purchase Plan (“ESPP”). We have established an ESPP for all active employees and officers who have completed one year of continuous service. Participants may elect to purchase our common shares through payroll deductions and/or through semi-annual contributions. At the end of each six-month offering period, each participant’s account balance is applied to acquire common shares at 85% of the market value, as defined, on the first or last day of the offering period, whichever price is lower. We currently use treasury shares to satisfy ESPP share requirements. Each participant must hold the shares purchased for nine months in order to receive the discount, and a participant may not purchase more than $25,000 in value of shares during any plan year, as defined. The following table presents information related to our ESPP:



	2014		2013		2012
Shares purchased	25,728		17,171		20,137
Weighted average fair value of shares purchased	$	71.19	$	62.59	$	67.80
Expense recorded (in millions)	$	0.5	$	0.2	$	0.3

Rabbi Trust. We established a rabbi trust for a select group of participants in which share awards granted under the share incentive plan and salary and other cash amounts earned may be deposited. The rabbi trust is only in use for deferrals made prior to 2005, including bonuses related to service in 2004 but paid in 2005. The rabbi trust is an irrevocable trust and no portion of the trust fund may be used for any purpose other than the delivery of those assets to the participants. The assets held in the rabbi trust are subject to the claims of our general creditors in the event of bankruptcy or insolvency.

The value of the assets of the rabbi trust is consolidated into our financial statements. Granted share awards held by the rabbi trust are classified in equity in a manner similar to the manner in which treasury stock is accounted. Subsequent changes in the fair value of the shares are not recognized. The deferred compensation obligation is classified as an equity instrument and changes in the fair value of the amount owed to the participant are not recognized. At December 31, 2014 and 2013, approximately 1.8 million and 1.9 million share awards were held in the rabbi trust, respectively. Additionally, as of December 31, 2014 and 2013, the rabbi trust held trading securities totaling approximately $43.7 million and $41.3 million, respectively, which represents cash deferrals made by plan participants. Market value fluctuations on these trading securities are recognized in income in accordance with GAAP and the liability due to participants is adjusted accordingly.

At December 31, 2014 and 2013, approximately $24.7 million and $25.4 million, respectively, was required to be paid to us by plan participants upon the withdrawal of any assets from the rabbi trust, and is included in “Accounts receivable-affiliates” in our consolidated financial statements.

Non-Qualified Deferred Compensation Plan. In 2004, we established a Non-Qualified Deferred Compensation Plan which is an unfunded arrangement established and maintained primarily for the benefit of a select group of participants. Eligible participants commence participation in this plan on the date the deferral election first becomes effective. We credit to the participant’s account an amount equal to the amount designated as the participant’s deferral for the plan year as indicated in the participant’s deferral election(s). Any modification to or termination of the plan will not reduce a participant’s right to any vested amounts already credited to his or her account. Approximately 1.2 million share awards were held in the plan at both December 31, 2014 and 2013. Additionally, as of December 31, 2014 and 2013, the plan held trading securities totaling approximately $27.7 million and $18.1 million, respectively, which represents cash deferrals made by plan participants. Market value fluctuations on these trading securities are recognized in income in accordance with GAAP and the liability due to participants is adjusted accordingly.

In July 2013, we amended and restated the plan to permit diversification of fully vested share awards into other equity securities subject to a six month holding period. In February 2014, we further amended and restated the plan to clarify certain terms relating to the deferral based compensation. As a result of such action, the fully vested awards and the proportionate share of nonvested awards eligible for diversification were reclassified from additional paid in capital to temporary equity in our consolidated balance sheets. The share awards are adjusted to their redemption value at each reporting period, with the redemption value based on the market value of the shares at the end of the reporting period. Changes in value from period to period are charged to distributions in excess of net income attributable to common shareholders in our consolidated statements of equity and perpetual preferred units. The following tables summarize the eligible share award activity as recorded in temporary equity from July 31, 2013, the effective date of the initial amended and restated plan, through December 31, 2014:



(in thousands)	Year Ended December 31, 2014			From July 31, 2013 to December 31, 2013
Temporary equity:
Balance at inception/beginning of period	$	47,180		$	—
Change in classification	7,702			37,958
Change in redemption value	17,921			9,575
Diversification of share awards	(4,669		)	(353		)
Balance at December 31	$	68,134		$	47,180

401(k) Savings Plan. We have a 401(k) savings plan, which is a voluntary defined contribution plan. Under the savings plan, every employee is eligible to participate, beginning on the date the employee has completed six months of continuous service with us. Each participant may make contributions to the savings plan by means of a pre-tax salary deferral, which may not be less than 1% or more than 60% of the participant’s compensation, subject to limitations. The federal tax code limits the annual amount of salary deferrals which may be made by any participant. We may make matching contributions on the participant’s behalf up to a predetermined limit. The matching contribution made for each of the years ended December 31, 2014, 2013 and 2012 was approximately $2.2 million. A participant’s salary deferral contribution is 100% vested and nonforfeitable. A participant will become vested in our matching contributions 33% after one year of service, 67% after two years of service and 100% after three years of service. Administrative expenses under the savings plan were paid by us and were not significant for all periods presented.