Stock Incentive Plan

Under the Plan, up to 10,000,000 shares of AGCO common stock may be issued. As of December 31, 2018, of the 10,000,000 shares reserved for issuance under the Plan, approximately 3,436,426 shares were available for grant, assuming the maximum number of shares are earned related to the performance award grants discussed below. The Plan allows the Company, under the direction of the Board of Directors’ Compensation Committee, to make grants of performance shares, stock appreciation rights, stock options, restricted stock units and restricted stock awards to employees, officers and non-employee directors of the Company.

Long-Term Incentive Plan and Related Performance Awards

The Company’s primary long-term incentive plan is a performance share plan that provides for awards of shares of the Company’s common stock based on achieving financial targets, such as targets for earnings per share, return on invested capital, operating margins and selling, general and administrative expenses and overhead levels, as determined by the Company’s Board of Directors. The stock awards under the Plan are earned over a performance period, and the number of shares earned is determined based on annual cumulative or average results for the specified period, depending on the measurement. Performance periods for the Company’s primary long-term incentive plan are consecutive and overlapping three-year cycles, and performance targets are set at the beginning of each cycle. The primary long-term incentive plan provides for participants to earn 33% to 200% of the target awards depending on the actual performance achieved, with no shares earned if performance is below the established minimum target. Awards earned under the Plan are paid in shares of common stock at the end of each three-year performance period. The percentage level achievement is determined annually, with the ultimate award that is earned determined based upon the average of the three annual percentages. The compensation expense associated with these awards is amortized ratably over the vesting or performance period based on the Company’s projected assessment of the level of performance that will be achieved and earned.

Compensation expense recorded during 2018, 2017 and 2016 with respect to awards granted was based upon the stock price as of the grant date. The weighted average grant-date fair value of performance awards granted under the Plan during 2018, 2017 and 2016 was as follows:



	Years Ended December 31,
	2018		2017		2016
Weighted average grant-date fair value	$	71.40	$	61.94	$	47.93

During 2018, the Company granted 441,740 performance awards related to varying performance periods assuming the maximum target level of performance is achieved.

Performance award transactions during 2018 were as follows and are presented as if the Company were to achieve its maximum levels of performance under the plan:



Shares awarded but not earned at January 1	1,645,078
Shares awarded	441,740
Shares forfeited or unearned	(81,932	)
Shares earned and vested	(1,066,024	)
Shares awarded but not earned at December 31	938,862

Based on the level of performance achieved as of December 31, 2018, 839,090 shares were earned under the related performance period and 521,888 shares were issued in February 2019, net of 317,202 shares that were withheld for taxes related to the earned awards. The Plan allows for the participant to have the option of forfeiting a portion of the shares awarded in lieu of a cash payment contributed to the participant’s tax withholding to satisfy the participant’s statutory minimum federal, state and employment taxes which would be payable at the time of grant.

During 2017, the Company recorded approximately $4.8 million of accelerated stock compensation expense associated with a stock award declined by the Company’s Chief Executive Officer.

As of December 31, 2018, the total compensation cost related to unearned performance awards not yet recognized, assuming the Company’s current projected assessment of the level of performance that will be achieved and earned, was approximately $31.6 million, and the weighted average period over which it is expected to be recognized is approximately two years. This estimate is based on the current projected levels of performance of outstanding awards. The compensation cost not yet recognized could be higher or lower based on actual achieved levels of performance.

Restricted Stock Units

During the year ended December 31, 2018, the Company granted 247,404 restricted stock unit (“RSU”) awards. These awards entitle the participant to receive one share of the Company’s common stock for each RSU granted and vest one-third per year over a three-year requisite service period. The compensation expense associated with these awards is being amortized ratably over the requisite service period for the awards that are expected to vest. The weighted average grant-date fair value of the RSUs granted under the Plan during the year ended December 31, 2018 and 2017 was $63.99 and $61.99, respectively. RSU transactions during the year ended December 31, 2018 were as follows:



Shares awarded but not vested at January 1	237,468
Shares awarded	247,404
Shares forfeited	(11,695	)
Shares vested	(120,202	)
Shares awarded but not vested at December 31	352,975

As of December 31, 2018, the total compensation cost related to the unvested RSUs not yet recognized was approximately $14.2 million, and the weighted average period over which it is expected to be recognized is approximately two years.

Stock-settled Appreciation Rights

In addition to the performance share plans, certain executives and key managers are eligible to receive grants of SSARs. The SSARs provide a participant with the right to receive the aggregate appreciation in stock price over the market price of the Company’s common stock at the date of grant, payable in shares of the Company’s common stock. The participant may exercise his or her SSARs at any time after the grant is vested but no later than seven years after the date of grant. The SSARs vest ratably over a four-year period from the date of grant. SSAR awards made to certain executives and key managers under the Plan are made with the base price equal to the price of the Company’s common stock on the date of grant. The Company recorded stock compensation expense of approximately $2.4 million, $3.0 million and $3.8 million associated with SSAR awards during 2018, 2017 and 2016, respectively. The compensation expense associated with these awards is being amortized ratably over the vesting period. The Company estimated the fair value of the grants using the Black-Scholes option pricing model.

The weighted average grant-date fair value of SSAR awards granted under the Plan and the weighted average assumptions under the Black-Scholes option model were as follows for the years ended December 31, 2018, 2017 and 2016:



	Years Ended December 31,
	2018			2017			2016
Weighted average grant-date fair value	$	12.88		$	11.45		$	7.98
Weighted average assumptions under Black-Scholes option model:
Expected life of awards (years)	3.0			3.0			3.0
Risk-free interest rate	2.2		%	1.5		%	1.1		%
Expected volatility	23.7		%	25.9		%	25.9		%
Expected dividend yield	0.8		%	0.9		%	1.1		%

SSAR transactions during the year ended December 31, 2018 were as follows:



SSARs outstanding at January 1		1,060,192
SSARs granted		157,700
SSARs exercised		(109,950	)
SSARs canceled or forfeited		(8,350	)
SSARs outstanding at December 31		1,099,592
SSAR price ranges per share:
Granted	$	73.14
Exercised		43.39 - 63.47
Canceled or forfeited		43.88 - 63.47
Weighted average SSAR exercise prices per share:
Granted	$	73.14
Exercised		51.01
Canceled or forfeited		53.68
Outstanding at December 31		55.58

At December 31, 2018, the weighted average remaining contractual life of SSARs outstanding was approximately four years. As of December 31, 2018, the total compensation cost related to unvested SSARs not yet recognized was approximately $3.8 million and the weighted-average period over which it is expected to be recognized is approximately two years.

The following table sets forth the exercise price range, number of shares, weighted average exercise price, and remaining contractual lives by groups of similar price as of December 31, 2018:



	SSARs Outstanding				SSARs Exercisable
Range of Exercise Prices	Number of Shares	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Exercisable as of December 31, 2018	Weighted Average Exercise Price
$43.88-$52.85	528,600	3.3	$	45.90	318,675	$	46.06
$55.07-$73.14	570,992	4.6	$	64.54	202,192	$	58.88
	1,099,592				520,867	$	51.03

The total fair value of SSARs vested during 2018 was approximately $2.8 million. There were 578,725 SSARs that were not vested as of December 31, 2018. The total intrinsic value of outstanding and exercisable SSARs as of December 31, 2018 was $5.2 million and $3.1 million, respectively. The total intrinsic value of SSARs exercised during 2018 was approximately $1.5 million.

The excess tax benefit realized for tax deductions in the United States related to the exercise of SSARs, vesting of RSU awards and vesting of performance awards under the Plan was approximately $1.6 million for the year ended December 31, 2018. The excess tax benefit realized for tax deductions in the United States related to the exercise of SSARs and vesting of RSU awards under the Plan was approximately $0.1 million for the year ended December 31, 2017. The excess tax benefit realized for tax deductions in the United States related to the exercise of SSARs and vesting of RSU awards under the Plan was less than $0.1 million for the year ended December 31, 2016. The Company realized an insignificant tax benefit from the exercise of SSARs, vesting of performance awards and vesting of RSU awards in certain foreign jurisdictions during the years ended December 31, 2018, 2017 and 2016.

On January 22, 2019, the Company granted 273,665 performance award shares (subject to the Company achieving future target levels of performance), 243,600 SSARs and 131,116 RSUs under the Plan.

Director Restricted Stock Grants

Pursuant to the Plan, all non-employee directors receive annual restricted stock grants of the Company’s common stock. All restricted stock grants made to the Company’s directors are restricted as to transferability for a period of one year. In the event a director departs from the Company’s Board of Directors, the non-transferability period expires immediately. The plan allows each director to have the option of forfeiting a portion of the shares awarded in lieu of a cash payment contributed to the participant’s tax withholding to satisfy the statutory minimum federal, state and employment taxes that would be payable at the time of grant. The 2018 grant was made on April 26, 2018 and equated to 17,226 shares of common stock, of which 12,629 shares of common stock were issued, after shares were withheld for taxes. The Company recorded stock compensation expense of approximately $1.1 million during 2018 associated with these grants.