14. Share-Based Compensation Plans

Adoption of Equity Plans

On September 27, 2008 the University’s shareholders approved the adoption of the 2008 Equity Incentive Plan (“Incentive Plan”) and the 2008 Employee Stock Purchase (“ESPP”). A total of 4,200 shares of the University’s common stock was originally authorized for issuance under the Incentive Plan. On January 1 of each subsequent year in accordance with the terms of the Incentive Plan, the number of shares authorized for issuance under the Incentive Plan automatically increases by 2.5% of the number of shares of common stock issued and outstanding on the applicable December 31, unless the Compensation Committee of our Board of Directors elects to decline the increase or chooses a lower increase. The Compensation Committee elected to decline the increase that would have gone into effect as of January 1, 2016, leaving the number of shares of common stock authorized for issuance under the Incentive Plan at 12,167. Although the ESPP has not yet been implemented, a total of 1,050 shares of the University’s common stock have been authorized for sale under the ESPP.

Incentive Plan

Restricted Stock

During fiscal year 2015, 2014, and 2013, the University granted 315, 308 and 575 shares of common stock, respectively, with a service vesting condition to certain of its executives, officers, faculty and employees. The restricted shares have voting rights and vest evenly at 20% over each of the next five years. Upon vesting, shares will be held in lieu of taxes equivalent to the minimum statutory tax withholding required to be paid when the restricted stock vests. In 2015, 2014, and 2013, the University granted 9, 9, and 11 shares of common stock, respectively, to certain of the non-employee members of the University’s board of directors. The restricted shares have voting rights and vest within one year of the date of grant. In addition, in 2013 the University granted 8 shares of common stock to a consultant. The restricted shares have voting rights and vest evenly at a rate of 20% per year over each of the next five years.

A summary of the activity related to restricted stock granted under the University’s Incentive Plan is as follows:


	Total Shares			Weighted Average Grant Date Fair Value per Share
Outstanding as of December 31, 2012		553		$	17.04
Granted		594		$	24.44
Vested		(119	)	$	17.13
Forfeited, canceled or expired		(45	)	$	20.57

Outstanding as of December 31, 2013		983		$	21.34

Granted		317		$	46.02
Vested		(225	)	$	21.27
Forfeited, canceled or expired		(42	)	$	27.36

Outstanding as of December 31, 2014		1,033		$	28.75

Granted		324		$	45.66
Vested		(274	)	$	27.18
Forfeited, canceled or expired		(27	)	$	30.27

Outstanding as of December 31, 2015		1,056		$	34.30

As of December 31, 2015, there was approximately $27,778 of total unrecognized share-based compensation cost, net of estimated forfeitures, related to unvested restricted stock awards. These costs are expected to be recognized over a weighted average period of 2.10 years.

Stock Options

No options were granted in 2015 and 2014. During 2013, the University granted time vested options to purchase shares of common stock with an exercise price equal to the fair market value on the date of grant to an employee. The time vested options vest ratably over a period of four years and expire ten years from the date of grant. Prior to 2012, the University granted time vested options to purchase shares of common stock with an exercise price equal to the fair market value on the date of grant to employees. These time vested options vest ratably over a period of five years and expire ten years from the date of grant. A summary of the activity related to stock options granted under the University’s Incentive Plan is as follows:


	Summary of Stock Options Outstanding
	Total Shares			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value ($)(1)
Outstanding as of December 31, 2012		4,229		$	14.57
Granted		25		$	24.97
Exercised		(1,160	)	$	14.03
Forfeited, canceled or expired		(71	)	$	17.22

Outstanding as of December 31, 2013		3,023		$	14.80

Granted		—		$	—
Exercised		(539	)	$	14.51
Forfeited, canceled or expired		(32	)	$	16.93

Outstanding as of December 31, 2014		2,452		$	14.83

Granted		—		$	—
Exercised		(218	)	$	15.97
Forfeited, canceled or expired		(14	)	$	16.08

Outstanding as of December 31, 2015		2,220		$	14.71		3.83	$	56,398

Exercisable as of December 31, 2015		2,013		$	14.59		3.68	$	51,392

Available for issuance as of December 31, 2015		1,893

(1)	Aggregate intrinsic value represents the value of the University’s closing stock price on December 31, 2015 ($40.12) in excess of the exercise price multiplied by the number of options outstanding or exercisable.

As of December 31, 2015, there was approximately $323 of total unrecognized share-based compensation cost, net of estimated forfeitures, related to unvested stock options. These costs are expected to be recognized over a weighted average period of 0.35 years.

The following table summarizes information related to stock options exercised for years ended December 31, 2015, 2014 and 2013:


	2015		2014		2013
Amounts related to options exercised:
Intrinsic value realized by optionee	$	18,069	$	27,499	$	20,364
Actual tax benefit realized by the University for tax deductions	$	7,228	$	11,000	$	8,145

Cash received from stock option exercises during fiscal year 2015, 2014 and 2013 totaled approximately $3,489, $7,825 and $16,278, respectively.

Share-based Compensation

Share-based Compensation Expense Assumptions – Restricted Stock Awards

The University measures and recognizes compensation expense for share-based payment awards made to employees, consultants and directors. The University calculates the fair value of share-based awards on the date of grant for employees and directors. The University calculates the fair value of share-based awards to consultants on the date of vesting. Stock-based compensation expense related to restricted stock grants is expensed over the vesting period using the straight-line method for University employees, the University’s board of directors and the consultant, net of estimated forfeitures. The restricted shares have voting rights.

Share-based Compensation Expense Assumptions – Stock Options

The University granted stock options in 2013. No stock options were granted in 2015 or 2014.

Fair Value. The University uses the Black-Scholes-Merton option pricing model to estimate the fair value of the University’s options as of the grant dates using the following weighted average assumptions:


Year Ended December 31,	2013
Weighted average fair value	$	8.20
Expected volatility		39.86	%
Expected life (years)		4.25
Risk-free interest rate		0.65	%
Dividend yield		0	%

Expected Volatility. The University believes that the use of Grand Canyon Education, Inc.’s historical stock price provides an accurate estimate of expected volatility. Therefore, the expected volatility assumption for the year ended December 31, 2013 is based upon the University’s historical stock price.

Expected Life (years). In 2013, the University determined it now has enough historical option exercise information to be able to accurately estimate an expected term, and as such, its computation of expected term was calculated using its own historical data. Prior to 2013, the University used the simplified method to estimate the expected term of stock options under certain circumstances. The simplified method for estimating expected term is to use the mid-point between the vesting term and the contractual term of the share option. The University elected to use the simplified method for options granted prior to 2013 because the University did not have historical exercise data to estimate expected term due to the limited time period its shares had been publicly traded.

Risk-Free Interest Rate. The risk-free interest rate assumption is based upon the U.S. constant maturity treasury rates as the risk-free rate interpolated between the years commensurate with the expected life of the options.

Dividend Yield. The dividend yield assumption is zero since the University does not expect to declare or pay dividends in the foreseeable future.

Forfeitures. Forfeitures are estimated at the time of grant based on historical retention of employees. If necessary, management estimates are adjusted at the end of each reporting period if actual forfeitures differ from those estimates.

Expected Vesting Period. The University amortizes the share-based compensation expense, net of forfeitures, over the expected vesting period using the straight-line method.

The table below outlines share-based compensation expense for the fiscal years ended December 31, 2015, 2014 and 2013 related to restricted stock and stock options granted:


	2015			2014			2013
Instructional costs and services	$	6,779		$	5,921		$	5,246
Admissions advisory and related		192			166			134
Marketing and promotional		130			220			229
General and administrative		4,156			3,638			4,327

Share-based compensation expense included in operating expenses		11,257			9,945			9,936
Tax effect of share-based compensation		(4,503	)		(3,978	)		(3,974	)

Share-based compensation expense, net of tax	$	6,754		$	5,967		$	5,962

401(k) Plan

The University has established a 401(k) Defined Contribution Benefit Plan (the “Plan”). The Plan provides eligible employees, upon date of hire, with an opportunity to make tax-deferred contributions into a long-term investment and savings program. All employees over the age of 21 are eligible to participate in the plan. The Plan allows eligible employees to contribute to the Plan subject to Internal Revenue Code restrictions and the Plan allows the University to make discretionary matching contributions. The University plans to make a matching contribution to the Plan of approximately $1,800 for the year ended December 31, 2015. The University made discretionary matching contributions to the Plan of $1,508 and $1,298 for the years ended December 31, 2014 and 2013, respectively.