12. Stock-Based Compensation

We maintain stock-based incentive plans under which incentive stock options, non-qualified stock options, stock appreciation rights, restricted shares and restricted share units may be granted to employees and consultants. Our current practice is to issue new shares, rather than treasury shares, upon stock option exercises and for restricted share grants. To date, we have only granted non-qualified stock options, restricted shares and restricted share units of common stock under these plans. Non-employee directors have received only non-qualified stock options under a non-employee director equity plan, which expired in May 2007. Currently, we do not have a plan under which non-employee directors may be granted stock options or other equity interests in the Company.

On April 2, 2015, our Board approved an amendment to our 2010 Stock Incentive Plan to increase the number of shares of common stock available for grant under the plan to 9.2 million shares from 6.8 million shares. This amendment was approved by our stockholders at our annual meeting held on May 28, 2015. This is our only active stock-based incentive plan, and approximately 1.5 million of these shares were available for grant as of January 3, 2017.

Stock options generally vest at 20% per year and expire eight to ten years from the date of grant. Restricted shares and restricted share units generally vest between three to five years from the date of grant and require that the staff member remains employed in good standing with the Company as of the vesting date. Certain restricted share units granted to executive officers contain performance-based vesting conditions. Performance goals are determined by the Board of Directors. The quantity of units that will vest ranges from 0% to 125% based on the level of achievement of the performance conditions. Equity awards for certain executive officers may vest earlier in the event of a change of control in which the acquirer fails to assume or continue such awards, as defined in the plan, or under certain circumstances described in such executive officers’ respective employment agreements.

Since restricted shares and restricted share units provide strong retention power through economic value to our staff members even when our stock price remains flat or declines, and they also reduce our total share usage, we have generally increased the proportion of restricted shares and restricted share units versus stock option grants over the past several years. Compensation expense is recognized only for those options, restricted shares and restricted share units expected to vest, with forfeitures estimated based on our historical experience and future expectations.

The following table presents information related to stock-based compensation, net of forfeitures (in thousands):

	Fiscal Year
	2016		2015		2014

Labor expenses	$	6,023	$	5,748	$	5,245
Other operating costs and expenses	251		268		216
General and administrative expenses	15,199		14,037		11,356

Total stock-based compensation	21,473		20,053		16,817
Income tax benefit	8,213		7,670		6,433

Total stock-based compensation, net of taxes	$	13,260	$	12,383	$	10,384


Capitalized stock-based compensation (1)	$	338	$	272	$	216

(1)

It is our policy to capitalize the portion of stock-based compensation costs for our internal development and construction, legal, and facilities departments that relates to capitalizable activities such as the design and construction of new restaurants, remodeling existing locations, lease, intellectual property and liquor license acquisition activities and equipment installation. Capitalized stock-based compensation is included in property and equipment, net and other assets on the consolidated balance sheets.

Stock Options

The weighted average fair value at the grant date for options issued during fiscal 2016, 2015 and 2014 was $12.10, $14.17 and $15.48 per option, respectively. The fair value of options was estimated utilizing the Black-Scholes valuation model with the following weighted average assumptions for fiscal 2016, 2015 and 2014, respectively: (a) an expected option term of 6.8 years, 6.6 years and 6.5 years, (b) expected stock price volatility of 26.3%, 31.3% and 32.9%, (c) a risk-free interest rate of 1.6%, 1.9% and 2.2%, and (d) a dividend yield on our stock of 1.6%, 1.4% and 1.2%.

The expected option term represents the estimated period of time until exercise and is based on historical experience of similar options, giving consideration to the contractual terms, vesting schedules and expectations of future employee behavior. Expected stock price volatility is based on a combination of the historical volatility of our stock and the implied volatility of actively traded options on our common stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant with an equivalent remaining term. The dividend yield is based on anticipated cash dividend payouts.

Stock option activity during fiscal 2016 was as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value(1)
	(In thousands)		(Per share)		(In years)	(In thousands)
Outstanding at beginning of year	3,066		$	30.00	3.6	$	52,416
Granted	225		$	50.26
Exercised	(1,304	)	$	21.76
Forfeited or cancelled	(32	)	$	40.86

Outstanding at end of year	1,955		$	37.65	4.0	$	42,592


Exercisable at end of year	1,064		$	31.69	2.8	$	29,505

(1)

Aggregate intrinsic value is calculated as the difference between our closing stock price at fiscal year end and the exercise price, multiplied by the number of in-the-money options and represents the pre-tax amount that would have been received by the option holders, had they all exercised their options on the fiscal year end date.

The total intrinsic value of options exercised during fiscal 2016, 2015 and 2014 was $40.4 million, $37.0 million and $28.2 million, respectively. As of January 3, 2017, total unrecognized stock-based compensation expense related to unvested stock options was $8.0 million, which we expect to recognize over a weighted average period of approximately 2.6 years.

Restricted Shares and Restricted Share Units

Restricted share and restricted share unit activity during fiscal 2016 was as follows:

	Shares		Weighted Average Fair Value
	(In thousands)		(Per share)
Outstanding at beginning of year	1,891		$	41.31
Granted	458		$	50.89
Vested	(368	)	$	33.07
Forfeited	(120	)	$	43.40

Outstanding at end of year	1,861		$	45.11

Fair value of our restricted shares and restricted share units is based on our closing stock price on the date of grant. The weighted average fair value for restricted shares and restricted share units issued during fiscal 2016, 2015 and 2014 was $50.89, $49.70 and $47.16, respectively. The fair value of shares that vested during fiscal 2016, 2015 and 2014 was $12.2 million, $7.5 million and $4.5 million, respectively. As of January 3, 2017, total unrecognized stock-based compensation expense related to unvested restricted shares and restricted share units was $40.5 million, which we expect to recognize over a weighted average period of approximately 2.6 years.