Stock-Based Compensation

In March 2006, the Board of Directors of the Company approved the Steven Madden, Ltd. 2006 Stock Incentive Plan (the “Plan”) under which nonqualified stock options, stock appreciation rights, performance shares, restricted stock, other stock-based awards and performance-based cash awards may be granted to employees, consultants and non-employee directors. The Company’s stockholders approved the Plan on May 26, 2006. The stockholders have subsequently approved successive amendments of the Plan, most recently on May 25, 2012, when the stockholders approved a third amendment to the Plan that increased the maximum number of shares that may be issued under the Plan to 23,466,000. The following table summarizes the number of shares of common stock authorized for use under the Plan, the number of stock-based awards granted (net of expired or cancelled awards) under the Plan and the number of shares of common stock available for the grant of stock-based awards under the Plan:



Common stock authorized	23,466,000
Stock-based awards, including restricted stock and stock options granted, net of expired or cancelled	(20,315,000	)
Common stock available for grant of stock-based awards as of December 31, 2016	3,151,000

In accordance with accounting guidance relating to stock-based compensation, the Company records compensation for all awards to employees based on the fair value of options and restricted stock on the date of grant. Equity-based compensation is included in operating expenses on the Company's Consolidated Statements of Income. For the years ended December 31, 2016, 2015 and 2014, total equity-based compensation was as follows:



	Years Ended December 31,
	2016		2015		2014
Restricted stock	$	16,494	$	15,543	$	15,007
Stock options	3,015		3,155		4,253
Total	$	19,509	$	18,698	$	19,260

For the years ended December 31, 2015 and 2014, the Company classified cash flows of $10,510 and $2,978, respectively, resulting from the tax benefits from tax deductions in excess of the compensation costs recognized for those options (tax benefits) as financing cash flows. During the third quarter of 2016, the Company adopted Accounting Standards Update No. 2016-09 ("ASU 2016-09"), Improvements to Employee Share-Based Payment Accounting which changes the accounting for certain aspects of share-based

Note H – Stock-Based Compensation (continued)

payments to employees (refer to Note Q). As a result of the adoption of ASU 2016-09, the Company classifies cash flows resulting from tax benefits as operating cash flows for the year ended December 31, 2016. For the year ended December 31, 2016, the Company realized a tax benefit from stock-based compensation of $5,244.

Stock Options

The total intrinsic value of options exercised during 2016, 2015 and 2014 amounted to $16,983, $12,433 and $6,351 respectively. During the years ended December 31, 2016, 2015 and 2014, 322,022 options with a weighted average exercise price of $32.37, 455,528 options with a weighted average exercise price of $27.27 and 537,276 options with a weighted average exercise price of $21.19 vested, respectively. As of December 31, 2016, there were unvested options relating to 596,982 shares of common stock with a total of $3,276 of unrecognized compensation cost and an average vesting period of 1.5 years.

The Company uses the Black-Scholes-Merton option-pricing model to estimate the fair value of options granted, which requires several assumptions. The expected term of the options represents the estimated period of time until exercise and is based on the historical experience of similar awards. Expected volatility is based on the historical volatility of the Company’s common stock. The risk free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. With the exception of special dividends paid in November 2005 and 2006, the Company historically has not paid regular cash dividends and thus the expected dividend rate is assumed to be zero. The following weighted average assumptions were used for stock options granted:



	2016	2015	2014
Volatility	22% to 26%	22% to 28%	27% to 32%
Risk-free interest rate	0.86% to 1.90%	0.99% to 1.60%	1.06% to 1.80%
Expected life in years	3 to 5	3 to 5	3 to 5
Dividend yield	0.00%	0.00%	0.00%
Weighted average fair value	$7.11	$8.81	$9.90

Activity relating to stock options granted under the Company’s plans and outside the plans during the three years ended December 31, 2016 is as follows:

Note H – Stock-Based Compensation (continued)



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at January 1, 2014	3,373,000		$	17.01
Granted	489,500		34.69
Exercised	(340,000	)	14.57
Expired/Forfeited	(94,500	)	28.77
Outstanding at December 31, 2014	3,428,000		19.48
Granted	69,000		36.59
Exercised	(1,460,000	)	14.59
Expired/Forfeited	(21,000	)	28.49
Outstanding at December 31, 2015	2,016,000		23.51
Granted	262,000		33.86
Exercised	(746,000	)	14.36
Expired/Forfeited	(33,000	)	30.59
Outstanding at December 31, 2016	1,499,000		$	29.72	3.3 years	$	9,042
Exercisable at December 31, 2016	902,000		$	27.02	2.5 years	$	7,873

The following table summarizes information about stock options at December 31, 2016:



	Options Outstanding			Options Exercisable
Range of Exercise Price	Number Outstanding	Weighted Average Remaining Contractual Life (in Years)	Weighted Average Exercise Price	Number Exercisable	Weighted Average Exercise Price
$14.99 to $20.07	323,167	1.0	$17.34	323,167	$17.34
$21.17 to $26.95	7,750	2.4	23.95	7,750	23.95
$27.03 to $30.72	377,444	3.1	29.33	246,885	29.24
$31.35 to $36.59	722,133	4.3	34.72	296,293	34.76
$36.68 to $41.95	68,506	4.2	38.18	27,905	38.15
	1,499,000	3.3	$29.72	902,000	$27.02

Note H – Stock-Based Compensation (continued)

Restricted Stock

The following table summarizes restricted stock activity during the three years ended December 31, 2016:



	Number of Shares		Weighted Average Fair Value at Grant Date
Outstanding at January 1, 2014	4,257,000		$	24.24
Granted	182,000		34.88
Vested	(345,000	)	24.11
Forfeited	(27,000	)	29.34
Outstanding at December 31, 2014	4,067,000		24.69
Granted	361,000		35.71
Vested	(304,000	)	23.24
Forfeited	(69,000	)	34.23
Outstanding at December 31, 2015	4,055,000		25.32
Granted	434,000		34.30
Vested	(276,000	)	30.28
Forfeited	(22,000	)	33.45
Outstanding at December 31, 2016	4,191,000		$	25.93

As of December 31, 2016, there was $69,606 of total unrecognized compensation cost related to restricted stock awards granted under the Plan. This cost is expected to be recognized over a weighted average period of 5.9 years.

The Company determines the fair value of its restricted stock awards based on the market price of its common stock on the date of grant. The fair value of the restricted stock that vested during the years ended December 31, 2016, 2015 and 2014 was $9,758, $6,980 and $8,317, respectively.

On January 3, 2012, the Company and its Creative and Design Chief, Steven Madden, entered into an amendment of Mr. Madden’s existing employment agreement, pursuant to which, on February 8, 2012, Mr. Madden was granted 1,463,057 restricted shares of the Company’s common stock at the then market price of $27.34, which will vest in equal annual installments over a seven-year period commencing on December 31, 2017 and, thereafter, on each December 31 through December 31, 2023, subject to Mr. Madden’s continued employment on each such vesting date. On June 30, 2012, Mr. Madden exercised his right under his employment agreement to receive an additional restricted stock award, and, on July 3, 2012, he was granted 1,893,342 restricted shares of the Company's common stock at the then market price of $21.13, which will vest in equal annual installments over a six-year period commencing on December 31, 2018 and, thereafter, on each December 31 through December 31, 2023, subject to Mr. Madden’s continued employment on each such vesting date. On August 8, 2016, pursuant to the employment agreement, Mr. Madden was granted an option to purchase 150,000 shares of the Company's common stock at an exercise price of $34.42 per share, which option is exercisable in equal quarterly installments commencing on November 8, 2016.