STOCK-BASED COMPENSATION

The Company has stock-based compensation plans available under which incentive equity awards such as non-qualified stock options, rights to purchase shares of common stock, restricted stock, restricted stock units and performance share units ("PSUs") may be issued to employees, consultants or directors of Realogy.

Time vested options granted under the plans generally vest ratably over a four-year period and have a ten-year contractual term. Restricted stock, restricted stock units and performance share units granted under the plans generally vest over a three-year period. In February 2014, the Company adopted a retirement provision for equity grants which provides for continued vesting of awards once an employee has attained the age of 65 years, or 55 years of age or older plus at least ten years of tenure with the Company provided they have been employed or provided services to the Company for one year following the date of grant or start of the performance period.

Awards granted in 2014 included a mix of PSUs, restricted stock unit awards and options. The 2014 PSUs are incentives that reward grantees based upon the Company's financial performance over a three-year performance period ending December 31, 2016. The 2014 PSUs contain two performance metrics: (1) improvement in the Company's net debt leverage ratio measured as of December 31, 2016, defined as the ratio of the Company's net debt at December 31, 2016 to Adjusted EBITDA (as defined under the senior secured credit facility) for the year ending December 31, 2016, and (2) improvement in the Company's operating margin defined as Adjusted EBITDA divided by net revenues, each for the year ending December 31, 2016. The number of shares that may be issued under the PSU is variable and based upon the extent to which the performance goals are achieved over the performance period (with a range of payout from 0% to 200% of the target award). The shares earned will be distributed in early 2017.

Consistent with the 2014 long-term incentive equity awards, the 2015 awards include a mix of PSUs, restricted stock units (performance restricted stock units for the CEO and direct reports) and options. The 2015 PSUs are incentives that reward grantees based upon the Company's financial performance over a three-year performance period ending December 31, 2017. There are two PSU awards: one is based upon the total stockholder return of Realogy's common stock relative to the total stockholder return of the SPDR S&P Homebuilders Index ("XHB") (the "RTSR award"), and the other is based upon the achievement of cumulative free cash flow goals. The number of shares that may be issued under the PSU is variable and based upon the extent to which the performance goals are achieved over the performance period (with a range of payout from 0% to 175% of target for the RTSR award and 0% to 200% of target for the achievement of cumulative free cash flow award). The shares earned will be distributed in early 2018.

The restricted stock units vest over three years, with 33.33% vesting on each anniversary of the grant date. Time-vesting of the 2015 performance restricted stock units for the CEO and direct reports is conditioned upon achievement of a minimum EBITDA performance goal for 2015.

The stock options have a maximum term of ten years and vest over four years, with 25% vesting on each anniversary date of the grant date. The options have an exercise price equal to the closing sale price of the Company's common stock on the date of grant.

The total number of shares authorized for issuance under the plans is 9.6 million shares. As of December 31, 2015, the total number of shares available for future grants under the plans was 1.4 million shares.

The fair value of restricted stock, restricted stock units and performance share units without a market condition is equal to the closing sale price of the Company's common stock on the date of grant. The fair value of the RTSR PSU award was estimated on the date of grant using the Monte Carlo Simulation method utilizing the following assumptions. Expected volatility was based on historical volatilities of the Company and select comparable companies.



	2015 RTSR PSU
Weighted average grant date fair value	$	41.08
Weighted average expected volatility	25.1		%
Weighted average volatility of XHB	21.1		%
Weighted average correlation coefficient	0.57
Weighted average risk-free interest rate	1.0		%
Weighted average dividend yield	—

A summary of restricted stock and restricted stock unit activity for the year ended December 31, 2015 is presented below (number of shares in millions):



	Restricted Stock		Weighted Average Grant Date Fair Value		Restricted Stock Units		Weighted Average Grant Date Fair Value
Unvested at January 1, 2015	0.09		$	27.14	0.74		$	45.83
Granted	—		—		0.63		46.40
Vested (a)	(0.09	)	27.14		(0.31	)	45.13
Forfeited	—		—		(0.04	)	46.31
Unvested at December 31, 2015	—		$	—	1.02		$	46.36

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(a)	The total fair value of restricted stock and restricted stock units which vested during the year ended December 31, 2015 was $2 million and $14 million, respectively.

A summary of performance share unit activity for the year ended December 31, 2015 is presented below (number of shares in millions):



	Performance Share Units (a)		Weighted Average Grant Date Fair Value
Unvested at January 1, 2015	0.37		$	46.63
Granted	0.52		43.69
Vested (b)	(0.03	)	43.72
Unvested at December 31, 2015	0.86		$	44.97

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(a)	The PSU amounts in the table are shown at the target amount of the award.


(b)	The total fair value of PSUs which vested during the year ended December 31, 2015 was approximately $1 million.

The fair value of the options was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the following assumptions. Expected volatility was based on historical volatilities of the Company and select comparable companies. The expected term of the options granted represents the period of time that options were expected to be outstanding and is based on the "simplified method" in accordance with accounting guidance. The Company utilizes the simplified method to determine the expected life of options as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of the grant, which corresponds to the expected term of the options.



	2015 Options			2014 Options			2013 Options
Weighted average grant date fair value	$	17.66		$	18.35		$	19.78
Weighted average expected volatility	36.1		%	41.5		%	43.6		%
Weighted average expected term (years)	6.25			6.25			6.25
Weighted average risk-free interest rate	1.6		%	1.4		%	1.7		%
Weighted average dividend yield	—			—			—

A summary of stock option unit activity for the year ended December 31, 2015 is presented below (number of shares in millions):



	Options		Weighted Average Exercise Price
Outstanding at January 1, 2015	3.22		$	30.02
Granted	0.18		46.45
Exercised (a) (b)	(0.21	)	22.09
Forfeited/Expired	(0.04	)	32.48
Outstanding at December 31, 2015 (c)	3.15		$	31.42

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(a)	The intrinsic value of options exercised during the year ended December 31, 2015 was $5 million.


(b)	Cash received from options exercised during the year ended December 31, 2015 was $5 million.


(c)	Options outstanding at December 31, 2015 had an intrinsic value of $31 million and have a weighted average remaining contractual life of 6.6 years.

The following table summarizes information regarding exercisable stock options as of December 31, 2015:



Range of Exercise Prices	Options Vested (a)	Weighted Average Exercise Price		Aggregate Intrinsic Value
$15.00 to $50.00	1.98	$	24.93	$	24.7
$50.00 and above	0.09	$	140.86	—

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(a)	Exercisable stock options as of December 31, 2015 have a weighted average remaining contractual life of 7.4 years.

Stock-Based Compensation Expense

As of December 31, 2015, based on current performance achievement expectations, there was $40 million of unrecognized compensation cost related to incentive equity awards under the plans which will be recorded in future periods as compensation expense over a remaining weighted average period of approximately 1.2 years. The Company recorded stock-based compensation expense related to the incentive equity awards of $57 million, $41 million and $19 million for the years ended December 31, 2015, 2014 and 2013, respectively.

Phantom Value Plan

On January 5, 2011, the Board of Directors of Realogy Group approved the Realogy Group LLC Phantom Value Plan (the "Phantom Value Plan"), which was intended to provide certain of the Company's executive officers with an incentive (the "Incentive Award") to remain in the service of the Company, increase interest in the success of Realogy and create the opportunity to receive compensation based upon Realogy’s success. On January 5, 2011, the Board of Directors of Realogy Group made initial grants of Incentive Awards in an aggregate amount of $22 million to certain executive officers of the Company. Under the Phantom Value Plan, each participant was eligible to receive a cash payment in the same proportion to his or her Incentive Award as the cash received by RCIV Holdings ("RCIV"), an affiliate of Apollo, upon the sale of shares of common stock bore to $1.338 billion (the face amount of the Realogy Group convertible debt issued to RCIV in January 2011 in exchange for debt it had previously purchased). The sale of shares by RCIV in the second and third quarter of 2013 triggered payments under the Phantom Value Plan.

All of the participants elected to receive their payments in shares of common stock and therefore received unrestricted shares of common stock equal to the dollar amount then due, plus restricted shares of such common stock equal to the amount then due multiplied by 0.15. The restricted shares of common stock vested based on the participants' continued employment, on the first anniversary of issuance. The Company recognized stock compensation expense of $2 million related to the issuance of restricted shares of common stock during the year ended December 31, 2014. The Company recognized stock compensation expense of $42 million related to the issuance of common stock and $5 million related to the issuance of restricted shares of common stock during the year ended December 31, 2013. No further expense will be recorded in connection with the Phantom Value Plan as the shares of restricted stock have fully vested.