STOCK-BASED COMPENSATION

The Company has stock-based compensation plans (the 2007 Stock Incentive Plan and the 2012 Long-Term Incentive Plan) under which incentive equity awards such as non-qualified stock options, rights to purchase shares of common stock, restricted stock, restricted stock units ("RSUs"), performance restricted stock units and performance share units ("PSUs") may be issued to employees, consultants and directors of Realogy. The Company's stockholders approved the Amended and Restated Long-Term Incentive Plan at the 2016 Annual Meeting of Stockholders held on May 4, 2016 (the "Amended and Restated 2012 LTIP"). The Amended and Restated 2012 LTIP increases the number of shares authorized for issuance under that plan by 9.8 million shares. The total number of shares authorized for issuance under the plans is 19.4 million shares.

Awards granted under the Amended and Restated 2012 LTIP utilizing the additional 9.8 million share reserve, except options and stock appreciation rights, must be counted against the foregoing share limit on a 2.22 share to one basis for each share actually granted in connection with such award. As of December 31, 2016, the total number of shares available for future grants under the Amended and Restated 2012 LTIP was approximately 8 million shares. The Company does not expect to issue any additional awards under the 2007 Stock Incentive Plan.

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 2015 included 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.

Consistent with the 2015 long-term incentive equity awards, the 2016 awards include a mix of PSUs, RSUs (performance restricted stock units for the CEO and direct reports) and options. The 2016 PSUs are incentives that reward grantees based upon the Company's financial performance over a three-year performance period ending December 31, 2018. 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 2019. The RSUs vest over three years, with 33.33% vesting on each anniversary of the grant date. Time-vesting of the 2016 performance RSUs for the CEO and direct reports is subject to achievement of a minimum EBITDA performance goal for 2016. 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 options, RSUs and the PSUs based upon RTSR included in the 2016 long-term incentive plan were granted in February 2016. The performance RSUs and the PSUs based upon achievement of cumulative free cash flow aggregating 0.4 million shares subject to those awards at target were also awarded in February 2016, but the grant was subject to approval of the Amended and Restated 2012 LTIP. The stockholders approved the Amended and Restated 2012 LTIP at the May 4, 2016 Annual Meeting and we have accordingly treated May 4, 2016 as the grant date for these awards and are expensing those awards from that date over the balance of the vesting or performance period.

In August 2016, the Company’s Board of Directors approved the initiation of a quarterly cash dividend policy on its common stock. The Board declared a cash dividend of $0.09 per share of the Company’s common stock per quarter. When payment of cash dividends occurs, the Company issues dividend equivalent units ("DEUs") to eligible holders of outstanding RSUs and PSUs. The number of DEUs granted for each RSU or PSU is calculated by dividing the amount of the cash dividend on the number of shares covered by the RSU or PSU at the time of the related dividend record date by the closing price of the Company's stock on the related dividend payment date. The DEUs are subject to the same vesting requirements, settlement provisions, and other terms and conditions as the original award to which they relate. The issuance of DEUs have an immaterial impact on the Company's stock-based compensation activity.

The fair value of RSUs and PSUs 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.



	2016 RTSR PSU
Weighted average grant date fair value	$	27.99
Weighted average expected volatility	28.1		%
Weighted average volatility of XHB	19.4		%
Weighted average correlation coefficient	0.58
Weighted average risk-free interest rate	0.9		%
Weighted average dividend yield	—

A summary of RSU activity for the year ended December 31, 2016 is presented below (number of shares in millions):



	Restricted Stock Units		Weighted Average Grant Date Fair Value
Unvested at January 1, 2016	1.0		$	46.36
Granted	1.0		32.29
Vested (a)	(0.5	)	45.84
Forfeited	(0.1	)	37.61
Unvested at December 31, 2016	1.4		$	37.53

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(a)	The total fair value of RSUs which vested during the year ended December 31, 2016 was $23 million.

A summary of PSU activity for the year ended December 31, 2016 is presented below (number of shares in millions):



	Performance Share Units		Weighted Average Grant Date Fair Value
Unvested at January 1, 2016	0.9		$	44.97
Granted (a)	0.6		31.89
Vested (b)	(0.4	)	44.27
Forfeited (c)	(0.1	)	46.69
Unvested at December 31, 2016	1.0		$	36.71

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(a)	The PSU amounts granted 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, 2016 was $15 million.


(c)	Includes the difference between PSU's granted at target and amounts earned.

The fair value of the options was estimated on the date of grant using the Black-Scholes option-pricing model. 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 are expected to be outstanding and is based on the simplified method. 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.



	2016 Options			2015 Options			2014 Options
Weighted average grant date fair value	$	10.81		$	17.66		$	18.35
Weighted average expected volatility	31.7		%	36.1		%	41.5		%
Weighted average expected term (years)	6.25			6.25			6.25
Weighted average risk-free interest rate	1.3		%	1.6		%	1.4		%
Weighted average dividend yield	0.1		%	—			—

A summary of stock option unit activity for the year ended December 31, 2016 is presented below (number of shares in millions):



	Options		Weighted Average Exercise Price
Outstanding at January 1, 2016	3.2		$	31.42
Granted	0.3		32.33
Exercised (a) (b)	(0.1	)	19.86
Forfeited/Expired	(0.1	)	36.76
Outstanding at December 31, 2016 (c)	3.3		$	31.73

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(a)	The intrinsic value of options exercised during the year ended December 31, 2016 was $1 million.


(b)	Cash received from options exercised during the year ended December 31, 2016 was $2 million.


(c)	Options outstanding at December 31, 2016 have an intrinsic value of $7 million and have a weighted average remaining contractual life of 6 years.

The following table summarizes information regarding exercisable stock options as of December 31, 2016:



Range of Exercise Prices	Options Vested (a)	Weighted Average Exercise Price		Aggregate Intrinsic Value
$15.00 to $50.00	2.63	$	26.48	$	6.7
$50.00 and above	0.09	$	140.86	$	—

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(a)	Exercisable stock options as of December 31, 2016 have a weighted average remaining contractual life of 5.4 years.

Stock-Based Compensation Expense

As of December 31, 2016, based on current performance achievement expectations, there was $32 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, $57 million and $41 million for the years ended December 31, 2016, 2015 and 2014, respectively.