STOCK-BASED COMPENSATION

The Company issues incentive equity awards, such as non-qualified stock options, restricted stock units ("RSUs"), performance restricted stock units ("PRSUs") and performance share units ("PSUs"), to employees, consultants and directors of Realogy under its 2012 Long-Term Incentive Plan and Amended and Restated 2012 Long-Term Incentive Plan ("the Plans"). The Plans include a retirement provision for equity grants which provide 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. There has been a total of 16.6 million shares authorized for issuance under the Plans with approximately 3 million shares available for future grants.

Incentive Equity Awards Granted by the Company

In October 2017, the Company announced that Ryan Schneider had been elected as President and Chief Operating Officer of the Company and appointed as a member of the Company’s Board of Directors. In accordance with the succession plan developed by the Board, Mr. Schneider was named Chief Executive Officer (the “CEO”) on December 31, 2017. Mr. Schneider was granted an inducement equity award with an aggregate grant date fair value of $5 million consisting of: (i) $2.5 million in RSUs and (ii) $2.5 million in non-qualified stock options, with the RSUs vesting in equal annual installments over a three-year period and with the options becoming exercisable in equal annual installments over a four-year period, in each case, based on continued service through the vesting date.

A summary of activity for the year ended December 31, 2017 is presented below (number of shares in millions):



	Restricted Stock Units			Weighted Average Grant Date Fair Value		Performance Share Units (a)			Weighted Average Grant Date Fair Value		Options (f)			Weighted Average Exercise Price
Outstanding at January 1, 2017	1.5			$	37.72	1.4			$	38.31	3.3			$	31.69
Granted	1.2			28.61		0.7			27.70		0.7			29.60
Distributed/Exercised	(0.6	)	(b)	39.64		(0.3	)	(c)	42.30		(0.3	)	(d)	23.29
Forfeited/Expired	(0.1	)		30.90		—			—		(0.1	)		50.24
Outstanding at December 31, 2017	2.0			$	31.71	1.8			$	33.16	3.6		(e)	$	31.75

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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 RSUs which were distributed during the year ended December 31, 2017 was $26 million.

(c)

The total fair value of PSUs which were distributed during the year ended December 31, 2017 was $14 million, which includes the distribution of PSUs awarded in 2014, measuring performance over a three-year performance period ended December 31, 2016, at a fair value of $10 million. Amounts distributed do not include 0.2 million PSUs awarded in 2015, measuring performance over a three-year period ended and vested December 31, 2017, at a fair value of $9 million and at a weighted average grant date fair value of $46.46. These PSUs were distributed in early 2018.


(d)	The intrinsic value of options exercised during the year ended December 31, 2017 was $2 million. Cash received from options exercised during the year ended December 31, 2017 was $8 million.


(e)	Options outstanding at December 31, 2017 have an intrinsic value of $6 million and have a weighted average remaining contractual life of 5.8 years.

(f)The following table summarizes information regarding exercisable stock options as of December 31, 2017:



Range of Exercise Prices	Options Vested	Weighted Average Exercise Price		Aggregate Intrinsic Value		Weighted Average Remaining Contractual Life
$15.00 to $50.00	2.4	$	27.86	$	6.3	4.7 years
$50.01 and above	0.1	$	140.26	$	—	2.8 years

Awards granted annually include a mix of RSUs (PRSUs for the CEO and direct reports), options and PSUs.

The RSUs and PRSUs vest over three years, with 33.33% vesting on each anniversary of the grant date. The fair value of RSUs and PRSUs are equal to the closing sale price of the Company's common stock on the date of grant. Time-vesting of the PRSUs for the CEO and direct reports is subject to achievement of a minimum EBITDA performance goal during the year that the award was granted.

The PSUs are incentives that reward grantees based upon the Company's financial performance over a three-year performance period which begins January 1st of the grant year and ends on December 31st of the third year following the grant year. 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 during the first quarter after the end of the performance period. The fair value of 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 PSU RTSR award was estimated on the date of grant using the Monte Carlo Simulation method utilizing the following assumptions:



	2017 RTSR PSU			2016 RTSR PSU			2015 RTSR PSU
Weighted average grant date fair value	$	27.98		$	27.99		$	41.08
Weighted average expected volatility (a)	29.0		%	28.1		%	25.1		%
Weighted average volatility of XHB	18.4		%	19.4		%	21.1		%
Weighted average correlation coefficient	0.53			0.58			0.57
Weighted average risk-free interest rate	1.5		%	0.9		%	1.0		%
Weighted average dividend yield	—			—			—

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(a)	Expected volatility is based on historical volatilities of the Company and select comparable companies.

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 fair value of the options was estimated on the date of grant using the Black-Scholes option-pricing model utilizing the following assumptions:



	2017 Options			2016 Options			2015 Options
Weighted average grant date fair value	$	8.61		$	10.81		$	17.66
Weighted average expected volatility (a)	30.7		%	31.7		%	36.1		%
Weighted average expected term (years) (b)	6.25			6.25			6.25
Weighted average risk-free interest rate (c)	2.0		%	1.3		%	1.6		%
Weighted average dividend yield	1.2		%	0.1		%	—		%

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(a)	Expected volatility was based on historical volatilities of the Company and select comparable companies.


(b)	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.


(c)	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.

Stock-Based Compensation Expense

As of December 31, 2017, based on current performance achievement expectations, there was $36 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 1.9 years. The Company recorded stock-based compensation expense related to the incentive equity awards of $52 million, $57 million and $57 million for the years ended December 31, 2017, 2016 and 2015, respectively.