Stock-Based Compensation

Total stock-based compensation expense by type of award was as follows for the years ended December 31:



In Thousands	2017		2016		2015
Stock options	$	738	$	791	$	658
Stock appreciation rights (“SARs”)	1,543		805		144
Stock grants	217		—		—
Total stock-based compensation expense	$	2,498	$	1,596	$	802

Tax benefit on exercise of stock options	$	—	$	60	$	40

Stock Options:

In 2010, the Board of Directors adopted a new stock option plan called the Encore Wire 2010 Stock Option Plan (the “2010 Stock Option Plan”) which was approved by the Company’s stockholders at the 2010 Annual Meeting of Stockholders. Similar to the 1999 Stock Option Plan, which expired on June 28, 2009, the 2010 Stock Option Plan permits the grant of stock options to directors, officers and employees of the Company. The Company granted stock option awards in 2017, 2016 and 2015 with exercise prices equal to the fair market value of its stock on the date of grant of the options. These options vest ratably over a period of five years from the time the options were granted. The maximum term of any option granted under the 1999 or 2010 Stock Option Plan is ten years. New shares are issued upon the exercise of options. As of December 31, 2017, 592,300 options were available to be granted in the future under the 2010 Stock Option Plan.

The following presents a summary of stock option activity for the year ended December 31, 2017:



	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (In Thousands)
Outstanding at January 1, 2017	351,400		$	31.28
Granted	80,000		41.95
Exercised	(91,500	)	21.06
Outstanding at December 31, 2017	339,900		$	36.55	6.8 years	$	4,258
Vested and exercisable at December 31, 2017	146,899		$	33.36	5.0 years	$	2,334

The fair value of stock options granted during the years ended December 31, 2017, 2016 and 2015, was estimated on the date of grant using a Black-Scholes option pricing model and the following weighted average assumptions:



	Year Ended December 31,
	2017		2016		2015
Risk-free interest rate	1.84	%	1.46	%	1.22	%
Expected dividend yield	0.19	%	0.23	%	0.25	%
Expected volatility	30.80	%	32.92	%	31.90	%
Expected lives	5.0 years		5.0 years		5.0 years

The Company bases expected volatilities on historical volatilities of Encore's common stock. The expected life represents the weighted average period of time that options granted are expected to be outstanding giving consideration to vesting periods and management’s consideration of historical exercise patterns. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding to the expected life of the option. The expected dividend yield is based on the annualized dividend payment paid on common shares.

During the years ended December 31, 2017, 2016 and 2015, the weighted average grant date fair value of options granted was $12.46, $10.64 and $9.25, respectively, and the total intrinsic value of options exercised was $2.2 million, $0.5 million and $0.7 million, respectively. As of December 31, 2017, total unrecognized compensation cost related to non-vested stock options of $1.2 million was expected to be recognized over a weighted average period of 2.7 years.

Stock Appreciation Rights:

In 2014, the Board of Directors adopted a new stock appreciation rights plan called the Encore Wire 2014 Stock Appreciation Rights Plan (the “2014 SARs Plan”). The 2014 SARs Plan permits the grant of SARs that may only be settled in cash to non-executive officers and employees of the Company. SARs granted to employees vest ratably over a period of five years from the time the SARs were granted. The maximum term of any SARs granted under the 2014 SARs Plan is ten years. These awards are classified as liability awards. The liability balance was $2.5 million and $1.2 million at December 31, 2017 and 2016, respectively, and are included in accrued liabilities. Compensation cost for these awards is determined using a fair value method and remeasured at each reporting date until the date of settlement. As of December 31, 2017, a total of 366,900 SARs was outstanding under the 2014 SARs Plan.

The following presents a summary of SARs activity for the year ended December 31, 2017:



	Cash-settled SARs		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value (In Thousands)
Outstanding at January 1, 2017	226,500		$	37.97
Granted	174,500		41.95
Exercised	(21,300	)	38.49
Forfeited/Canceled	(12,800	)	41.36
Outstanding at December 31, 2017	366,900		$	39.73	8.2 years	$	3,274
Vested and exercisable at December 31, 2017	67,200		$	39.87	7.0 years	$	590

The fair value of SARs granted during the years ended December 31, 2017, 2016 and 2015, was estimated on the date of grant using a Black-Scholes option pricing model and the following weighted average assumptions:



	Year Ended December 31,
	2017		2016		2015
Risk-free interest rate	2.01	%	1.53	%	1.39	%
Expected dividend yield	0.16	%	0.18	%	0.22	%
Expected volatility	31.90	%	33.25	%	30.30	%
Expected lives	3.2 years		3.4 years		3.2 years

During the years ended December 31, 2017, 2016 and 2015, the weighted average grant date fair value of SARs granted was $16.09, $13.36 and $7.33, respectively, and the total intrinsic value of SARs exercised was $0.3 million in 2017 and negligible in 2016. No SARs were exercised in 2015. As of December 31, 2017, total unrecognized compensation cost related to non-vested SARs of $3.5 million was expected to be recognized over a weighted average period of 3.2 years.

Stock Grants:

In May 2017, the Company granted 1,000 shares of stock to each of the 5 non-employee directors, with a grant date fair value of $43.40 per share.