Stock-Based Compensation | Stock-Based Compensation The West Pharmaceutical Services, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Plan”) provides for the granting of stock options, stock appreciation rights, restricted stock awards and performance awards to employees and non-employee directors. A committee of the Board of Directors determines the terms and conditions of awards to be granted. Vesting requirements vary by award. At December 31, 2017 , there were 4,597,102 shares remaining in the 2016 Plan for future grants. Stock options and stock appreciation rights reduce the number of shares available by one share for each award granted. All other awards under the 2016 Plan will reduce the total number of shares available for grant by an amount equal to 2.5 times the number of shares awarded. If awards made under previous plans would entitle a plan participant to an amount of West stock in excess of the target amount, the additional shares (up to a maximum threshold amount) will be distributed under the 2016 Plan. The following table summarizes our stock-based compensation expense recorded within selling, general and administrative expenses for the years ended December 31: ($ in millions) 2017 2016 2015 Stock option and appreciation rights $ 7.8 $ 8.6 $ 9.2 Performance share units, stock-settled 4.1 6.7 6.0 Performance share units, cash-settled 0.1 0.1 0.7 Performance share units, dividend equivalents 0.1 0.2 0.2 Employee stock purchase plan 0.8 0.7 0.6 Deferred compensation plans 3.2 3.2 2.5 Total stock-based compensation expense $ 16.1 $ 19.5 $ 19.2 In addition, we recorded a $0.2 million charge during 2016 as part of our restructuring plan, and we recorded a $10.4 million charge during 2015 related to executive retirements. Both charges were recorded within other expense. Please refer to Note 14, Other Expense , for further discussion of these charges. The amount of unrecognized compensation expense for all non-vested awards as of December 31, 2017 , was approximately $17.2 million , which is expected to be recognized over a weighted average period of 1.6 years. Stock Options Stock options granted to employees vest in equal increments. All awards expire 10 years from the date of grant. Upon the exercise of stock options, shares are issued in exchange for the exercise price of the options. The following table summarizes changes in outstanding options: (in millions, except per share data) 2017 2016 2015 Options outstanding, January 1 4.5 5.0 4.6 Granted 0.5 0.7 0.9 Exercised (1.5 ) (1.1 ) (0.5 ) Forfeited — (0.1 ) — Options outstanding, December 31 3.5 4.5 5.0 Options exercisable, December 31 1.9 2.7 2.9 Weighted Average Exercise Price 2017 2016 2015 Options outstanding, January 1 $ 38.11 $ 31.77 $ 25.49 Granted 84.09 61.98 56.06 Exercised 26.15 22.50 21.85 Forfeited 60.92 45.91 — Options outstanding, December 31 $ 48.76 $ 38.11 $ 31.77 Options exercisable, December 31 $ 35.44 $ 27.17 $ 22.75 As of December 31, 2017 , the weighted average remaining contractual life of options outstanding and of options exercisable was 6.4 years and 5.0 years, respectively. As of December 31, 2017 , the aggregate intrinsic value of total options outstanding was $173.0 million , of which $120.9 million represented vested options. The fair value of the options was estimated on the date of grant using a Black-Scholes option valuation model that used the following weighted average assumptions in 2017 , 2016 and 2015 : a risk-free interest rate of 2.0% , 1.4% , and 1.7% , respectively; stock volatility of 19.9% , 20.4% , and 21.0% , respectively; and dividend yields of 0.7% , 0.9% , and 0.9% , respectively. Stock volatility is estimated based on historical data and the impact from expected future trends. Expected lives, which are based on prior experience, averaged 6 years for 2017 , 2016 and 2015 . The weighted average grant date fair value of options granted in 2017 , 2016 and 2015 was $18.08 , $12.12 and $10.57 , respectively. Stock option expense is recognized over the vesting period, net of forfeitures. For the years ended December 31, 2017 , 2016 and 2015 , the intrinsic value of options exercised was $91.7 million , $49.4 million and $17.7 million , respectively. The grant date fair value of options vested during those same periods was $6.7 million , $5.8 million and $4.8 million , respectively. Stock Appreciation Rights Stock appreciation rights (“SARs”) granted to eligible international employees vest in equal annual increments over 4 years of continuous service. All awards expire 10 years from the date of grant. The fair value of each cash-settled SAR is adjusted at the end of each reporting period, with the resulting change reflected in expense. As of December 31, 2017 , SARs outstanding were 51,368 , of which 29,388 were cash-settled and 21,980 were stock-settled. Upon exercise of a cash-settled SAR, the employee receives cash for the difference between the grant date price and the fair market value of the Company's stock on the date of exercise. As a result of the cash settlement feature, cash-settled SARs are recorded within other long-term liabilities. Upon exercise of a stock-settled SAR, shares are issued in exchange for the exercise price of the stock-settled SAR. As a result of the stock settlement feature, stock-settled SARs are recorded within equity. The following table summarizes changes in outstanding SARs: 2017 2016 2015 SARs outstanding, January 1 116,087 232,930 297,714 Granted 2,792 3,368 12,356 Exercised (67,511 ) (114,976 ) (77,140 ) Forfeited — (5,235 ) — SARs outstanding, December 31 51,368 116,087 232,930 SARs exercisable, December 31 39,769 71,701 112,295 Weighted Average Exercise Price 2017 2016 2015 SARs outstanding, January 1 $ 31.13 $ 27.79 $ 25.20 Granted 83.47 68.40 57.25 Exercised 27.65 24.95 22.52 Forfeited — 42.28 — SARs outstanding, December 31 $ 38.55 $ 31.13 $ 27.79 SARs exercisable, December 31 $ 30.77 $ 26.65 $ 24.60 Performance Awards In addition to stock options and SAR awards, we grant performance share unit (“PSU”) awards to eligible employees. These awards are earned based on the Company's performance against pre-established targets, including annual growth rate of revenue and return on invested capital, over a specified performance period. Depending on the achievement of the targets, recipients of stock-settled PSU awards are entitled to receive a certain number of shares of common stock, whereas recipients of cash-settled PSU awards are entitled to receive a payment in cash per unit based on the fair market value of a share of our common stock at the end of the performance period. The following table summarizes changes in our outstanding stock-settled PSU awards: 2017 2016 2015 Non-vested stock-settled PSU awards, January 1 378,062 422,726 470,719 Granted at target level 92,045 115,035 147,908 Adjustments above/(below) target (11,369 ) 19,339 132,444 Vested and converted (116,684 ) (173,364 ) (318,337 ) Forfeited (110 ) (5,674 ) (10,008 ) Non-vested stock-settled PSU awards, December 31 341,944 378,062 422,726 Weighted Average Grant Date Fair Value 2017 2016 2015 Non-vested stock-settled PSU awards, January 1 $ 54.47 $ 45.60 $ 30.93 Granted at target level 84.01 60.47 55.49 Adjustments above/(below) target 42.85 38.71 22.97 Vested and converted 50.06 59.64 51.53 Forfeited 73.64 49.86 41.84 Non-vested stock-settled PSU awards, December 31 $ 64.38 $ 54.47 $ 45.60 Shares earned under PSU awards may vary from 0% to 200% of an employee's targeted award. The fair value of stock-settled PSU awards is based on the market price of our stock at the grant date and is recognized as expense over the performance period, adjusted for estimated target outcomes and net of forfeitures. The weighted average grant date fair value of stock-settled PSU awards granted during the years 2017 , 2016 and 2015 was $84.01 , $60.47 and $55.49 , respectively. Including forfeiture and above-target achievement expectations, we expect that the stock-settled PSU awards will convert to 166,439 shares to be issued over an average remaining term of one year. The fair value of cash-settled PSU awards is also based on the market price of our stock at the grant date. These awards are revalued at the end of each quarter based on changes in our stock price. As a result of the cash settlement feature, cash-settled PSU awards are recorded within other long-term liabilities. The following table summarizes changes in our outstanding cash-settled PSU awards: 2017 2016 2015 Non-vested cash-settled PSU awards, January 1 2,451 29,196 55,509 Granted at target level 598 419 1,386 Adjustments above/(below) target (107 ) 2,858 19,315 Vested and converted (970 ) (29,032 ) (47,014 ) Forfeited — (990 ) — Non-vested cash-settled PSU awards, December 31 1,972 2,451 29,196 Weighted Average Grant Date Fair Value 2017 2016 2015 Non-vested cash-settled PSU awards, January 1 $ 25.28 $ 32.07 $ 26.15 Granted at target level 83.47 59.64 54.14 Adjustments above/(below) target 66.61 30.80 22.07 Vested and converted 86.93 59.64 51.53 Forfeited — 50.55 — Non-vested cash-settled PSU awards, December 31 $ 92.25 $ 25.28 $ 32.07 Employee Stock Purchase Plan We also offer an Employee Stock Purchase Plan (“ESPP”) which provides for the sale of our common stock to eligible employees at 85% of the current market price on the last trading day of each quarterly offering period. Payroll deductions are limited to 25% of the employee's base salary, not to exceed $25,000 in any one calendar year. In addition, employees may not buy more than 2,000 shares during any offering period ( 8,000 shares per year). Purchases under the ESPP were 56,218 shares, 60,839 shares and 61,757 shares for the years 2017 , 2016 and 2015 , respectively. At December 31, 2017 , there were approximately 4.0 million shares available for issuance under the ESPP. Deferred Compensation Plans Our deferred compensation plans include a Non-Qualified Deferred Compensation Plan for Non-Employee Directors, under which non-employee directors may defer all or part of their annual cash retainers. The deferred fees may be credited to a stock-equivalent account. Amounts credited to this account are converted into deferred stock units based on the fair market value of one share of our common stock on the last day of the quarter. For deferred stock units ultimately paid in cash, a liability is calculated at an amount determined by multiplying the number of units by the fair market value of our common stock at the end of each reporting period. In addition, deferred stock awards are granted on the date of our annual meeting, and are distributed in shares of common stock. In 2017 , we granted 17,284 deferred stock awards, with a grant date fair value of $94.68 . Similarly, a non-qualified deferred compensation plan for eligible employees provides for the conversion of compensation into deferred stock units. As of December 31, 2017 , the two deferred compensation plans held a total of 402,155 deferred stock units, including 24,296 units to be paid in cash. In addition, during 2016 , we granted 1,393 restricted share awards at a weighted grant-date fair value of $71.79 per share to new executive officers under the 2016 Plan. The fair value of the awards is based on the market price of our stock at the grant date and is recognized as expense over the vesting period. Annual Incentive Plan Under our annual incentive plan, participants are paid bonuses on the attainment of certain financial goals, which they can elect to receive in either cash or shares of our common stock. If the employee elects payment in shares, they are also given a restricted incentive stock award equal to one share for each four bonus shares issued. The incentive stock awards vest at the end of four years provided that the participant has not made a disqualifying disposition of their bonus shares. Incentive stock award grants were 1,800 shares, 2,400 shares and 1,500 shares in 2017 , 2016 and 2015 , respectively. Incentive stock forfeitures of 800 shares, 800 shares and 200 shares occurred in 2017 , 2016 and 2015 , respectively. Compensation expense is recognized over the vesting period based on the fair market value of common stock on the award date: $86.93 per share granted in 2017 , $59.64 per share granted in 2016 and $51.53 per share granted in 2015 . |