Masco corporation

                                                                     

(A)	Aggregate intrinsic value is calculated using our stock price at each respective date, less the exercise price (grant date price) multiplied by the number of shares.

(B)	In connection with the spin off of TopBuild, TopBuild employees forfeited their outstanding Masco equity awards.

(C)	Subsequent to the separation of TopBuild, we modified our outstanding equity awards to employees and non-employee Directors such that all individuals received an equivalent fair value both before and after the separation. The modification to the outstanding options was made pursuant to existing anti-dilution provisions in our 2014 Plan and 2005 Long Term Incentive Plan.

At December 31, 2016 , 2015 and 2014 , there was $6 million of unrecognized compensation expense (using the Black-Scholes option pricing model at the grant date) related to unvested stock options; such options had a weighted average remaining vesting period of 3 years at December 31, 2016 , and 2 years at both 2015 and 2014 .

57

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

L. STOCK-BASED COMPENSATION (Concluded)
The weighted average grant date fair value of option shares granted and the assumptions used to estimate those values using a Black-Scholes option pricing model were as follows:

	2016				2015				2014
Weighted average grant date fair value	$	6.43			$	9.67			$	9.53
Risk-free interest rate	1.41		%		1.75		%		1.91		%
Dividend yield	1.49		%		1.32		%		1.34		%
Volatility factor	29.00		%		42.00		%		49.00		%
Expected option life	6 years				6 years				6 years

The following table summarizes information for stock option shares outstanding and exercisable at December 31, 2016 , shares in millions:

	Option Shares Outstanding								Option Shares Exercisable
	Range of Prices		Number of Shares		Weighted__Average__Remaining__Option__Term'>Weighted Average Remaining Option Term		Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
$	7 - 18		5		3 Years		$12		5		$12
$	20 - 23		1		8 Years		$22		—		$21
$	26 - 27		1		5 Years		$26		1		$27
$	7 - 27		7		4 Years		$15		6		$13

Phantom_Stock_Awards_and_Stock_Appreciation_Rights_("SARs").'>Phantom Stock Awards and Stock Appreciation Rights ("SARs").     We grant phantom stock awards and SARs to certain non-U.S. employees.

Phantom stock awards are linked to the value of our common stock on the date of grant and are settled in cash upon vesting, typically over 5 to 10 years . We account for phantom stock awards as liability-based awards; the compensation expense is initially measured as the market price of our common stock at the grant date and is recognized over the vesting period. The liability is remeasured and adjusted at the end of each reporting period until the awards are fully-vested and paid to the employees. We recognized expense of $2 million related to phantom stock awards in 2016 , and $5 million in both 2015 and 2014 . In 2016 , 2015 and 2014 , we granted 140,710 shares, 134,560 shares and 183,530 shares, respectively, of phantom stock awards with an aggregate fair value of $4 million each year, and paid $5 million , $6 million and $5 million of cash in 2016 , 2015 and 2014 , respectively, to settle phantom stock awards.

SARs are linked to the value of our common stock on the date of grant and are settled in cash upon exercise. We account for SARs using the fair value method, which requires outstanding SARs to be classified as liability-based awards and valued using a Black-Scholes option pricing model at the grant date; such fair value is recognized as compensation expense over the vesting period, typically five years . The liability is remeasured and adjusted at the end of each reporting period until the SARs are exercised and payment is made to the employees or the SARs expire. We recognized expense of $2 million , $6 million and $1 million related to SARs in 2016 , 2015 and 2014 , respectively. During 2016 , 2015 and 2014 , we did not grant any SARs.

Information related to phantom stock awards and SARs was as follows, in millions:

	Phantom Stock Awards								Stock Appreciation Rights
	At December 31,								At December 31,
	2016				2015				2016				2015
Accrued compensation cost liability	$	10			$	13			$	8			$	10
Unrecognized compensation cost	$	4			$	4			$	—			$	—
Equivalent common shares	—				1				1				1

58

MASCO CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

M. EMPLOYEE RETIREMENT PLANS

We sponsor qualified defined-benefit and defined-contribution retirement plans for most of our employees. In addition to our qualified defined-benefit pension plans, we have unfunded non-qualified defined-benefit pension plans covering certain employees, which provide for benefits in addition to those provided by the qualified pension plans. Substantially all salaried employees participate in non-contributory defined-contribution retirement plans, to which payments are determined annually by the Organization and Compensation Committee of the Board of Directors.

In addition, we participate in one regional multi-employer pension plan, principally related to building trades, which is not considered significant to us.

Pre-tax expense related to our retirement plans was as follows, in millions:

	2016				2015				2014
Defined-contribution plans	$	58			$	52			$	43
Defined-benefit pension plans	34				32				25
	$	92			$	84			$	68