11.	Stock-Based Compensation Plans

2013 Omnibus Equity Incentive Plan

The board of directors adopted the 2013 Plan, which became effective upon the Company’s IPO. In February 2017, the board of directors amended the 2013 Plan, which was approved by the Company’s stockholders in May 2017. Grants are made from time to time by the compensation committee of the Company’s board of directors at its discretion subject to certain restrictions as to the number and value of shares that may be granted to any individual. Upon adoption of the 2013 Plan, 5,500,000 shares of common stock were initially reserved for the issuance of awards. Pursuant to the automatic increases previously provided for in the 2013 Plan, the board of directors approved share reserve increases aggregating 3,300,000. Pursuant to the amendment and restatement of the 2013 Plan referenced above, the automatic share increase provision was removed. At December 31, 2018, there were 5,491,161 shares available for future grants under the 2013 Plan.

Awards Granted and Settled

Under the 2013 Plan, the Company has issued restricted stock awards (“RSAs”) to non-employee directors and restricted stock units (“RSUs”) to employees and independent contractors. RSAs vest in equal annual installments over a one-year or three-year period from the date of grant. All RSUs vest in equal annual installments over a five-year period from the date of grant or earlier as approved by the compensation committee of the Company’s board of directors. Any unvested awards are canceled upon termination as a service provider. Awards accelerate upon death subject to approval by the compensation committee. As of December 31, 2018, there were no issued or outstanding options, SARs, performance units or performance shares awards under the 2013 Plan.

During the year ended December 31, 2018, 317,236 shares of RSUs were vested and the same number of shares of common stock were delivered. Additionally, 55,666 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting date. During the year ended December 31, 2018, 237,052 fully vested DSUs were settled by issuing common stock and 92,022 shares of common stock were withheld to pay applicable required employee statutory withholding taxes based on the market value of the shares on the vesting date. The shares withheld for taxes were returned to the share reserve and are available for future issuance in accordance with provisions of the 2013 Plan.

During the years ended December 31, 2018 and 2017, the Company recorded windfall tax benefits, net of $1.9 million and $2.9 million, respectively, as a discrete item in the Company’s provision for income taxes when awards were settled as a result of the adoption of ASU 2016-09 during 2017. Prior to January 1, 2017, windfall tax benefits, net were recorded as a component of additional paid-in capital. During the year ended December 31, 2016, the Company recorded windfall tax benefits, net of $2.7 million as a component of additional paid-in capital.

 

Outstanding Awards

Activity under the 2013 Plan consisted of the following (dollars in thousands, except per share data):

 

		RSA Grants to Non-employee Directors				RSU Grants to Employees				RSU Grants to Independent Contractors				Total				Weighted- Average Grant Date Fair Value Per Share
Nonvested shares at December 31, 2016(1)			29,112				566,480				454,838				1,050,430			$	22.38
Granted			17,538				164,586				82,426				264,550				26.86
Vested			(15,918	)			(140,480	)			(139,199	)			(295,597	)			21.21
Transferred			—				(58,503	)			58,503				—				25.70
Forfeited/canceled			—				(31,224	)			(6,304	)			(37,528	)			23.30
Nonvested shares at December 31, 2017(1)			30,732				500,859				450,264				981,855			$	23.90
Granted
February 2018			—				106,419				20,293				126,712
March 2018			—				15,000				—				15,000
May 2018			12,852				4,854				14,280				31,986
August 2018			—				10,407				63,651				74,058
November 2018			—				6,080				4,242				10,322
Total Granted			12,852				142,760				102,466				258,078				34.94
Vested			(16,488	)			(146,122	)			(171,114	)			(333,724	)			22.31
Transferred			—				(23,755	)			23,755				—				30.69
Forfeited/canceled			—				(1,960	)			(12,674	)			(14,634	)			30.17
Nonvested shares at December 31, 2018(1)			27,096				471,782				392,697				891,575			$	27.59
Unrecognized stock-based compensation expense as of December 31, 2018(2)		$	352			$	9,542			$	9,032			$	18,926
Weighted average remaining vesting period (years) as of December 31, 2018			0.79				3.18				3.39				3.23

 

(1)	Nonvested RSUs will be settled through the issuance of new shares of common stock.

(2)	The total unrecognized compensation expense is expected to be recognized over a weighted-average period of approximately 3.23 years.

The aggregate fair value of RSUs and RSAs that vested were $11.1 million, $7.8 million and $7.0 million for the years ended December 31, 2018, 2017 and 2016, respectively.

 

The fair value of fully vested DSUs that settled was $8.3 million, $10.2 million and $10.4 million for the years ended December 31, 2018, 2017 and 2016, respectively. See “SARs and DSUs” section below and Note 14 – “Earnings per Share” for additional information. As of December 31, 2018, 2017 and 2016, remaining outstanding fully vested DSUs were 341,566, 578,618 and 930,419, respectively. Future share settlements of DSUs by year consisted of the following:

 

		December 31, 2018
2021			60,373
2022			281,193
			341,566

Employee Stock Purchase Plan

In 2013, the Company adopted the ESPP. The ESPP qualifies under Section 423 of the Internal Revenue Code and provides for consecutive, non-overlapping 6-month offering periods. The offering periods generally start on the first trading day on or after May 15 and November 15 of each year. Qualifying employees may purchase shares of the Company stock at a 10% discount based on the lower of the market price at the beginning or end of the offering period, subject to IRS limitations. The Company determined that the ESPP was a compensatory plan and is required to expense the fair value of the awards over each 6-month offering period.

The ESPP initially had 366,667 shares of common stock reserved and 225,894 and 246,895 shares of common stock remain available for issuance for each of the periods at December 31, 2018 and 2017, respectively. The ESPP provides for annual increases in the number of shares available for issuance under the ESPP, equal to the least of (i) 366,667 shares, (ii) 1% of the outstanding shares on such date, or (iii) an amount determined by the compensation committee of the board of directors. Pursuant to the provisions of the ESPP, the board of directors has determined to not provide for any annual increases to date. At December 31, 2018, total unrecognized compensation cost related to the ESPP was $44,000 and is expected to be recognized over a weighted average period of 0.37 years.

Restricted Stock

In connection with the IPO, the Company entered into sales restriction agreements with certain of its executive officers. Of the original 3,689,326 shares subject to resale restriction, all shares were fully released as of December 31, 2018 due to the expiration of the five-year period set forth in the sales restriction agreements.

SARs and DSUs

Prior to the IPO, certain employees were granted SARs. As of March 31, 2013, the outstanding SARs were frozen at the liability amount, and will be paid out to each participant in installments upon retirement or departure under the terms of the revised SARs agreements. To replace beneficial ownership in the SARs, the difference between the book value liability and the fair value of the awards was granted to plan participants in the form of DSUs, which were fully vested upon receipt and will be settled in actual stock at a rate of 20% per year if the participant remains employed by the Company during that period (otherwise all unsettled shares of stock upon termination from service will be settled five years from the termination date, unless otherwise agreed to by the Company). In the event of death or termination of service after reaching the age of 67, 100% of the DSUs will be settled.

 

Summary of Stock-Based Compensation

The Company adopted ASU 2018-7 on July 1, 2018. As a result of the adoption, awards issued to its independent contractors prior to the adoption date of July 1, 2018 were remeasured at the adoption date stock price. The Company will recognize the remaining unrecognized value of unvested awards over the remaining performance period with no further remeasurement through the performance completion date. For all new awards on or after the date of adoption, the Company will measure its awards made to independent contractors based on the grant date closing price of its common stock consistent with awards made to the Company’s employees and non-employee directors. Components of stock-based compensation are included in selling, general and administrative expense in the consolidated statements of net and comprehensive income consisted of the following (in thousands):

 

		Years Ended December 31,
		2018				2017				2016
Employee stock purchase plan		$	109			$	128			$	169
RSAs – non-employee directors			632				397				422
RSUs – employees			4,233				3,750				3,130
RSUs – independent contractors(1)			7,009				4,870				3,314
		$	11,983			$	9,145			$	7,035

 

(1)

The Company grants RSUs to independent contractors (i.e. investment sales and financing professionals), who are considered non-employees. Prior to the adoption of ASU 2018-7, such awards were required to be measured at fair value at the end of each reporting period until settlement. Stock-based compensation expense was therefore impacted by the changes in the Company’s common stock price during each reporting period prior to the adoption of July 1, 2018.