9.	Stock-Based Compensation Plans

2013 Omnibus Equity Incentive Plan

In October 2013, the board of directors adopted the 2013 Plan, which became effective upon the Company’s IPO. The 2013 Plan, in general, authorizes for the granting of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance units and performance shares to the Company’s and subsidiary corporations’ employees, independent contractors, directors and consultants. Grants are made from time to time by 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 reserved for the issuance of awards under the 2013 Plan. Pursuant to the automatic increase provided for in the 2013 Plan, the board of directors have approved share reserve increases aggregating 2,200,000. At March 31, 2016, there were 4,413,337 shares available for future grants under the Plan.

Awards Granted in Connection with the IPO

In November 2013, MMI issued the following equity awards under the 2013 Plan: (i) Deferred stock units (“DSUs”) for an aggregate of 2,192,413 shares granted as replacement awards related to the prior SARs program to the MMREIS managing directors and (ii) DSUs for 83,334 shares granted to the Company’s Co-chairman of the board of directors, William A. Millichap. The DSU’s are fully vested and shares will be issued ratably over 5 years (see “Amendments to Restricted Stock and SARs” section below). In addition, 30,000 shares, in the form of RSAs, were granted to the Company’s non-employee directors. The shares vest ratably over 3 years. All the above awards were granted based on the IPO price of $12.00.

Awards Granted and Settled Subsequent to the IPO

Under the 2013 Plan, the Company has issued RSA’s to non-employee directors and RSU’s to employees and independent contractors. All RSAs vest in equal annual installments over a 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. Any unvested awards are canceled upon termination of service. Awards accelerate upon death subject to approval by the compensation committee.

During the three months ended March 31, 2016, 211,356 shares of RSUs vested and 39,423 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 amount remitted to the tax authorities for the employees’ tax obligation was reflected in the taxes paid related to net share settlement of stock-based awards caption in the financing section of the condensed consolidated statements of cash flows. 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 three months ended March 31, 2016 and year ended December 31, 2015, the Company recorded windfall tax benefits, net in the amount of $167,000 and $6.2 million, respectively, resulting from settlement of stock-based award activity. Such windfall tax benefits, net are excluded from the provision for income taxes, and included as a component of additional paid-in capital in the accompanying condensed consolidated balance sheets and in cash flows provided by (used in) financing activities in the accompanying condensed consolidated statement of cash flows.

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, 2015			35,364				468,969				521,780				1,026,113			$	21.17
Granted
February 2016			—				172,496				8,856				181,352
March 2016			—				30,000				—				30,000
Total Granted			—				202,496				8,856				211,352				22.98
Vested			—				(98,144	)			(113,212	)			(211,356	)			18.88
Transferred			—				—				—				—				—
Forfeited/canceled			—				(6,300	)			(1,236	)			(7,536	)			17.91
Nonvested shares at March 31, 2016 (1)			35,364				567,021				416,188				1,018,573			$	22.05
Unrecognized stock-based compensation expense as of March 31, 2016 (2)		$	454			$	12,377			$	9,154			$	21,985
Weighted average remaining vesting period (years) as of March 31, 2016			1.57				4.03				3.00				3.55

 

(1)	Nonvested RSU’s 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 3.55 years.

As of March 31, 2016, 1,365,445 fully vested DSUs remained outstanding.

Employee Stock Purchase Plan

In 2013, the Company adopted the 2013 Employee Stock Purchase Plan (“ESPP Plan”). The ESPP Plan qualifies under Section 423 of the IRS 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. The first offering period began on May 15, 2014. Qualifying employees may purchase shares of the Company’s 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 Plan was a compensatory plan and is required to expense the fair value of the awards over each 6-month offering period.

The ESPP Plan had 366,667 shares of common stock reserved and 307,184 shares of common stock available for issuance for each of the periods at March 31, 2016 and December 31, 2015. The ESPP Plan provides for annual increases in the number of shares available for issuance under the ESPP. Pursuant to the provisions of the ESPP Plan, the board of directors determined a share reserve increase was not needed in 2015. At March 31, 2016, total unrecognized compensation cost related to the ESPP Plan was $24,000 and is expected to be recognized over a weighted average period of 0.12 years.

 

Amendments to Restricted Stock and SARs

Restricted Stock

In connection with the IPO, the formula settlement value of all outstanding shares of stock held by the plan participants was removed, and all such shares of stock are subject to sales restrictions that lapse at a rate of 20% per year for five years if the participant remains employed by the Company. In the event of death or termination of employment after reaching the age of 67, 100% of the shares of stock will be released from the resale restriction. 100% of the shares of stock will be released from the resale restriction upon the consummation of a change of control of the Company.

SARs

Prior to the IPO, certain employees were granted SARs. As of March 31, 2013, the outstanding SARs were frozen at the liability amount, which 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). 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

Components of stock-based compensation included in selling, general and administrative expense in the condensed consolidated statements of net and comprehensive income consisted of the following (in thousands, except common stock price):

 

		Three Months Ended March 31,
		2016				2015
Employee stock purchase plan			48			$	62
RSAs – non-employee directors			89				59
RSUs – employees			658				527
RSUs – independent contractors (1)			530				1,259
		$	1,325			$	1,907
Common stock price at beginning of period		$	29.14			$	33.25
Common stock price at end of period		$	25.39			$	37.48
(Decrease) increase in stock price		$	(3.75	)		$	4.23

 

(1)

The Company grants RSUs to independent contractors (i.e. investment sales and financing professionals), who are considered non-employees under ASC 718. Accordingly, such awards are required to be measured at fair value at the end of each reporting period until settlement. Stock-based compensation expense is therefore impacted by the changes in the Company’s common stock price during each reporting period.