9.	Stock-Based Compensation Plans

2013 Omnibus Equity Incentive Plan

The board of directors adopted the 2013 Omnibus Equity Incentive Plan (“2013 Plan”), which became effective upon the Company’s IPO. In February 2017, the board of directors approved an amendment to the 2013 Plan, which was approved by the shareholders in May 2017. 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 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 to the 2013 Plan referenced above, the automatic share increase provision was removed. At September 30, 2017, there were 5,459,345 shares available for future grants under the 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. Substantially 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 nine months ended September 30, 2017, 272,093 shares of RSUs vested of which 277,251 shares of common stock were delivered and 54,409 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 nine months ended September 30, 2017, as a result of the adoption of ASU 2016-09, any windfall tax benefits, net were recorded as a discrete item in the Company’s provision for income taxes. During the year ended December 31, 2016, the Company recorded windfall tax benefits, net in the amount of $2.7 million, including $157,000 recorded during the nine months ended September 30, 2016 resulting from settlement of stock-based award activity. Prior to January 1, 2017, such windfall tax benefits, net were excluded from the provision for income taxes and included as a component of additional paid-in capital when the awards were settled. See Note 10 – “Income Taxes” for additional information.

 

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			29,112				566,480				454,838				1,050,430			$	22.38
Granted
February 2017			—				139,013				7,272				146,285
May 2017			13,986				8,156				11,652				33,794
August 2017			3,552				7,889				51,308				62,749
Total granted			17,538				155,058				70,232				242,828				26.69
Vested			(15,918	)			(138,030	)			(134,063	)			(288,011	)			20.99
Transferred			—				(33,961	)			33,961				—				25.23
Forfeited/canceled			—				(23,600	)			(2,865	)			(26,465	)			24.37
Nonvested shares at September 30, 2017 (1)			30,732				525,947				422,103				978,782			$	23.80
Unrecognized stock-based compensation expense as of September 30, 2017 (2)		$	647			$	11,143			$	8,570			$	20,360
Weighted average remaining vesting period (years) as of September 30, 2017			1.87				3.27				2.70				2.99

 

(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 2.99 years.

As of September 30, 2017, 930,419 fully vested deferred stock units (“DSUs”) remained outstanding. See “Amendments to Restricted Stock and SARs” section below and Note 11 – “Earnings Per Share” for additional information. Future share settlements of DSUs by year consisted of the following:

 

		September 30, 2017
2017			351,801
2018			351,796
2021			60,373
2022			166,449
			930,419

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. 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 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 initially had 366,667 shares of common stock reserved and 258,949 shares of common stock remain available for issuance at September 30, 2017. The ESPP Plan 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 board. Pursuant to the provisions of the ESPP Plan, the board of directors determined a share reserve increase was not required in the prior years. At September 30, 2017, total unrecognized compensation cost related to the ESPP Plan was $16,000 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. Further, 100% of the shares of stock will be released from the resale restriction upon the consummation of a change of control of the Company. Of the original 3,689,326 shares subject to resale restriction, 1,455,558 shares remain subject to sales restriction at September 30, 2017.

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 2016-09 on January 1, 2017 and changed its accounting for forfeitures on a prospective basis from estimating awards that are not expected to vest to recording forfeitures when they actually occur. Components of stock-based compensation are 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 September 30,								Nine Months Ended September 30,
		2017				2016				2017				2016
Employee stock purchase plan		$	31			$	54			$	106			$	162
RSAs – non-employee directors			105				121				284				319
RSUs – employees			975				734				2,841				2,210
RSUs – independent contractors (1)			1,081				924				2,942				2,242
		$	2,192			$	1,833			$	6,173			$	4,933
Common stock price at beginning of period		$	26.36			$	25.41			$	26.72			$	29.14
Common stock price at end of period		$	26.99			$	26.15			$	26.99			$	26.15
Increase (decrease) in stock price		$	0.63			$	0.74			$	0.27			$	(2.99	)

 

(1)

The Company grants RSUs to independent contractors (i.e. investment sales and financing professionals), who are considered non-employees under the accounting standards. 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.