SHARE-BASED COMPENSATION

12 Months Ended

Dec. 31, 2011

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

10. SHARE-BASED COMPENSATION

On May 5, 2008, our stockholders approved the StarTek, Inc. 2008 Equity Incentive Plan (the “Plan”).  The Plan replaced the StarTek, Inc. Stock Option Plan and StarTek, Inc. Directors’ Stock Option Plan (together, the “Prior Plans”).  A total of 900,000 shares were authorized for grant under the Plan.  In addition, a total of 274,298 shares remaining available for future grants under the Prior Plans were carried over and were made available for grant under the Plan.  As of December 31, 2011, there were 381,845 shares available for future grant under the Plan.  The types of awards that may be granted under the Plan include restricted stock awards, restricted stock unit awards, deferred stock units, stock option awards, stock appreciation rights and performance units.  The Compensation Committee (the “Committee”) also has the discretion to grant other types of awards, as long as they are consistent with the terms and purposes of the Plan.  The terms of the awards granted under the Plan will expire no later than ten years from the grant date.  The Committee may determine the vesting conditions of awards; however, subject to certain exceptions, an award that is not subject to the satisfaction of performance measures may not fully vest or become fully exercisable earlier than three years from the grant date, and the performance period for an award subject to performance measures may not be shorter than one year.

Stock options granted to employees under the Plan vest as to 25% of the shares on the first anniversary of the date of grant and 2.0833% of the shares each month thereafter for 36 months.  Restricted stock awards granted under the Plan vest as to one third of the shares on the first anniversary of the date of grant and one third of the shares on each of the second and third anniversary thereafter.  In 2011, we implemented a new independent director compensation plan whereby members of our board of directors are now compensated with equity rather than cash.  Effective October 1, 2011, at the start of each quarter, members of the board of directors, at their option, may elect to receive 1) stock options to purchase shares of common stock with a fair value equivalent to $22,500 (calculated using the Black-Scholes pricing model), 2) common stock with a grant date fair value of $22,500 or 3) any combination of options and stock.  Upon the date of grant, the members of the board of directors are immediately vested in the stock options or stock.  Effective January 1, 2012, the members of the board of directors may also elect to receive deferred stock units with a fair value equivalent to $22,500.  Prior to the implementation of this plan on October 1, 2011, stock options or restricted stock awards granted to our board of directors vested as to 25% of the shares after three months from the date of grant, 25% of the shares after six months from the date of grant, 25% of the shares after nine months from the date of grant and 25% each three months thereafter until fully vested.

On May 5, 2008, our stockholders approved the StarTek, Inc. Employee Stock Purchase Plan (the “ESPP”).  Under the ESPP, participants may purchase our common stock as of the last day of a purchase period at a price, which shall be no less than the lesser of (a) 85% of the closing price of a share of common stock on the first day of the purchase period; or (b) 85% of the closing price of a share of common stock on the last day of the purchase period.  The purchase period is defined as each quarterly period commencing January 1 and ending March 31, commencing April 1 and ending June 30, commencing July 1 and ending September 30, or commencing October 1 and ending December 31, unless otherwise determined by the Committee.  Subject to certain maximum stock ownership restrictions, employees are eligible to participate in the ESPP if employed by the Company for at least six months prior to the start of a Purchase Period and whose customary employment is at least 20 hours per week.  Participating employees may elect to have up to 10% of their base pay in effect at the commencement of each offering period withheld pursuant to the ESPP.  A total of 300,000 shares were authorized under the ESPP and as of December 31, 2011, there were 82,196 shares available for grant under the ESPP.

The compensation cost that has been charged against income for the Plan, the Prior Plans, the ESPP, and for restricted stock awards granted outside of those plans, as described below (together, the “Plans”), for the years ended December 31, 2011, 2010 and 2009 was $1,602, $2,108 and $1,987, respectively, and is included in selling, general and administrative expense.  As of December 31, 2011, there was $1,763 of total unrecognized compensation cost related to nonvested stock options granted under the Plans.  That cost is expected to be recognized over a weighted-average period of 2.8 years.  As of December 31, 2011, there was $181 of total unrecognized compensation cost related to nonvested restricted stock awards granted under the Plans.  That cost is expected to be recognized over a weighted-average period of 1.3 years.

Stock Options

A summary of stock option activity under the Plans as of December 31, 2011, and changes during the year ended December 31, 2011 are presented below:

			Weighted		Weighted-Average	Aggregate
			Average		Remaining	Intrinsic
	Shares		Exercise Price		Contractual Term (in yrs)	Value
Outstanding as of January 1, 2011	2,226,238		$	8.07
Granted	777,426		3.61
Exercised	(27,596	)	4.06
Forfeited	(865,323	)	7.71
Expired	(19,740	)	18.01
Outstanding as of December 31, 2011	2,091,005		$	6.52	7.60	$	—
Vested and exercisable as of December 31, 2011	1,161,249		$	8.45	6.30	$	—
Vested and expected to vest as of December 31, 2011	1,975,731		$	6.29	7.62	$	—

The weighted-average grant date fair value of options granted during the years ended December 31, 2011, 2010 and 2009 was $2.08, $3.18 and $2.42, respectively.  The total fair value of shares vested during the years ended December 31, 2011, 2010 and 2009 was $1,274, $1,645 and $1,361, respectively.

The assumptions used to determine the value of our stock-based awards under the Black-Scholes method are summarized below:

	2011	2010	2009
Risk-free interest rate	1.0% - 3.0%	1.1% - 2.9%	0.6% - 2.7%
Dividend yield	0%	0%	0%
Expected volatility	58.6% - 75.4%	73.6% - 75.1%	61.4% - 117.4%
Expected life in years	5.0	4.0	3.9

The risk-free interest rate for periods within the contractual life of the option is based on either the four year or seven year U.S. Treasury strip yield in effect at the time of grant.  Expected life and volatilities are based on historical experience, which we believe will be indicative of future experience.

Restricted Stock Awards

A summary of restricted stock award activity under the Plans as of December 31, 2011, and changes during the year then ended are presented below:

	Number of		Weighted-Average
	Restricted Shares		Grant Date Fair Value
Nonvested balance as of January 1, 2011	126,238		$	6.75
Granted	177,321		5.15
Vested	(95,502	)	6.46
Forfeited	(122,439	)	5.80
Nonvested balance as of December 31, 2011	85,618		5.12

The total fair value of restricted stock awards vested during the years ended December 31, 2011, 2010 and 2009 was $607, $360, and $180, respectively.

Employee Stock Purchase Plan

The first purchase period under the ESPP commenced July 1, 2008.  During 2011, 2010 and 2009, 58,453, 61,985 and 60,045 shares were purchased, respectively.  The weighted-average purchase price in 2011, 2010 and 2009, was $2.70, $3.98 and $4.14 per share, respectively.  Total expense recognized related to the ESPP during the years ended December 31, 2011, 2010 and 2009 was $57, $87 and $130, respectively.  The assumptions used to value the shares under the ESPP using the Black-Scholes method were as follows:

	2011	2010	2009
Risk-free interest rate	0.02% - 0.07%	0.1% - 0.2%	0.1% - 0.2%
Dividend yield	0%	0%	0%
Expected volatility	33.3% - 56.9%	38.5% - 55.5%	75.3% - 160.2%
Expected life in years	3 months	3 months	3 months

The weighted average grant date fair value of these shares was $0.98, $1.41 and $2.16 per share during the years ended December 31, 2011, 2010 and 2009, respectively.