STOCK-BASED COMPENSATION PLAN

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION PLAN:

Under SJI's Omnibus Equity Compensation Plan (Plan), shares may be issued to SJI’s officers (Officers), non-employee directors (Directors) and other key employees. SJI grants time-based shares of restricted stock, one-third of which vest annually over a three-year period and which are limited to a 100% payout. The vesting and payout of time-based shares of restricted stock is solely contingent upon the service requirement being met in years one, two, and three of the grant. Performance-based restricted shares vest over a three-year period and are subject to SJI achieving certain market and earnings-based performance targets, which can cause the actual amount of shares that ultimately vest to range from 0% to 200% of the original shares granted. No options were granted or outstanding, and no restricted shares (time-based or performance-based) were granted during the three months ended March 31, 2021 and 2020. No stock appreciation rights have been issued under the Plan. Restricted shares to Officers and other key employees are expected to be granted in the second quarter of 2021.

Grants containing market-based performance targets use SJI's TSR relative to a peer group to measure performance. As TSR-based grants are contingent upon market and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant on a straight-line basis over the requisite three-year period of each award. In addition, SJI identifies specific forfeitures of share-based awards, and compensation expense is adjusted accordingly over the requisite service period. Compensation expense is not adjusted based on the actual achievement of market goals. The fair value of TSR-based restricted stock awards on the date of grant is estimated using a Monte Carlo simulation model.

Earnings-based performance targets include pre-defined EGR goals to measure performance. Performance targets include pre-defined CEGR for SJI. As EGR-based and CEGR-based grants are contingent upon performance and service conditions, SJI is required to measure and recognize stock-based compensation expense based on the fair value at the date of grant over the requisite three-year period of each award. The fair value is measured as the market price at the date of grant. The initial accruals of compensation expense are based on the estimated number of shares expected to vest, assuming the requisite service is rendered and probable outcome of the performance condition is achieved. That estimate is revised if subsequent information indicates that the actual number of shares is likely to differ from previous estimates. Compensation expense is ultimately adjusted based on the actual achievement of service and performance targets.

During the three months ended March 31, 2021, SJI did not grant any restricted shares to its Directors; however 54,419 shares were issued in April 2021. During the three months ended March 31, 2020, SJI granted 36,829 restricted shares to its Directors. Shares issued to Directors vest over twelve months and contain no performance conditions. As a result, 100% of the shares granted generally vest.

The following table summarizes the nonvested restricted stock awards outstanding at March 31, 2021, and the assumptions used to estimate the fair value of the awards:


	Grants	Shares Outstanding	Fair Value Per Share		Expected Volatility		Risk-Free Interest Rate
Officers & Key Employees -	2019 - TSR	32,292	$	32.88	23.2	%	2.40	%
	2019 - CEGR, Time	69,496	$	31.38	N/A		N/A
	2020 - TSR	41,306	$	25.51	34.8	%	0.21	%
	2020 - CEGR, Time	169,164	$	25.19	N/A		N/A

Directors -	2020	1,627	$	24.20	N/A		N/A

Expected volatility is based on the actual volatility of SJI’s share price over the preceding three-year period as of the valuation date. The risk-free interest rate is based on the zero-coupon U.S. Treasury Bond, with a term equal to the three-year term of the Officers’ and other key employees’ restricted shares. As notional dividend equivalents are credited to the holders during the three-year service period, no reduction to the fair value of the award is required. As the Directors’ restricted stock awards contain no performance conditions and dividends are paid or credited to the holder during the twelve month service period, the fair value of these awards is equal to the market value of the shares on the date of grant.

The following table summarizes the total stock-based compensation cost to SJI for the three months ended March 31, 2021 and 2020 (in thousands):


	Three Months Ended March 31,
	2021		2020
Officers & Key Employees	$	1,264	$	1,212
Directors	10		299
Total Cost	1,274		1,511

Capitalized	(23)		(122)
Net Expense	$	1,251	$	1,389

As of March 31, 2021, there was $4.2 million of total unrecognized compensation cost related to nonvested stock-based compensation awards granted under the Plan. That cost is expected to be recognized over a weighted average period of 1.5 years.

The following table summarizes information regarding restricted stock award activity for SJI during the three months ended March 31, 2021, excluding accrued dividend equivalents:


	Officers and Other Key Employees	Directors	Weighted Average Fair Value
Nonvested Shares Outstanding, January 1, 2021	449,786	38,456	$	28.88


Vested	(137,529)	(36,829)	$	31.45
Nonvested Shares Outstanding, March 31, 2021	312,257	1,627	$	27.45

Time-based grants were awarded for Officers and other key employees who met their service period requirements. As a result, during the three months ended March 31, 2021, SJI awarded 110,891 shares to its Officers and other key employees at a market value of $2.7 million. During the three months ended March 31, 2020, SJI awarded 47,617 shares at a market value of $1.4 million. These awarded amounts for 2021 and 2020 include awards for previously deferred shares that were paid during the three month periods.

SJI also awarded 36,829 and 30,961 service based award shares to its Directors at a market value of $1.2 million and $0.8 million during the three months ended March 31, 2021 and March 31, 2020, respectively.

SJI has a policy of issuing new shares to satisfy its obligations under the Plan; therefore, there are no cash payment requirements resulting from the normal operation of the Plan. However, a change in control could result in such shares becoming non-forfeitable or immediately payable in cash. At the discretion of the Officers, Directors and other key employees, the receipt of vested shares can be deferred until future periods. These deferred shares are included in Treasury Stock on the condensed consolidated balance sheets.

SJG - Officers and other key employees of SJG participate in the stock-based compensation plans of SJI. During the three months ended March 31, 2021 and 2020, there were no restricted shares granted to SJG officers and other key employees; shares are expected to be granted in the second quarter of 2021.