Stock Based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

Equity Plans

2017 Omnibus Incentive Plan

The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of restricted stock units (RSUs), stock, and stock options up to a maximum of 6,100,000 shares of common stock. The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on June 6, 2027. The table below summarizes changes to the issuances under the Company’s 2017 Equity Plan for the periods indicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock:


2017 Equity Plan			Number of shares (1)







Available for issuance as of December 31, 2019			4,765,863
RSU, stock and option awards granted			(951,019)


Available for issuance as of September 30, 2020			3,814,844

(1) Excludes awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock.

Restricted Stock Units and Stock Awards

Tiptree Corporate Incentive Plans

The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Generally, the Tiptree RSUs vest and become nonforfeitable with respect to one-third of Tiptree shares granted on each of the one, two and three year anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period.

Stock Awards - Directors’ Compensation

The Company values the stock awards at their issuance-date fair value as measured by Tiptree’s common stock price. Upon issuance, the awards are deemed to be granted and immediately vested.

The following table presents changes to the issuances of RSUs and stock awards under the 2017 Equity Plan for the periods indicated:


	Number of shares issuable	Weighted average grant date fair value








Unvested units as of December 31, 2019	958,610	$	6.23
Granted	525,742	7.13
Vested	(531,206)	6.61

Unvested units as of September 30, 2020	953,146	$	6.52

The following tables present the detail of the granted and vested RSUs and stock awards for the periods indicated:


Granted	Three Months Ended September 30, 2020	Nine Months Ended September 30, 2020	Vested	Three Months Ended September 30, 2020	Nine Months Ended September 30, 2020
Directors	21,970	56,485	Directors	21,970	56,485
Employees (1)	—	469,257	Employees	—	474,721
Total Granted	21,970	525,742	Total Vested	21,970	531,206
			Taxes	—	(53,438)
			Exchanged	—	—
			Net Vested	21,970	477,768

(1) Includes 256,619 shares that vest ratably over three years and 212,638 shares that cliff vest in February 2021.

Subsidiary Incentive Plans

Certain of the Company’s subsidiaries have established incentive plans under which they are authorized to issue equity of those subsidiaries to certain of their employees. Such awards are accounted for as equity. These awards are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting awards) and time-vesting subject to continued employment (time vesting awards). Following the service period, such vested awards may be exchanged at fair market value, at the option of the holder, for Tiptree common stock under the 2017 Equity Plan. The service period for certain grants has been achieved and those vested subsidiary awards are currently eligible for exchange. The Company has the option, but not the obligation to settle the exchange right in cash.

The following table presents changes to the issuances of subsidiary awards under the subsidiary incentive plans for the periods indicated:


	Grant date fair value of equity shares issuable








Unvested balance as of December 31, 2019	$	4,279
Granted	1,108
Vested	(4,230)
Performance assumption adjustment	2,772
Unvested balance as of September 30, 2020	$	3,929

The net vested and unvested balance of subsidiary awards (assuming full vesting) translates to an aggregate of 4,928,704 shares of common stock if converted as of September 30, 2020, of which 2,995,566 are vested and eligible for exchange as of September 30, 2020.

Stock Option Awards

Tiptree Corporate Incentive Plans

Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant. The option awards have a 10-year term and are subject the recipient’s continuous service, a market requirement, and vest one third on each of the three, four and five year anniversaries of the grant date. The market requirement is a book value per share target that can be met at any time before the option expires and it only needs to be met once for the option to remain exercisable for the remainder of its term. If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not. The options granted after 2017 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date. Book value targets for grants in 2020, 2019, 2018, 2017 and 2016 are $11.52, $10.79, $9.97, $10.14 and $8.96, respectively.

The fair value option grants are estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the

market requirement is achieved. Historical volatility was computed based on historical daily returns of the Company’s stock between the grant date and July 1, 2013, the date of the business combination through which Tiptree became a public company. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grant date. The current quarterly dividend rates in effect as of the date of the grant are used to calculate a spot dividend yield as of the date of grant for use in the model.

The following table presents the assumptions used to estimate the fair values of the stock options granted for the following periods:

Nine Months Ended September 30,

Valuation Input

2020

2019

Assumption

Average

Assumption

Average

Historical volatility

27.60%

N/A

27.69%

N/A

Risk-free rate

1.51%

N/A

2.62%

N/A

Dividend yield

2.20%

N/A

2.21%

N/A

Expected term (years)

7.0

6.5

The following table presents the Company's stock option activity for the current period:


	Options outstanding	Weighted average exercise price (in dollars per stock option)		Weighted average grant date value (in dollars per stock option)		Options exercisable




Balance, December 31, 2019	1,290,342	$	6.24	$	2.45	—
Granted	425,277	7.25		1.83		—
Balance, September 30, 2020	1,715,619	$	6.49	$	2.29	—

Weighted average remaining contractual term at September 30, 2020 (in years)	7.4

Stock Based Compensation Expense

The following table presents total stock based compensation expense and the related income tax benefit recognized on the condensed consolidated statements of operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Employee compensation and benefits	$	2,287	$	1,439	$	5,750	$	4,285
Director compensation	202		75		408		227
Income tax benefit	(538)		(327)		(1,330)		(975)
Net stock based compensation expense	$	1,951	$	1,187	$	4,828	$	3,537

Additional information on total non-vested stock based compensation is as follows:


	As of
	September 30, 2020
	Stock options		Restricted stock awards and RSUs
Unrecognized compensation cost related to non-vested awards	$	639	$	5,890
Weighted - average recognition period (in years)	2.19		1.77