Share-Based Compensation and Employee Ownership Plans

6 Months Ended

Jun. 30, 2011

Share-Based Compensation and Employee Ownership Plans

Share-Based Compensation and Employee Ownership Plans

10. Share-Based Compensation and Employee Ownership Plans

Share-based compensation plans in place after the Transactions

        The Company issues share based compensation under Cowen Holdings' previously established 2006 Equity and Incentive Plan, the 2007 Equity and Incentive Plan and the Cowen Group, Inc. 2010 Equity and Incentive Plan (collectively, the "Equity Plans"). The Equity Plans permit the grant of options, restricted shares, restricted stock units and other equity based awards to the Company's employees, consultants and directors for up to 17,725,000 shares of common stock. Stock options granted generally vest over two to five year periods and expire seven years from the date of grant. Restricted shares and restricted share units issued may be immediately vested or may generally vest over a two to five year period. As of June 30, 2011, there were approximately 0.8 million shares available for future issuance under the Equity Plans. On January 1, 2011, 0.9 million additional shares representing 7.5% of the Company's outstanding shares of stock, less shares available under the 2010 Equity and Incentive Plan were added to the shares available under that plan.

        In addition to the Equity Plans, certain employees of the Company were issued RCG membership interests by RCG, a related party of the Company, in connection with the Transactions (the "RCG Grants"). Substantially all of the assets owned by RCG consist of shares of common stock of the Company. Accordingly, upon withdrawal of capital from RCG, members receive either distributions in kind of shares of common stock of the Company, or the proceeds from the sale of shares of the Company's common stock attributable to their capital accounts. The RCG Grants are subject to a service condition and vest to each employee over a period of approximately three years. Any RCG Grants forfeited are redistributed to the remaining stakeholders in RCG, which includes both employees and non-employees. The RCG Grants represent awards to employees of the Company by a related party, as compensation for services provided to the Company. As such, the expense related to these grants is included in the compensation expense of the Company, with a corresponding credit to stockholders equity.

        The Company measures compensation cost for share based awards according to the fair value method. In accordance with the expense recognition provisions of those standards, the Company amortizes unearned compensation associated with share based awards on a straight-line basis over the vesting period of the option or award. In relation to awards under the Equity Plans, the Company recognized expense of $4.9 million and $3 million for the three months ended June 30, 2011 and 2010, respectively, and $10.6 million and $5.7 million for the six months ended June 30, 2011 and 2010, respectively. The income tax effect recognized for the Equity Plans was a benefit of $2.4 million and $1.5 million for the three months ended June 30, 2011 and 2010, respectively, and $5.1 million and $2.6 million for the six months ended June 30, 2011 and 2010, respectively.

        In relation to awards under the RCG Grants, the Company recognized expense of $1.5 million and $2.1 million, respectively, for the three months ended June 30, 2011 and 2010 and $2.9 million and $3.6 million for the six months ended June 30, 2011 and 2010, respectively. The income tax effect recognized for the RCG Grants was a benefit of $0.6 million and $0.8 million, respectively, for the three months ended June 30, 2011 and 2010, respectively, and $1.1 million and $1.4 million for the six months ended June 30, 2011 and 2010, respectively.

Stock Options

        The following table summarizes the Company's stock option activity for the six months ended June 30, 2011:

	Shares Subject to Option			Weighted Average Exercise Price/Share		Weighted Average Remaining Term		Aggregate Intrinsic Value(1)
						(in years)		(dollars in thousands)
Balance outstanding at December 31, 2010		893,432		$	13.04		3.50
Options granted					—
Options acquired		—			—
Options exercised		—			—
Options forfeited		—			—
Options expired		(27,004	)		16.00
Balance outstanding at June 30, 2011		866,428		$	12.95		3.03	$	—
Options exercisable at June 30, 2011		716,425		$	14.83		2.39	$	—

(1)

Based on the Company's closing stock price of $4.69 on December 31, 2010 and $3.76 on June 30, 2011.

        As of June 30, 2011, there was $0.2 million of unrecognized compensation expense related to the Company's grant of stock options.

Restricted Shares and Restricted Stock Units Granted to Employees

        The following table summarizes the Company's restricted share and restricted stock unit activity for the six months ended June 30, 2011:

	Nonvested Restricted Shares and Restricted Stock Units			Weighted-Average Grant Date Fair Value
Balance outstanding at December 31, 2010		5,788,021			5.39
Granted		6,014,437			4.28
Vested		(824,050	)		4.11
Cancelled		(7,735	)		4.31
Forfeited		(379,815	)		4.91
Balance outstanding at June 30, 2011		10,590,858		$	4.87

        The fair value of restricted stock is determined based on the number of shares granted and the quoted price of the Company's common stock on the date of grant.

        As of June 30, 2011, there was $30.6 million of unrecognized compensation expense related to the Company's grant of nonvested restricted shares and restricted stock units to employees. Unrecognized compensation expense related to nonvested restricted shares and restricted stock units granted to employees is expected to be recognized over a weighted-average period of 1.36 years.

RCG Grants

        The following table summarizes the Company's RCG Grants activity for the six months ended June 30, 2011:

	Nonvested RCG Grants			Weighted-Average Grant Date Fair Value
Balance outstanding at December 31, 2010		2,638,078		$	7.30
Granted		—			—
Vested		—			—
Forfeited		(42,139	)(*)		7.30
Balance outstanding at June 30, 2011		2,595,939		$	7.30

(*)

Forfeitures of non vested RCG Grants are also reallocated to other interests within RCG Holdings, LLC.

        The fair value of the RCG Grants was determined based on the number of the Company's shares underlying the RCG membership interest and the quoted price of the Company's common stock on the date of the Transactions.

        As of June 30, 2011 there was $7.8 million of unrecognized compensation expense related to the Company's RCG Grants. Unrecognized compensation expense related to RCG Grants is expected to be recognized over a weighted-average period of 1.33 years.

Restricted Shares and Restricted Stock Units Granted to Non-employee Board Members

        There were no restricted stock units awarded during the three months and six months ended June 30, 2011. Vested awards of 73,480 were delivered to non-employee members of the Company's Board of Directors during the six months ended June 30, 2011. As of June 30, 2011 there were 24,574 restricted stock units outstanding for awards to non-employee members of the Company's Board of Directors.