Stock-Based Compensation

9 Months Ended

Sep. 30, 2011

Stock-Based Compensation [Abstract]

STOCK-BASED COMPENSATION

4. STOCK-BASED COMPENSATION

The Company has several types of stock-based compensation — stock options, restricted stock, long-term incentive awards and restricted stock units (“RSUs”) — which are described in Note 6 of “Notes to Consolidated Financial Statements” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010. The expense related to certain stock-based compensation awards is fixed. The expense related to other awards fluctuates from period to period dependent, in part, on the Company’s stock price.

The Company reversed previously recognized stock-based compensation expense, net of amounts capitalized and income tax effect, if any, of $435,000 in the three months ended September 30, 2011 and recorded net stock-based compensation expense of $1.3 million in the nine months ended September 30, 2011. The three-month 2011 reversal of expense was mainly due to a period-to-period drop in the Company’s stock price.

For the three and nine months ended September 30, 2010, the Company recorded net stock-based compensation expense of $549,000 and $2.4 million, respectively.

In the first quarter of 2011, the Company granted 211,729 stock options to key employees and 1,019 stock options to a new director. Also during the first quarter of 2011, the Company made restricted stock grants of 214,206 shares to key employees with a three-year ratable vesting, and 29,411 shares to a key employee, which cliff vest in three years.

RSUs and the long-term incentive awards are accounted for as liability awards under ASC 718, “Stock Compensation,” and employees are paid cash at vesting based upon the closing prices of the Company’s stock or other prescribed cash amounts. During 2011, the Company awarded 401 RSUs to a new director and 56,845 RSUs to employees, both of which cliff vest in three years. Also during 2011, the Company awarded two types of performance-based RSUs to key employees based on the following performance metrics: (1) Total Stockholder Return of the Company, as defined, as compared to the companies in the SNL Financial US Office REIT index as of January 1, 2011 (“TSR SNL RSUs”), and (2) ratio of cumulative funds from operations per share to targeted cumulative funds from operations per share amount (“FFO RSUs”). The performance period for both awards is January 1, 2011 to December 31, 2013, and the targeted number of TSR SNL RSUs and FFO RSUs is 99,970 and 64,266, respectively. The ultimate payout of these awards can range from 0% to 200% of the targeted number of units depending on the achievement of the performance metrics described above. Both of these types of RSUs cliff vest on February 15, 2014 and are dependent upon the attainment of required service and performance criteria. The number of RSUs vesting will be determined at that date, and the payout per unit will be equal to the average closing price on each trading day during the 30-day period ending on December 31, 2013. The Company expenses an estimate of the fair value of the TSR SNL RSUs over the vesting period using a quarterly Monte Carlo valuation. The Company expenses the FFO RSUs over the vesting period using the fair market value of the Company’s stock at the reporting date multiplied by the anticipated number of units to be paid based on the current estimate of what the ratio is expected to be upon vesting. Dividend equivalents on the RSUs will also be paid based upon the percentage vested. The dividend equivalent payments will equal the total cash dividends that would have been paid during the performance period, and as if the cash dividends had been reinvested in Company stock.