Share-Based Compensation

12 Months Ended

Dec. 29, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The Company has the ability to grant stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and performance compensation awards to current or prospective employees, directors, officers, consultants or advisors pursuant to the Company’s 2010 Omnibus Award Plan (as amended, the “2010 Plan”). The 2010 Plan was initially adopted with shareholder approval in May 2010 and was amended with shareholder approval in June 2015 to, among other things, increase the number of shares of common stock available for issuance under the plan. All equity grants during 2019, 2018 and 2017 were issued from the 2010 Plan, and the 2010 Plan is currently the only equity plan from which future equity awards may be granted. As of December 29, 2019, there were approximately 22,440 shares of common stock available for future grants under the 2010 Plan. During the periods presented in the consolidated financial statements, the Company settled all exercises of stock options and vesting of restricted shares, including performance shares, with treasury shares.

Stock Options

The Company’s current outstanding stock options have maximum contractual terms of 10 years and vest ratably over three years or cliff vest after three years. The exercise price of options granted is equal to the market price of the Company’s common stock on the date of grant. The fair value of stock options on the date of grant is calculated using the Black-Scholes Model. The aggregate intrinsic value of an option is the amount by which the fair value of the underlying stock exceeds its exercise price.

The following table summarizes stock option activity during 2019:



	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life in Years	Aggregate Intrinsic Value
Outstanding at December 30, 2018	12,677		$	11.86
Granted	2,622		19.71
Exercised	(2,934	)	9.75
Forfeited and/or expired	(428	)	16.77
Outstanding at December 29, 2019	11,937		$	13.92	6.77	$	98,316
Vested or expected to vest at December 29, 2019	11,814		$	13.87	6.75	$	97,896
Exercisable at December 29, 2019	7,482		$	11.05	5.44	$	83,113

The total intrinsic value of options exercised during 2019, 2018 and 2017 was $26,947, $62,744 and $14,624, respectively. The weighted average grant date fair value of stock options granted during 2019, 2018 and 2017 was $3.40, $4.12 and $3.12, respectively.

The weighted average grant date fair value of stock options was determined using the following assumptions:



	2019		2018		2017
Risk-free interest rate	1.57	%	2.77	%	1.94	%
Expected option life in years	4.50		5.62		5.62
Expected volatility	23.55	%	24.27	%	23.88	%
Expected dividend yield	2.03	%	1.84	%	1.82	%

The risk-free interest rate represents the U.S. Treasury zero-coupon bond yield correlating to the expected life of the stock options granted. The expected option life represents the period of time that the stock options granted are expected to be outstanding based on historical exercise trends for similar grants. The expected volatility is based on the historical market price volatility of the Company as well as our industry peer group. The expected dividend yield represents the Company’s annualized average yield for regular quarterly dividends declared prior to the respective stock option grant dates.

The Black-Scholes Model has limitations on its effectiveness including that it was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable and that the model requires the use of highly subjective assumptions, such as expected stock price volatility. Employee stock option awards have characteristics significantly different from those of traded options and changes in the subjective input assumptions can materially affect the fair value estimates.

Restricted Shares

The Company grants RSAs and RSUs, which primarily cliff vest after 1 to 3 years. For the purposes of our disclosures, the term “Restricted Shares” applies to RSAs and RSUs collectively unless otherwise noted. The fair value of Restricted Shares granted is determined using the average of the high and low trading prices of our common stock on the date of grant.

The following table summarizes activity of Restricted Shares during 2019:



	Number of Restricted Shares		Weighted Average Grant Date Fair Value
Non-vested at December 30, 2018	1,321		$	13.65
Granted	358		19.51
Vested	(521	)	11.45
Forfeited	(87	)	15.78
Non-vested at December 29, 2019	1,071		$	16.46

The total fair value of Restricted Shares that vested in 2019, 2018 and 2017 was $9,996, $10,060 and $10,004, respectively.

Performance Shares

The Company grants performance-based awards to certain officers and key employees. The vesting of these awards is contingent upon meeting one or more defined operational or financial goals (a performance condition) or common stock share prices (a market condition). The quantity of shares awarded ranges from 0% to 200% of “Target,” as defined in the award agreement as the midpoint number of shares, based on the level of achievement of the performance and market conditions.

The fair values of the performance condition awards granted in 2019, 2018 and 2017 were determined using the average of the high and low trading prices of our common stock on the date of grant. Share-based compensation expense recorded for performance condition awards is reevaluated at each reporting period based on the probability of the achievement of the goal.

The fair value of market condition awards granted in 2019, 2018 and 2017 were estimated using the Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that the market conditions will be achieved and is applied to the average of the high and low trading prices of our common stock on the date of grant.

The input variables are noted in the table below:



	2019		2018		2017
Risk-free interest rate	2.51	%	2.38	%	1.44	%
Expected life in years	3.00		3.00		3.00
Expected volatility	23.19	%	24.97	%	25.06	%
Expected dividend yield (a)	0.00	%	0.00	%	0.00	%

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(a)	The Monte Carlo method assumes a reinvestment of dividends.

Share-based compensation expense is recorded ratably for market condition awards during the requisite service period and is not reversed, except for forfeitures, at the vesting date regardless of whether the market condition is met.

The following table summarizes activity of performance shares at Target during 2019:



	Performance Condition Awards				Market Condition Awards
	Shares		Weighted Average Grant Date Fair Value		Shares		Weighted Average Grant Date Fair Value
Non-vested at December 30, 2018	598		$	12.32	518		$	14.22
Granted	155		17.85		130		21.36
Dividend equivalent units issued (a)	10		—		8		—
Vested (b)	(278	)	9.44		(256	)	10.25
Forfeited	(46	)	16.13		(38	)	19.56
Non-vested at December 29, 2019	439		$	15.75	362		$	19.09

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(a)	Dividend equivalent units are issued in lieu of cash dividends for non-vested performance shares. There is no weighted average fair value associated with dividend equivalent units.


(b)	Performance condition awards and market condition awards exclude the vesting of an additional 169 and 157 shares, respectively, which resulted from the performance of the awards exceeding Target.

The total fair value of performance condition awards that vested in 2019, 2018 and 2017 was $7,720, $3,681 and $5,666, respectively. The total fair value of market condition awards that vested in 2019 and 2018 was $7,135 and $3,143, respectively. No market condition awards vested in 2017.

Modifications of Share-Based Awards

During 2019, 2018 and 2017, the Company modified the terms of awards granted to ten, eight and 31 employees, respectively, in connection with its IT realignment and G&A realignment plans discussed in Note 5. These modifications resulted in the accelerated vesting of certain stock options in connection with the termination of such employees. As a result, during 2019, 2018 and 2017, the Company recognized an increase in share-based compensation of $1,011, $1,238 and $4,930, respectively, which was included in “Reorganization and realignment costs.”

Share-Based Compensation

Total share-based compensation and the related income tax benefit recognized in the Company’s consolidated statements of operations were as follows:



	Year Ended
	2019			2018			2017
Stock options	$	7,685		$	7,172		$	6,923
Restricted shares (a)	5,762			6,030			5,778
Performance shares:
Performance condition awards	2,195			1,491			1,764
Market condition awards	2,023			1,987			1,533
Modifications, net	1,011			1,238			4,930
Share-based compensation	18,676			17,918			20,928
Less: Income tax benefit	(2,990		)	(3,418		)	(4,985		)
Share-based compensation, net of income tax benefit	$	15,686		$	14,500		$	15,943

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(a)	2019, 2018 and 2017 include $396, $319 and $197, respectively, related to retention awards in connection with the Company’s G&A realignment plan, which is included in “Reorganization and realignment costs.” See Note 5 for further information.

As of December 29, 2019, there was $20,978 of total unrecognized share-based compensation, which will be recognized over a weighted average amortization period of 2.11 years.