XML 123 R20.htm IDEA: XBRL DOCUMENT

Stock-Based Compensation Plans

12 Months Ended

Oct. 31, 2019

Stock-Based Compensation Plans [Abstract]

12.Stock-Based Compensation Plans

Compensation expense recognized by the Company related to its stock-based compensation plans for the years ended October 31, 2019, 2018 and 2017 was as follows:

(in thousands)		2019		2018		2017
Omnibus Incentive Plans:
Restricted shares	$	57,821	$	52,312	$	48,955
Stock options		21,949		23,531		20,693
Deferred stock units		915		1,008		524
Employee Stock Purchase Plans		355		793		716
Employee Stock Purchase Incentive Plan		512		877		753
Atlanta Capital Plan		2,280		2,969		3,420
Atlanta Capital Phantom Incentive Plan		1,087		567		-
Parametric Plan		3,461		3,177		3,816
Parametric Phantom Incentive Plan		3,533		2,821		1,172
Total stock-based compensation expense	$	91,913	$	88,055	$	80,049

The total income tax benefit recognized for stock-based compensation arrangements was $21.3 million, $21.7 million and $29.0 million for the years ended October 31, 2019, 2018 and 2017, respectively.

Omnibus Incentive Plans

The 2013 Omnibus Incentive Plan (2013 Plan), which is administered by the Compensation Committee of the Board, allows for awards of options to acquire shares of the Company’s Non-Voting Common Stock, restricted shares of the Company’s Non-Voting Common Stock and deferred stock units relating to the Company’s Non-Voting Common Stock to eligible employees and non-employee Directors and the issuance of shares to settle phantom incentive units awarded to employees of Atlanta Capital and Parametric. The 2013 Plan contains change in control provisions that may accelerate the vesting of awards. A total of 34.5 million shares of Non-Voting Common Stock have been reserved for issuance under the 2013 Plan. Through October 31, 2019, 9.4 million restricted shares, options to purchase 15.0 million shares and 0.1 million shares to settle phantom incentive units have been issued pursuant to the 2013 Plan.

Restricted shares

Restricted shares of Non-Voting Common Stock granted under the 2013 Plan are accounted for as equity awards. Restricted shares vest over five years pursuant to a graduated vesting schedule. Holders of restricted shares have forfeitable rights to dividends equal to the dividends declared on the Company’s Non-Voting Common Stock during the vesting period. These dividends are not paid in cash to holders of restricted shares until the awards vest.

A summary of restricted share activity for the year ended October 31, 2019 is as follows:

		Weighted-
		Average
		Grant Date
(share amounts in thousands)	Shares	Fair Value
Unvested, beginning of period	4,544	$	40.70
Granted	1,746		44.87
Issued in exchange for Parametric phantom incentive units⁽¹⁾	556		44.34
Vested	(1,346)		39.15
Forfeited	(123)		43.09
Unvested, end of period	5,377	$	42.72

(1) Reflects restricted shares of the Company’s Non-Voting Common Stock issued in exchange for Parametric phantom incentive units in the fourth quarter of fiscal 2019. The number of restricted shares issued was determined using a fixed exchange ratio based on the per unit value of Parametric and the closing price of the Company’s Non-Voting Common stock of $44.34 determined as of July 19, 2019. Refer to the “Parametric Phantom Incentive Plans” section of this Note for additional information.

As of October 31, 2019, there was $134.9 million of compensation cost related to unvested restricted share awards not yet recognized. That cost is expected to be recognized over a weighted-average period of 2.7 years.

The total fair value of restricted stock vested during the years ended October 31, 2019, 2018 and 2017 was $52.7 million, $47.2 million and $40.5 million, respectively.

Subsequent event

In November 2019, the Company awarded a total of 1.5 million restricted shares under the 2013 Plan at a grant date fair value of $46.15 per share.

Stock options

Options to purchase Non-Voting Common Stock granted under the 2013 Plan and predecessor plans are accounted for as equity awards. Stock options expire ten years from the date of grant and vest over five years pursuant to a graduated vesting schedule and may not be granted with an exercise price that is less than the fair market value of the stock as of the close of business on the date of grant. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model. The Black-Scholes option valuation model incorporates assumptions as to dividend yield, expected volatility, an appropriate risk-free interest rate and the expected life of the option. Many of these assumptions require management’s judgment. The dividend yield assumption represents the Company’s expected dividend yield based on its historical dividend payouts and the stock price at the date of grant. The expected volatility assumption is based upon the historical price fluctuations of the Company’s Non-Voting Common Stock. The Company uses historical data to estimate the expected life of options granted. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve at the time of grant.

The weighted-average fair values per share of stock options granted during the years ended October 31, 2019, 2018 and 2017 using the Black-Scholes option valuation model were as follows:

		2019		2018		2017
Weighted-average grant date fair value
of options granted	$	9.07	$	10.55	$	6.29

Assumptions:
Dividend yield		3.1% to 3.50%		2.4%		2.60% to 3.20%
Expected volatility		24% to 31%		24%		25%
Risk-free interest rate		2.60% to 3.10%		2.30% to 2.80%		1.70% to 2.30%
Expected life of options		7.2 years		7.2 years		7.0 years

A summary of stock option activity for the year ended October 31, 2019 is as follows:

(share and intrinsic value amounts in thousands)	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Options outstanding, beginning of period	16,760	$	35.23
Granted	2,469		45.37
Exercised	(1,570)		28.68
Forfeited/expired	(60)		40.44
Options outstanding, end of period	17,599	$	37.22	5.6	$	156,418
Options exercisable, end of period	8,926	$	33.39	3.9	$	109,872

The Company received $43.5 million, $68.4 million and $204.0 million related to the exercise of options for the fiscal years ended October 31, 2019, 2018 and 2017, respectively. Shares issued upon exercise of options represent newly issued shares. The total intrinsic value of options exercised during the years ended October 31, 2019, 2018 and 2017 was $23.4 million, $65.1 million and $58.9 million, respectively. The total fair value of options that vested during the year ended October 31, 2019 was $22.8 million.

As of October 31, 2019, there was $39.5 million of compensation cost related to unvested stock options granted under the 2013 Plan and predecessor plans not yet recognized. That cost is expected to be recognized over a weighted-average period of 2.3 years.

Subsequent event

In November 2019, the Company granted options to purchase 2.8 million shares of the Company’s Non-Voting Common Stock under the 2013 Plan to employees at a price of $46.15 per share, the then-current trading price of the underlying security.

Deferred stock units

Deferred stock units issued to non-employee Directors under the 2013 Plan are accounted for as liability awards. During fiscal 2017, the 2013 Plan was amended such that non-employee Directors no longer have

substantive service conditions for vesting of awards. Once the awards are granted, the non-employee Directors have the right to receive cash payments related to such awards upon separation from the Company (other than for cause). As a result of this amendment, deferred stock units granted after November 1, 2017 are considered fully vested for accounting purposes on the grant date and the entire fair value of these awards is recognized as compensation cost on the date of grant. During fiscal 2019, 19,758 deferred stock units were issued to non-employee Directors pursuant to the 2013 Plan. The total liability attributable to deferred stock units included as a component of accrued compensation on the Company’s Consolidated Balance Sheet was $1.7 million and $1.3 million as of October 31, 2019 and 2018, respectively. The Company made cash payments of $0.5 million, $0.4 million and $0.4 million in the fiscal years ended October 31, 2019, 2018 and 2017, respectively, to settle deferred stock unit award liabilities.

Employee Stock Purchase Plans

The 2013 Employee Stock Purchase Plan (Qualified ESPP) and the 2013 Nonqualified Employee Stock Purchase Plan (Nonqualified ESPP) (together, Employee Stock Purchase Plans), which are administered by the Compensation Committee of the Board, permit eligible employees to direct up to a maximum of $12,500 per six-month offering period toward the purchase of Non-Voting Common Stock at the lower of 90 percent of the market price of the Non-Voting Common Stock at the beginning or at the end of each offering period. The Qualified ESPP qualifies under Section 423 of the U.S. Internal Revenue Code of 1986, as amended (Internal Revenue Code). A total of 0.5 million and 0.1 million shares of the Company’s Non-Voting Common Stock have been reserved for issuance under the Qualified ESPP and Nonqualified ESPP, respectively. Through October 31, 2019, 0.5 million shares have been issued pursuant to the Employee Stock Purchase Plans.

The Company received $3.2 million, $3.2 million and $3.0 million related to shares issued under the Employee Stock Purchase Plans for the years ended October 31, 2019, 2018 and 2017, respectively.

Employee Stock Purchase Incentive Plan

The 2013 Incentive Compensation Nonqualified Employee Stock Purchase Plan (Employee Stock Purchase Incentive Plan), which is administered by the Compensation Committee of the Board, permits employees to direct up to half of their incentive bonuses and commissions toward the purchase of the Company’s Non-Voting Common Stock at the lower of 90 percent of the market price of the Non-Voting Common Stock at the beginning or at the end of each quarterly offering period. A total of 0.9 million shares of the Company’s Non-Voting Common Stock have been reserved for issuance under the Employee Stock Purchase Incentive Plan. Through October 31, 2019, 0.6 million shares have been issued pursuant to the plan.

The Company received $4.6 million, $4.9 million and $4.0 million related to shares issued under the Employee Stock Purchase Incentive Plan for the years ended October 31, 2019, 2018 and 2017, respectively.

Atlanta Capital and Parametric Long-Term Equity Incentive Plans

The Atlanta Capital Plan and the Parametric Plan allow for awards of profit units of Atlanta Capital and Parametric, respectively, to key employees that are accounted for as equity awards. The Company did not grant any profit interests under the Atlanta Capital Plan in fiscal 2019 or 2018 nor did it grant any profit

interests under the Parametric Plan in fiscal 2019, 2018, or 2017. Profit units granted vest over five years and entitle the holders to quarterly distributions of available cash flow.

As of October 31, 2019, there was $2.4 million of compensation cost related to unvested profit units previously granted under the Atlanta Capital Plan not yet recognized. That cost is expected to be recognized over a weighted-average period of 1.7 years. The compensation cost attributable to these awards was measured at the grant date using the unadjusted per unit equity value of Atlanta Capital described further in the “Atlanta Capital Phantom Incentive Plan” section of this Note. A total of 323,016 profit units have been issued pursuant to the Atlanta Capital Plan through October 31, 2019.

During the fourth quarter of fiscal 2019, the Company purchased all of the outstanding profit units held by current and former employees under the Parametric Plan (see Note 9). The Company accelerated the vesting of these units and recognized all of the remaining compensation cost attributable to these units, which totaled $1.6 million, in the fourth quarter of fiscal 2019. The Company terminated the Parametric Plan in the first quarter of fiscal 2020.

Atlanta Capital and Parametric Phantom Incentive Plans

The 2017 Atlanta Capital Phantom Incentive Plan (Atlanta Capital Phantom Incentive Plan), and the 2016 Parametric Phantom Incentive Plan and the 2018 Parametric Phantom Incentive Plan (collectively, Parametric Phantom Incentive Plans) are long-term equity incentive plans that provide for the award of phantom incentive units to eligible employees of Atlanta Capital and Parametric, respectively. Phantom incentive units are accounted for as equity awards and vest over five years.

The fair value of each phantom incentive unit is indexed to the equity value of Atlanta Capital or Parametric, as applicable, determined on a per unit basis at least annually utilizing an appraisal of each entity that is developed using two weighted valuation techniques: specifically, an income approach and a market approach. The appraisals are prepared by an independent valuation firm and approved by management. The income approach employs a discounted cash flow model to ascribe an enterprise value to each entity that takes into account projections of future cash flows developed utilizing the best information available and market-based assumptions that are consistent with other comparable publicly traded investment management companies of a similar size, including current period actual results, historical trends, forecasted results provided by management and extended by the independent valuation firm, and an appropriate risk-adjusted discount rate that takes into consideration an estimated weighted average cost of capital. The market approach ascribes an enterprise value to each entity by applying market multiples of other comparable publicly traded investment management companies of a similar size. At the grant date, the per unit equity value is adjusted to take into consideration that holders of these units are not entitled to receive distributions of future earnings from Atlanta Capital or Parametric, as applicable, nor are they entitled to receive dividend or dividend equivalents from these entities. At the vesting date, the fair value of each vested phantom incentive unit is measured; however, no adjustment to the per unit equity value is made. These awards are settled in shares of the Company’s Non-Voting Common Stock under the 2013 Plan determined based on the unadjusted per unit equity value and the closing price of the stock observed on the vesting date.

Phantom incentive units are not reserved for issuance; rather, the Company determines the number of authorized phantom incentive unit awards annually on the first business day of the fiscal year. The awards are subject to the Non-Voting Common Stock reserves defined under the 2013 Plan, as described above.

Atlanta Capital Phantom Incentive Plan

A summary of phantom incentive unit activity for the year ended October 31, 2019 is presented below:

		Weighted-
	Phantom	Average
	Incentive	Grant Date
	Units	Fair Value
Unvested, beginning of period	19,931	$	142.31
Granted	19,531		133.12
Vested	(1,992)		142.31
Unvested, end of period	37,470	$	137.52

As of October 31, 2019, there was $3.8 million of compensation cost related to unvested awards granted under the Atlantic Capital Phantom Incentive Plan not yet recognized. That cost is expected to be recognized over a weighted-average period of 3.5 years.

Subsequent event

In the first quarter of fiscal 2020, the Company granted a total of 23,938 phantom incentive units under the Atlantic Capital Phantom Incentive Plan at a grant date fair value of $150.42 per unit.

Parametric Phantom Incentive Plans

The terms of the 2018 Parametric Phantom Incentive Plan (2018 Parametric Plan) are substantially equivalent to the 2016 Parametric Phantom Incentive Plan (2016 Parametric Plan), except that under the 2018 Parametric Plan, the awards are unitized such that one unit of Parametric is equivalent to 100 phantom incentive units (under the 2016 Parametric Plan, one unit of Parametric is equivalent to one phantom incentive unit).

During the fourth quarter of fiscal 2019, the Company completed an exchange offer transaction accounted for as a modification through which a majority of the outstanding phantom incentive units granted under the Parametric Phantom Incentive Plans were cancelled and exchanged for restricted shares of the Company’s Non-Voting Common Stock issued under the 2013 Plan. The Company does not intend to grant any additional phantom incentive units under the Parametric Phantom Incentive Plans. The replacement restricted shares of the Company’s Non-Voting Common Stock will vest pursuant to the same time-based vesting schedules established at the grant date of the cancelled phantom incentive units. The number of restricted stock awards issued in exchange upon the close of the exchange offer was determined by a fixed exchange ratio equal to: (1) the unadjusted per unit equity value of Parametric of $2,939 and $29.39 for awards granted under the 2016 Parametric Plan and the 2018 Parametric Plan, respectively, determined as of July 19, 2019 in accordance with the methodology described above; divided by (2) the closing price of the Company’s Non-Voting Common Stock of $44.34 observed on that same date. Since the canceled phantom units were exchanged for restricted shares on a fair value basis, no incremental value was conveyed to the holders of the phantom incentive units. Therefore, the total compensation cost attributable to the replacement restricted shares is based on the grant date fair value of the cancelled phantom units not yet recognized as of the modification date.

A summary of phantom incentive unit activity for the year ended October 31, 2019 under the 2016 Parametric Plan is presented below:

			Weighted-
			Average
		Phantom	Grant Date
		Incentive	Fair Value
		Units	Per Unit
Unvested, beginning of period		6,222	$	2,010.27
Vested		(825)		1,956.11
Forfeited		(248)		1,991.57
Exchanged for restricted shares⁽¹⁾		(5,074)		2,939.00
Unvested, end of period		75	$	2,091.93

⁽¹⁾	Reflects Parametric phantom incentive units exchanged for restricted shares upon the close of the exchange offer transaction in the fourth quarter of fiscal 2019 determined using a fixed exchange ratio based on a $2,939 per unit value of Parametric for awards granted under the 2016 Parametric Plan determined as of July 19, 2019.

A summary of phantom incentive unit activity for the year ended October 31, 2019 under the 2018 Parametric Plan is presented below:

			Weighted-
			Average
		Phantom	Grant Date
		Incentive	Fair Value
		Units	Per Unit
Unvested, beginning of period		1,530	$	22.09
Granted		355,067		22.83
Vested		(1,034)		22.74
Forfeited		(18,780)		22.83
Exchanged for restricted shares⁽¹⁾		(330,886)		29.39
Unvested, end of period		5,897	$	22.82

⁽¹⁾	Reflects Parametric phantom incentive units exchanged for restricted shares upon the close of the exchange offer transaction in the fourth quarter of fiscal 2019 determined using a fixed exchange ratio based on a $29.39 per unit value of Parametric for awards granted under the 2018 Parametric Plan determined as of July 19, 2019.

As of October 31, 2019, there was $0.1 million of unrecognized compensation cost related to unvested awards granted under each of the 2016 Parametric Plan and the 2018 Parametric Plan. The expense associated with these awards is expected to be recognized over a weighted-average period of 2.7 years and 4.0 years, respectively.

Stock Option Income Deferral Plan

The Company has established an unfunded, non-qualified Stock Option Income Deferral Plan to permit key employees to defer recognition of income upon exercise of non-qualified stock options previously granted by the Company. As of October 31, 2019, options to purchase 0.2 million shares have been exercised and placed in trust with the Company.