Share-based compensation

Under the 2010 Equity and Incentive Plan, as amended, HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The 2010 Equity and Incentive Plan (original EIP) was amended and restated effective March 1, 2014 (EIP) and an additional 1.5 million shares were added to the shares available for issuance under these programs.

As of March 31, 2018, approximately 3.2 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy minimum statutory tax liabilities relating to EIP awards, including an estimated 0.6 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels).

Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. As of March 31, 2018, there were 84,354 shares remaining available for future issuance under the 2011 Director Plan.

Share-based compensation expense and the related income tax benefit were as follows:



	Three months ended March 31
(in millions)	2018		2017
HEI consolidated
Share-based compensation expense ¹	$	1.7	$	1.1
Income tax benefit	0.2		0.3
Hawaiian Electric consolidated
Share-based compensation expense ¹	0.6		0.5
Income tax benefit	0.1		0.2


¹	For the three months ended March 31, 2018 and 2017, the Company has not capitalized any share-based compensation.

Stock awards. HEI granted HEI common stock to nonemployee directors of HEI, Hawaiian Electric and ASB under the 2011 Director Plan as follows:



	Three months ended March 31
(dollars in thousands)	2018		2017
Shares granted	1,074		770
Fair value	$	39	$	25
Income tax benefit	10		10

The number of shares issued to each nonemployee director of HEI, Hawaiian Electric and ASB is determined based on the closing price of HEI Common Stock on the grant date.

Restricted stock units. Information about HEI’s grants of restricted stock units was as follows:



	Three months ended March 31
	2018					2017
	Shares			(1)		Shares			(1)
Outstanding, beginning of period	197,047			$	31.53	220,683			$	29.57
Granted	88,905			34.10		96,977			33.48
Vested	(75,235		)	30.55		(81,624		)	28.85
Forfeited	(2,629		)	33.09		—			—
Outstanding, end of period	208,088			$	32.97	236,036			$	31.42
Total weighted-average grant-date fair value of shares granted (in millions)	$	3.0				$	3.2


(1)	Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

For the first three months of 2018 and 2017, total restricted stock units and related dividends that vested had a fair value of $2.7 million and $3.1 million, respectively, and the related tax benefits were $0.5 million and $1.1 million, respectively.

As of March 31, 2018, there was $6.1 million of total unrecognized compensation cost related to the nonvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 3.0 years.

Long-term incentive plan payable in stock. The 2017-2019 and 2018-2020 long-term incentive plans (LTIP) provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market condition goal. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made, subject to the achievement of specified performance levels and calculated dividend equivalents. The potential payout varies from 0% to 200% of the number of target shares depending on the achievement of the goals. The market condition goal is based on HEI’s total shareholder return (TSR) compared to the Edison Electric Institute Index over the three-year period. The other performance condition goals relate to EPS growth, return on average common equity (ROACE) and ASB’s efficiency ratio. The 2016-2018 LTIP provides for performance awards payable in cash, and thus is not included in the tables below.

LTIP linked to TSR. Information about HEI’s LTIP grants linked to TSR was as follows:



	Three months ended March 31
	2018					2017
	Shares			(1)		Shares			(1)
Outstanding, beginning of period	32,904			$	39.51	83,106			$	22.95
Granted	35,626			38.21		36,971			39.51
Vested (issued or unissued and cancelled)	—			—		(83,106		)	22.95
Forfeited	(1,739		)	38.83		—			—
Outstanding, end of period	66,791			$	38.84	36,971			$	39.51
Total weighted-average grant-date fair value of shares granted (in millions)	$	1.4				$	1.5


(1)	Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model.

The grant date fair values of the shares were determined using a Monte Carlo simulation model utilizing actual information for the common shares of HEI and its peers for the period from the beginning of the performance period to the grant date and estimated future stock volatility and dividends of HEI and its peers over the remaining three-year performance period. The expected stock volatility assumptions for HEI and its peer group were based on the three-year historic stock volatility, and the annual dividend yield assumptions were based on dividend yields calculated on the basis of daily stock prices over the same three-year historical period.

The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TSR and the resulting fair value of LTIP awards granted:



	2018		2017
Risk-free interest rate	2.29	%	1.46	%
Expected life in years	3		3
Expected volatility	17.0	%	20.1	%
Range of expected volatility for Peer Group	15.1% to 26.2%		15.4% to 26.0%
Grant date fair value (per share)	$38.20		$39.51

For the three months ended March 31, 2017, total vested LTIP awards linked to TSR and related dividends had a fair value of $1.9 million and the related tax benefits were $0.7 million.

As of March 31, 2018, there was $2.0 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TSR. The cost is expected to be recognized over a weighted-average period of 2.3 years.

LTIP awards linked to other performance conditions. Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows:



	Three months ended March 31
	2018					2017
	Shares			(1)		Shares			(1)
Outstanding, beginning of period	131,616			$	33.47	109,816			$	25.18
Granted	142,509			34.10		147,888			33.48
Vested	—			—		(109,816		)	25.18
Forfeited	(6,958		)	33.81		—			—
Outstanding, end of period	267,167			$	33.80	147,888			$	33.48
Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions)	$	4.9				$	5.0


(1)	Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

For the three months ended March 31, 2017, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $4.2 million and the related tax benefits were $1.6 million.

As of March 31, 2018, there was $6.9 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TSR. The cost is expected to be recognized over a weighted-average period of 2.3 years.