Share-based compensation

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

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 September 30, 2019, 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 0.8 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. On June 26, 2019, an additional 300,000 shares were made available for issuance under the 2011 Director Plan. As of September 30, 2019, there were 311,027 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 September 30				Nine months ended September 30
(in millions)	2019		2018		2019		2018
HEI consolidated
Share-based compensation expense ¹	$	2.3	$	1.5	$	8.1	$	5.9
Income tax benefit	0.3		0.2		1.2		0.9
Hawaiian Electric consolidated
Share-based compensation expense ¹	0.8		0.6		2.6		2.1
Income tax benefit	0.1		0.1		0.5		0.4


¹	For the three and nine months ended September 30, 2019 and 2018, the Company has not capitalized any share-based compensation.

Stock awards. HEI granted HEI common stock to nonemployee directors under the 2011 Director Plan as follows:



	Three months ended September 30				Nine months ended September 30
(dollars in millions)	2019		2018		2019		2018
Shares granted	—		—		35,580		38,821
Fair value	$	—	$	—	$	1.5	$	1.3
Income tax benefit	—		—		0.4		0.3

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 September 30										Nine months ended September 30
	2019					2018					2019					2018
	Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)
Outstanding, beginning of period	208,625			$	35.28	200,856			$	33.03	200,358			$	33.05	197,047			$	31.53
Granted	1,006			44.16		1,789			35.61		95,565			37.75		93,853			34.12
Vested	(101		)	36.27		—			—		(76,813		)	32.61		(75,683		)	30.56
Forfeited	(2,889		)	35.44		(2,287		)	32.83		(12,469		)	34.20		(14,859		)	32.35
Outstanding, end of period	206,641			$	35.32	200,358			$	33.05	206,641			$	35.32	200,358			$	33.05
Total weighted-average grant-date fair value of shares granted (in millions)	$	—				$	0.1				$	3.6				$	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 nine months of 2019 and 2018, total restricted stock units and related dividends that vested had a fair value of $3.2 million and $2.7 million, respectively, and the related tax benefits were $0.5 million and $0.4 million, respectively.

As of September 30, 2019, there was $5.4 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 2.7 years.

Long-term incentive plan payable in stock. The 2017-2019, 2018-2020 and 2019-2021 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 relevant three-year period. The other performance condition goals relate to earnings per share (EPS) growth, return on average common equity, Hawaiian Electric’s net income and ASB’s efficiency ratio.

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



	Three months ended September 30										Nine months ended September 30
	2019					2018					2019					2018
	Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)
Outstanding, beginning of period	98,311			$	39.61	66,177			$	38.82	65,578			$	38.81	32,904			$	39.51
Granted	568			41.07		878			38.20		35,215			41.07		37,819			38.21
Vested (issued or unissued and cancelled)	—			—		—			—		—			—		—			—
Forfeited	(2,477		)	39.64		(1,490		)	38.85		(4,391		)	39.19		(5,158		)	38.84
Outstanding, end of period	96,402			$	39.62	65,565			$	38.81	96,402			$	39.62	65,565			$	38.81
Total weighted-average grant-date fair value of shares granted (in millions)	$	—				$	—				$	1.4				$	1.4


(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:



	2019		2018
Risk-free interest rate	2.48	%	2.29	%
Expected life in years	3		3
Expected volatility	15.8	%	17.0	%
Range of expected volatility for Peer Group	15.0% to 73.2%		15.1% to 26.2%
Grant date fair value (per share)	$41.07		$38.20

As of September 30, 2019, there was $1.7 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 1.3 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 September 30										Nine months ended September 30
	2019					2018					2019					2018
	Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)
Outstanding, beginning of period	407,090			$	35.12	264,707			$	33.79	276,169			$	33.80	131,616			$	33.47
Granted	2,275			44.05		3,511			35.58		140,855			37.78		151,277			34.12
Vested	—			—		—			—		—			—		—			—
Increase above target	11,131			33.49		—			—		11,131			33.49		—			—
Forfeited	(9,911		)	35.24		(5,958		)	33.80		(17,570		)	34.66		(20,633		)	33.80
Outstanding, end of period	410,585			$	35.12	262,260			$	33.82	410,585			$	35.12	262,260			$	33.82
Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions)	$	0.1				$	0.1				$	5.3				$	5.2


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

As of September 30, 2019, there was $6.1 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 1.2 years.