21. Stock-Based Compensation

The Company has several stock-based compensation plans that allow for grants of restricted stock, performance share units and restricted stock units to its employees and non-employee directors. The Company’s stock-based compensation plans are administered by the Compensation Committee of the Board of Directors. For the years ended December 31, 2018, 2017 and 2016, stock-based compensation expense was $6.9 million, $3.1 million and $4.5 million, respectively, and the related income tax benefit was $1.8 million, $1.6 million and $0.7 million, respectively. For the years ended December 31, 2018, 2017 and 2016, all common stock issuances in connection with stock-based compensation arrangements were issued from unissued shares.

Restricted Stock

Restricted stock provides grantees with rights to shares of common stock upon completion of a service period. During the restriction period, all shares are considered outstanding and dividends are paid on the restricted stock. Restricted stock and dividends may be forfeited if an employee terminates prior to vesting. The fair value of restricted stock is determined based on the closing price of FHI’s common stock on the date of grant. The Company recognizes compensation expense related to restricted stock on a straight-line basis over the vesting period for service-based awards.

The following presents the Company’s restricted stock activity for the year ended December 31, 2016:


			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2015	—	$	—
Granted	77,037		24.41
Vested	(77,037)		24.41
Forfeited	—		—
Unvested as of December 31, 2016	—	$	—

For the year ended December 31, 2016, the Company granted 77,037 shares of restricted stock with a weighted-average grant date fair value of $24.41 to key employees. These shares were fully vested on the grant date. The total grant date fair value of restricted stock that vested for the year ended December 31, 2016 was $1.9 million. There were no shares of restricted stock granted for the years ended December 31, 2018 and 2017.

Performance Share Units

Performance share units (“PSU”) are an award of units in which the recipient’s rights in the units are contingent on the achievement of pre-established performance goals. At the end of the performance period, the Company will determine if the performance goals originally outlined when the PSUs were granted have been achieved. If these goals are met or exceeded, the Company will issue one share of FHI common stock for each vested PSU. Employees must be continuously employed by the Company from the grant date through the applicable vesting date with any unvested PSUs being forfeited upon termination of employment. The fair value of PSUs is estimated based on the use of a Monte Carlo simulation or based on the closing price of FHI’s common stock on the date of grant and is amortized on a straight-line basis over the vesting period.

The Company has a Long-Term Incentive Plan (the “LTIP”) designed to reward selected key executives for their individual performance and the Company’s performance measured over multi-year performance cycles. Awards related to the LTIP provide for equity-based awards based on the Company’s profitability and market conditions that are based on the Company’s performance relative to peer groups over a three-year performance period.

LTIP expense of $3.3 million, $6.7 million and $9.3 million was recognized in the years ended December 31, 2018, 2017 and 2016, respectively, and are included in salaries and employee benefits within the consolidated statements of income.

The following presents the Company’s PSU activity for the years ended December 31, 2018, 2017 and 2016:


			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2015	—	$	—
Granted	321,612		29.11
Vested	—		—
Forfeited	—		—
Unvested as of December 31, 2016	321,612	$	29.11
Granted	244,218		30.44
Vested	(38,522)		24.41
Forfeited	(21,257)		33.20
Unvested as of December 31, 2017	506,051	$	30.82
Granted	277,197		22.39
Vested	(229,809)		32.17
Forfeited	(48,942)		30.52
Unvested as of December 31, 2018	504,497	$	25.93

For the years ended December 31, 2018 and 2017, the Company granted 277,197 and 209,374 PSUs, respectively, to key employees. The Company granted these PSUs in connection with its LTIP for the three year performance periods which began on January 1, 2018 and 2017. These awards have performance conditions that are based on the Company’s profitability and market conditions that are based on the Company’s performance relative to peer groups. For the year ended December 31, 2016, the Company granted 356,456 PSUs to key employees with a weighted-average grant date fair value of $30.91. The Company granted 115,566 PSUs in connection with its IPO. One-third of these PSUs will vest on each of the first, second and third anniversaries of the IPO date. However, transfer restrictions will remain on these shares for six months following the vesting date. The performance condition related to these PSUs is based on the Company’s profitability in the fiscal years immediately preceding the vesting dates. The Company also granted 240,890 PSUs related to its LTIP for the three year performance period which began on January 1, 2016. The Company’s stock-based compensation expense related to PSUs was $6.5 million, $2.9 million and $2.6 million for the years ended December 31, 2018, 2017 and 2016, respectively. Unrecognized compensation expense related to unvested PSUs was $6.2 million and $4.3 million as of December 31, 2018 and 2017, respectively. The unrecognized compensation expense as of December 31, 2018 is expected to be recognized over a weighted average vesting period of 1.5 years. As of December 31, 2018, total shares authorized under the plan from which the restricted stock, PSUs and restricted stock units were issued were 5.6 million shares, of which 4.7 million shares were available for future grants. The total grant date fair value of PSUs that vested for the years ended December 31, 2018 and 2017 was $7.4 million and $0.9 million, respectively.

Restricted Stock Units

Restricted stock units (“RSU”) are an award of units that correspond in number and value to a specified number of shares of FHI’s common stock that are subject to vesting requirements and transferability restrictions. RSUs do not represent actual ownership of common stock. Upon vesting, the Company will issue one share of FHI common stock for each vested RSU. The fair value of RSUs is valued based on the closing price of FHI’s common stock on the date of grant and is amortized on a straight-line basis over the vesting period.

The following presents the Company’s RSU activity for the years ended December 31, 2018, 2017 and 2016:


			Weighted
	Number		Average Grant
	of Shares		Date Fair Value
Unvested as of December 31, 2015	—	$	—
Granted	5,379		24.41
Vested	—		—
Forfeited	—		—
Unvested as of December 31, 2016	5,379	$	24.41
Granted	14,506		29.74
Vested	(8,379)		26.77
Forfeited	—		—
Unvested as of December 31, 2017	11,506	$	29.74
Granted	47,094		28.64
Vested	(9,839)		32.31
Forfeited	—		—
Unvested as of December 31, 2018	48,761	$	28.60

For the year ended December 31, 2018, the Company granted 11,799 RSUs to non-employee directors with a weighted-average grant date fair value of $27.89 and issued 35,295 RSUs to employees with a weighted average grant date fair value of $28.89. For the year ended December 31, 2017, the Company granted 9,006 RSUs to non-employee directors with a weighted-average grant date fair value of $30.19 and issued 5,500 RSUs to employees with a weighted average grant date fair value of $28.97. The awards will vest on various dates. The total grant date fair value of RSUs that vested during the years ended December 31, 2018 and 2017 was $0.3 million and $0.2 million, respectively. For the year ended December 31, 2016, the Company granted 5,379 RSUs to non-employee directors with a weighted-average grant date fair value of $24.41. The RSUs vested in one year from the date of grant. Participants must continuously serve as a non-employee director or employee from the grant date through the vesting date with any unvested RSUs being forfeited upon termination of the grantee’s service as a non-employee director or employee. The Company’s share-based compensation expense related to RSUs was $0.4 million and $0.3 million for the years ended December 31, 2018 and 2017, respectively. The Company’s share-based compensation expense related to RSUs was not material for the year ended December 31, 2016. Unrecognized compensation expense related to unvested RSUs was $1.1 million and $0.2 million as of December 31, 2018 and 2017, respectively. The unrecognized compensation expense as of December 31, 2018 is expected to be recognized over a weighted average vesting period of 1.4 years. As of December 31, 2018, total shares authorized under the 2016 Non-Employee Director Plan were 75,000 shares of which 48,816 shares were available for future grants.

For all awards of restricted stock, PSUs and RSUs, the Company, upon delivery of the common stock, will also pay to each grantee a cash amount equal to the product of all cash dividends paid on a share of common stock from the grant date to such delivery date and the number of common stock delivered to the grantee on such delivery date.

Employee Stock Purchase Plan

The Company also has an employee stock purchase plan (“ESPP”) which permits employees to periodically purchase Company stock on a payroll deduction basis. Participant purchases through the ESPP receive a discount of 5% from the closing price of FHI’s common stock on the exercise date. Participants are required to adhere to a two year holding period with regards to shares purchased through the ESPP. The ESPP has been determined to be non-compensatory in nature. As a result, the Company expects that expenses related to the ESPP will not be material. As of December 31, 2018, total shares authorized under the Company’s ESPP were 600,000 shares. The Company issued 12,341 shares and 15,961 shares of common stock to employee participants in January 2018 and 2017, respectively, which resulted in 571,698 shares of common stock authorized for future purchases.