Share-Based Compensation

12 Months Ended

Dec. 31, 2020

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

Share-Based Compensation

Share-Based Compensation - MGE Energy and MGE.

In 2020, MGE Energy shareholders approved the 2021 Long-Term Incentive Plan (the 2021 Incentive Plan). It provides for the issuance of up to 500,000 shares of MGE Energy common stock in connection with awards made under the 2021 Incentive Plan. The 2021 Incentive Plan authorizes awards of restricted stock, restricted stock units, performance units, and dividend equivalents, or any combination of the foregoing. As of December 31, 2020, no awards were issued under the 2021 Incentive Plan. In February 2021, 16,267 restricted stock units and 10,187 performance units were issued under the 2021 Incentive Plan. The 2020 Performance Unit Plan (the 2020 Plan) was adopted in February 2020 for eligible employees. Plan participants may receive awards of performance units, restricted units, or both. Prior to the adoption of the 2020 plan, eligible employees could receive awards of performance units under the 2006 Performance Unit Plan. Under the 2013 Director Incentive Plan, eligible non-employee directors could receive awards of performance units. During the years ended December 31, 2020, 2019 and 2018, MGE recorded $1.3 million, $3.0 million, and $1.1 million, respectively, in compensation expense as a result of awards under the 2006 Performance Unit Plan, the 2020 Plan, and the 2013 Director Incentive Plan in "Other operations and maintenance" on the consolidated statements of income.

a.2013 Director Incentive Plan and 2006 Performance Unit Plan

Under MGE Energy's 2013 Director Incentive Plan and its 2006 Performance Unit Plan, non-employee directors and eligible employees, respectively, could receive performance units that entitled the holder to receive a cash payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend equivalent payments thereon, at the end of the performance period set in the award. In accordance with the plans' provisions, these awards are subject to prescribed vesting schedules and must be settled in cash. Accordingly, no shares of common stock will be issued in connection with the plans.

On the grant date, the cost of the director or employee services received in exchange for a performance unit award is measured based on the current market value of MGE Energy common stock. The fair value

of the awards is remeasured quarterly, including as of December 31, 2020, as required by applicable accounting standards. Changes in fair value as well as the original grant are recognized as compensation cost. Since this amount is remeasured throughout the vesting period, the compensation cost is subject to variability. For nonretirement eligible employees under the 2006 Performance Unit Plan, stock-based compensation costs are accrued and recognized using the graded vesting method. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon as retirement eligibility accelerates vesting.

Payouts under the 2013 Director Incentive Plan are subject to a three-year vesting schedule. Payouts under the 2006 Performance Unit Plan are subject to a five-year vesting schedule. The following activity occurred during 2020:

	2020
	Director Incentive Plan	Performance Unit Plan
Nonvested awards January 1,	4,611	26,468
Granted	5,048	-
Vested	(5,373)	(9,048)
Nonvested awards December 31,	4,286	17,420

No cash settlements have occurred on the awards shown in the table above as cash payments are only made at the end of the period covered by the awards. In January 2020, cash payments of $2.0 million were distributed relating to awards that were granted under the plans in 2017, for the 2013 Director Incentive Plan, and in 2015, for the 2006 Performance Unit Plan.

b.2020 Performance Unit Plan

Performance units under the 2020 Performance Unit Plan (the 2020 Plan) entitle the holder to receive a cash payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend-equivalent payments thereon, based upon achievement of specified performance goals during a performance period set by the Compensation Committee of MGE Energy's Board of Directors. Restricted units entitle the holder to receive a cash payment equal to the value of a designated number of shares of MGE Energy's common stock, plus dividend-equivalent payments thereon, at the end of a defined time period. Awards are subject to vesting provisions providing for 100% vesting at the end of the performance period, in the case of performance units, and at the end of the defined time period in the case of restricted units. The performance units and restricted units will be paid out in cash and are accounted for as a liability award. No shares of common stock will be issued in connection with the 2020 Plan. Compensation cost for retirement eligible employees or employees that will become retirement eligible during the vesting schedule are recognized on an abridged horizon as retirement eligibility accelerates vesting.

The 2020 performance units contain market and performance conditions. The market condition is based on total shareowner return relative to an investor-owned utility peer group. The performance condition is based on achievement of targets specified in the award agreement (such as an earnings growth target). The fair value of each performance unit is based on the fair value of the underlying common stock on the grant date and the probability of satisfying the market and performance conditions contained in the award agreement during the three-year performance period. The actual payments upon vesting depends upon actual performance and may range from zero to 200% of the granted number of performance units. The 2020 restricted units will vest based on a three-year cliff vesting schedule. The following activity occurred during 2020:

		2020
		Performance		Restricted
Nonvested awards January 1,		-		-
Granted		9,822		9,822
Vested		(2,666)		(2,666)
Forfeited		(153)		(153)
Nonvested awards December 31,		7,003		7,003
Fair Value of each nonvested award	$	89.13		N/A
Estimated payout % based on performance criteria		100	%	N/A