Share-Based and Long-Term Compensation Plans

12 Months Ended

Dec. 31, 2011

Share-Based and Long-Term Compensation Plans [Abstract]

Share-Based and Long-Term Compensation Plans

Note J - Share-Based and Long-Term Compensation Plans

Effective May 1, 2010, the stockholders of the Company approved Parkway's 2010 Omnibus Equity Incentive Plan (the "2010 Equity Plan") that authorized the grant of up to 600,000 equity based awards to employees and directors of the Company.   The 2010 Equity Plan replaces the Company's 2003 Equity Incentive Plan and the 2001 Non-Employee Directors Equity Compensation Plan.  At present, it is Parkway's intention to grant restricted shares and/or deferred incentive share units instead of stock options although the 2010 Equity Plan authorizes various forms of incentive awards, including options.  The 2010 Equity Plan has a ten-year term.

Compensation expense, including estimated forfeitures, for service-based awards is recognized over the expected vesting period.  The total compensation expense for the long-term equity incentive awards is based upon the fair value of the shares on the grant date, adjusted for estimated forfeitures.  Time-based restricted shares and deferred incentive share units are valued based on the New York Stock Exchange closing market price of Parkway common shares (NYSE ticker symbol, PKY) as of the date of grant.  The grant date fair value for awards that are subject to market conditions is determined using a simulation pricing model developed to specifically accommodate the unique features of the awards.

Restricted shares and deferred incentive share units are forfeited if an employee leaves the Company before the vesting date except in the case of the employee's death or permanent disability or upon termination following a change of control. Shares and/or units that are forfeited become available for future grant under the 2010 Equity Plan.

On January 14, 2011, 55,623 long-term equity incentive awards were granted to officers of the Company.  The long-term equity incentive awards are valued at $736,000 which equates to an average price per share of $13.23 and consist of 25,620 time-based awards, 16,883 market condition awards subject to an absolute total return goal, and 13,120 market condition awards subject to a relative total return goal.  These shares are accounted for as equity-classified awards.

On May 12, 2011, the Board of Directors approved Parkway's 2011 Employee Inducement Award Plan (the "2011 Inducement Plan") that authorized the grant of up to 149,573 restricted shares and/or deferred incentive share units to employees and directors of the Company in connection with the combination with Eola.  The Plan shall continue in effect until the earlier of (a) its termination by the Board or (b) the date on which all of the shares of Stock available for issuance under the Plan have been issued; provided that awards outstanding on that date shall survive in accordance with their terms.  The 2011 Inducement Plan is substantively similar to the Company's 2010 Omnibus Equity Incentive Plan, approved by the Company's stockholders on May 13, 2010, however the potential awards under the 2011 Inducement Plan are limited to shares of restricted stock and restricted share units to new employees of the Company as a result of the Company's combination with Eola.

On May 18, 2011, 63,241 long-term equity incentive awards were granted to new officers of the Company under the 2011 Inducement Plan.  The long-term equity incentive awards are valued at $577,000 which equates to an average price per share of $9.12 and consist of 11,384 time-based awards, 29,091 market condition awards subject to an absolute total return goal, and 22,766 market condition awards subject to a relative total return goal.  The Company also awarded 17,530 deferred incentive share units to approximately 136 other former employees of Eola who became employees of the Company effective May 18, 2011.  These shares are accounted for as equity-classified awards.

On June 1, 2011, 68,802 long-term equity incentive awards were granted to new officers of the Company under the 2011 Inducement Plan.  The long-term equity incentive awards are valued at $628,000 which equates to an average price per share of $9.13 and consist of 12,384 time-based awards, 31,649 market condition awards subject to an absolute total return goal, and 24,769 market condition awards subject to a relative total return goal.  These shares are accounted for as equity-classified awards.

On June 20, 2011, 8,705 long-term equity incentive awards were granted to officers of the Company.  The long-term equity incentive awards are valued at $68,000 which equates to an average price per share of $7.81 and consist of 534 time-based awards, 4,584 market condition awards subject to an absolute total return goal, and 3,587 market condition awards subject to a relative total return goal.  These shares are accounted for as equity-classified awards.

On February 14, 2012, 21,900 long-term equity incentive awards were granted to officers of the Company.  The long-term equity incentive awards are valued at $222,000 which equates to an average price per share of $10.15 and are time-based awards.  These shares are accounted for as equity-classified awards.

The time-based awards will vest ratably over four years from the date the shares are granted.  The market condition awards are contingent on the Company meeting goals for compounded annual total return to stockholders ("TRS") over the three year period beginning July 1, 2010.  The market condition goals are based upon (i) the Company's absolute compounded annual TRS; and (ii) the Company's absolute compounded annual TRS relative to the compounded annual return of the MSCI US REIT ("RMS") Index calculated on a gross basis, as follows:

	Threshold	Target	Maximum
Absolute Return Goal	10%	12%	14%
Relative Return Goal	RMS + 100 bps	RMS + 200 bps	RMS + 300 bps

With respect to the absolute return goal, 15% of the award is earned if the Company achieves threshold performance and a cumulative 60% is earned for target performance.  With respect to the relative return goal, 20% of the award is earned if the Company achieves threshold performance and a cumulative 55% is earned for target performance.  In each case, 100% of the award is earned if the Company achieves maximum performance or better. To the extent actually earned, the market condition awards will vest 50% on each of July 15, 2013 and 2014.

The Company also adopted a long-term cash incentive that was designed to reward significant outperformance over the three year period beginning July 1, 2010.  The performance goals for actual payment under the long-term cash incentive will require the Company to (i) achieve an absolute compounded annual TRS that exceeds 14% AND (ii) achieve an absolute compounded annual TRS that exceeds the compounded annual return of the RMS by at least 500 basis points.  Notwithstanding the above goals, in the event the Company achieves an absolute compounded annual TRS that exceeds 19%, then the Company must achieve an absolute compounded annual TRS that exceeds the compounded annual return of the RMS by at least 600 basis points.  The aggregate amount of the cash incentive earned would increase with corresponding increases in the absolute compounded annual TRS achieved by the Company.  There will be a cap on the aggregate cash incentive earned in the amount of $7.1 million.  Achievement of the maximum cash incentive would equate to an absolute compounded annual TRS that approximates 23%, provided that the absolute compounded annual TRS exceeds the compounded annual return of the RMS by at least 600 basis points.  The total compensation expense for the long-term cash incentive awards is based upon the estimated fair value of the award on the grant date and adjustment as necessary each reporting period.  The long-term cash incentive awards are accounted for as a liability-classified award on the Company's 2011 and 2010 consolidated balance sheets.  The grant date and quarterly fair value estimates for awards that are subject to a market condition are determined using a simulation pricing model developed to specifically accommodate the unique features of the awards.

At December 31, 2011, a total of 454,070 shares of restricted stock have been granted to officers of the Company.  The shares are valued at $4.5 million, which equates to an average price per share of $9.83.  The value, including estimated forfeitures, of restricted shares that vest based on service conditions will be amortized to compensation expense ratably over the vesting period for each grant of stock.  At December 31, 2011, a total of 27,370 deferred incentive share units have been granted to employees of the Company.  The deferred incentive share units are valued at $593,000, which equates to an average price per share of $21.65, and the units vest four years from grant date. Total compensation expense related to the restricted stock and deferred incentive units of $1.3 million, $1.3 million and $2.6 million was recognized in 2011, 2010 and 2009, respectively. Total compensation expense related to nonvested awards not yet recognized was $2.6 million at December 31, 2011. The weighted average period over which this expense is expected to be recognized is approximately 2.2 years.

A summary of the Company's restricted stock and deferred incentive share unit activity is as follows:

		Weighted		Deferred	Weighted
	Restricted	Average		Incentive	Average
	Shares	Price		Share Units	Price
Outstanding at December 31, 2008	220,641	$	39.49	22,805	$	37.62
Granted	120,500	15.77		1,500	12.69
Vested	(30,416)	43.08		(2,615)	44.61
Forfeited	(1,750)	30.85		(3,635)	39.93
Outstanding at December 31, 2009	308,975	29.94		18,055	34.08
Granted	345,120	7.30		3,805	14.83
Vested	(152,941)	33.06		(4,355)	47.78
Forfeited	(21,224)	26.69		(1,865)	32.99
Outstanding at December 31, 2010	479,930	12.81		15,640	25.71
Granted	235,168	10.31		20,435	23.97
Vested	(99,202)	23.99		(4,930)	45.11
Forfeited	(161,826)	10.68		(3,775)	20.38
Outstanding at December 31, 2011	454,070	$	9.83	27,370	$	21.65

Restricted shares and deferred incentive share units vest in the following years, subject to service and market conditions:

	Time Based Awards	Market Condition Awards (1)	Total Restricted Shares	Deferred Incentive Share Units
2012	62,882	-	62,882	3,765
2013	14,507	174,052	188,559	1,020
2014	14,503	174,057	188,560	2,935
2015	10,317	-	10,317	19,650
2016	3,752	-	3,752	-
	105,961	348,109	454,070	27,370

(1)   The market condition restricted shares will vest in the years noted above subject to achievement of the market condition goals described.

A summary of the Company's stock option activity and related information is as follows:

	1994 Stock			1991 Directors			2001 Directors
	Option Plan			Stock Option Plan			Stock Option Plan
		Weighted			Weighted			Weighted
		Average			Average			Average
	Shares	Price		Shares	Price		Shares	Price
Outstanding at December 31, 2008	95,679	$	31.43	6,000	$	32.56	21,500	$	38.96
Forfeited	(9,399)	31.10		(6,000)	32.56		(9,000)	35.26
Outstanding at December 31, 2009	86,280	31.46		-	-		12,500	41.63
Forfeited	(56,319)	30.28		-	-		(3,000)	38.95
Outstanding at December 31, 2010	29,961	33.69		-	-		9,500	42.47
Forfeited	(27,508)	33.51		-	-		(6,500)	44.10
Outstanding at December 31, 2011	2,453	$	35.70	-	$	-	3,000	$	38.95
Vested and Exercisable at  December 31, 2011	2,453	$	35.70	-	$	-	3,000	$	38.95

There were no stock options exercised for the years ended December 31, 2011, 2010 or 2009.

Following is a summary of the status of options outstanding at December 31, 2011:

	Outstanding and Exercisable Options
		Weighted
		Average	Weighted		Aggregate
		Remaining	Average		Intrinsic
		Contractual	Exercise		Value
Exercise Price Range	Number	Life	Price		(in thousands)
1994 Stock Option Plan
$31.43 - $36.65	2,453	0.7 years	$	35.70	$	-
	2,453	0.7 years	$	35.70	$	-
2001 Directors Stock Option Plan
$36.53 - $41.89	3,000	1.4 years	$	38.95	$	-
	3,000	1.4 years	$	38.95	$	-

Defined Contribution Plan

Parkway maintains a 401(k) plan for its employees.  The Company makes matching contributions of 50% of the employee's contribution (limited to 10% of compensation as defined by the plan) and may also make annual discretionary contributions.  The Company's total expense for this plan was $518,000, $404,000 and $443,000 for the years ending December 31, 2011, 2010 and 2009, respectively.