Stock-Based Compensation (Notes)

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

Share-based Payment Arrangement [Text Block]

STOCK-BASED COMPENSATION

Stock-based compensation plans are designed to promote stock ownership in NW Holdings by employees and officers of NW Holdings and its affiliates. These compensation plans include a Long Term Incentive Plan (LTIP), an ESPP, and a Restated SOP. 

Long Term Incentive Plan

The LTIP is intended to provide a flexible, competitive compensation program for eligible officers and key employees. Under the LTIP, shares of NW Holdings common stock are authorized for equity incentive grants in the form of stock, restricted stock, restricted stock units, stock options, or performance shares. An aggregate of 1,100,000 shares were authorized for issuance as of December 31, 2020. Shares awarded under the LTIP may be purchased on the open market or issued as original shares.

Of the 1,100,000 shares of common stock authorized for LTIP awards at December 31, 2020, there were 435,758 shares available for issuance under any type of award. This assumes market, performance, and service-based grants currently outstanding are awarded at the target level. There were no outstanding grants of restricted stock or stock options under the LTIP at December 31, 2020 or 2019. The LTIP stock awards are compensatory awards for which compensation expense is based on the fair value of stock awards, with expense being recognized over the performance and vesting period of the outstanding awards. Forfeitures are recognized as they occur.

Performance Shares

LTIP performance shares incorporate a combination of market, performance, and service-based factors. The following table summarizes performance share expense information:

Dollars in thousands	Shares(1)	Expense During Award Year(2)		Total Expense for Award
Estimated award:
2018-2020 grant(3)	31,600	$	2,137	$	2,137
Actual award:
2017-2019 grant	41,537	$	572	$	1,971
2016-2018 grant	28,218	$	598	$	1,413

(1)     In addition to common stock shares, a participant also receives a dividend equivalent cash payment equal to the number of shares of common stock received on the award payout multiplied by the aggregate cash dividends paid per share during the performance period.

(2)     Amount represents the expense recognized in the third year of the vesting period noted above. For the 2018-2020 grant, mutual understanding of the award's key terms was established in the third year of the vesting period, triggering full expense recognition in 2020.

(3)    This represents the estimated number of shares to be awarded as of December 31, 2020 as certain performance share measures have been achieved. Amounts are subject to change with final payout amounts authorized by the Board of Directors in February 2021.

The aggregate number of performance shares granted and outstanding at the target and maximum levels were as follows:

Dollars in thousands	Performance Share Awards Outstanding		2020
Performance Period	Target	Maximum	Expense
2018-20	31,825	63,650	$	2,137
2019-21	—	—	—
2020-22	—	—	—
Total	31,825	63,650	$	2,137

Performance share awards are based on the achievement of a three-year ROIC threshold that must be met and a cumulative EPS factor, which can be modified by a TSR factor relative to the performance of the Russell 2500 Utilities Index over the three-year performance period. The performance period allows for one of the performance factors to remain variable until the first quarter of the third year of the award period. As the performance factor will not be approved until the first quarter of 2021 and 2022, there is not a mutual understanding of the awards' key terms and conditions between NW Natural and the participants as of December 31, 2020, and therefore, no expense was recognized for the 2019-2021 and 2020-2022 performance period. NW Natural will calculate the grant date fair value and recognize expense once the final performance factor has been approved. If the target is achieved for the 2019-2021 and 2020-2022 awards, NW Holdings would grant for accounting purposes 35,170 and 31,830 shares in the first quarter of 2021 and 2022, respectively.

Compensation expense is recognized in accordance with accounting standards for stock-based compensation and calculated based on performance levels achieved and an estimated fair value using the Monte-Carlo method. Due to there not being a mutual understanding of the 2019-2021 and 2020-2022 awards' key terms and conditions as noted above, the grant date fair value has not yet been determined and no non-vested shares existed at December 31, 2020. The weighted-average grant date fair value of non-vested shares associated with the 2018-2020 awards was $78.96 per share at December 31, 2020. The weighted-average grant date fair value of shares vested during the year was $78.96 per share and there were no performance shares granted during the year and no unrecognized compensation expense for accounting purposes as of December 31, 2020.

Restricted Stock Units

In 2012, RSUs began being granted under the LTIP instead of stock options under the Restated SOP. Generally, the RSUs awarded are forfeitable and include a performance-based threshold as well as a vesting period of four years from the grant date. Upon vesting, the RSU holder is issued one share of common stock plus a cash payment equal to the total amount of dividends paid per share between the grant date and vesting date of that portion of the RSU. The fair value of an RSU is equal to the closing market price of NW Holdings' common stock on the grant date. During 2020, total RSU expense was $2.0 million compared to $1.8 million in 2019 and $1.8 million in 2018. As of December 31, 2020, there was $3.7 million of unrecognized compensation cost from grants of RSUs, which is expected to be recognized over a period extending through 2025.

Information regarding the RSU activity is summarized as follows:

	Number of RSUs	Weighted - Average Price Per RSU
Nonvested, December 31, 2017	84,522	$	53.90
Granted	32,450	57.59
Vested	(32,689)	50.75
Forfeited	(1,603)	59.95
Nonvested, December 31, 2018	82,680	56.47
Granted	36,018	65.29
Vested	(35,778)	54.22
Forfeited	(3,187)	63.89
Nonvested, December 31, 2019	79,733	61.17
Granted	33,594	55.58
Vested	(29,273)	59.29
Forfeited	(1,590)	69.71
Nonvested, December 31, 2020	82,464	$	59.40

Restated Stock Option Plan

The NW Natural Restated SOP was terminated for new option grants in 2012; however, options granted before the plan terminated remain outstanding until the earlier of their expiration, forfeiture, or exercise and are now exercisable for shares of NW Holdings common stock. Any new grants of stock options will be made under NW Holdings' LTIP, however, no option grants have been awarded since 2012 and all stock options were vested as of December 31, 2015.

Options under the Restated SOP were granted to officers and key employees designated by a committee of the Board of Directors. All options were granted at an option price equal to the closing market price on the date of grant and may be exercised for a period of up to 10 years and seven days from the date of grant. Option holders may exchange shares they have owned for at least six months, valued at the current market price, to purchase shares at the option price.

Information regarding the Restated SOP activity is summarized as follows:

	Option Shares	Weighted - Average Price Per Share		Intrinsic Value (In millions)
Balance outstanding and exercisable, December 31, 2017	91,688	$	44.43	$	1.4
Exercised	(35,450)	43.61		0.8
Forfeited	(300)	43.29		n/a
Balance outstanding and exercisable, December 31, 2018	55,938	44.96		0.9
Exercised	(45,000)	44.79		1.0
Forfeited	—	—		n/a
Balance outstanding and exercisable, December 31, 2019	10,938	45.67		0.3
Exercised	(1,500)	45.24		—
Expired	—	—		n/a
Balance outstanding and exercisable, December 31, 2020	9,438	$	45.74	$	—

The weighted-average remaining life of options exercisable and outstanding at December 31, 2020 was 0.17 years.

Employee Stock Purchase Plan

NW Holdings' ESPP allows employees of NW Holdings, NW Natural and certain designated subsidiaries to purchase common stock at 85% of the closing price on the trading day immediately preceding the initial offering date, which is set annually. For the 2020-2021 ESPP period, each eligible employee may purchase up to $21,232 worth of stock through payroll deductions over a period defined by the Board of Directors, with shares issued at the end of the subscription period.

Stock-Based Compensation Expense

Stock-based compensation expense is recognized as operations and maintenance expense or is capitalized as part of construction overhead at the entity at which the award recipient is employed. The following table summarizes the NW Holdings' financial statement impact, substantially all of which was recorded at NW Natural, of stock-based compensation under the LTIP, Restated SOP and ESPP:

In thousands	2020		2019		2018
Operations and maintenance expense, for stock-based compensation	$	3,525	$	2,172	$	2,489
Income tax benefit	(933)		(575)		(659)
Net stock-based compensation effect on net income (loss)	2,592		1,597		1,830
Amounts capitalized for stock-based compensation	$	841	$	430	$	531