Stock-Based Compensation (Notes)

12 Months Ended

Dec. 31, 2021

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 terminated Restated Stock Option Plan (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, 2021. 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, 2021, there were 345,012 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, 2021 or 2020. 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:
2019-2021 grant(3)	37,430	$	1,322	$	1,322
Actual award:
2018-2020 grant	31,600	$	2,137	$	2,137
2017-2019 grant	41,537	$	572	$	1,971

(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 2019-2021 grant, mutual understanding of the award's key terms was established in the third year of the vesting period, triggering full expense recognition in 2021.

(3)    This represents the estimated number of shares to be awarded as of December 31, 2021 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 2022.

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		2021
Performance Period	Target	Maximum	Expense
2019-21	35,170	70,340	$	1,322
2020-22	—	—	—
2021-23	—	—	—
Total	35,170	70,340	$	1,322

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 (2019-2021 and 2020-2022 performance share awards) or a specified peer group (2021-2023 performance share awards) 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 2022 and 2023, there is not a mutual understanding of the awards' key terms and conditions between NW Natural and the participants as of December 31, 2021, and therefore, no expense was recognized for the 2020-2022 and 2021-2023 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 2020-2022 and 2021-2023 awards, NW Holdings would grant for accounting purposes 31,830 and 56,335 shares in the first quarter of 2022 and 2023, 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 2020-2022 and 2021-2023 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, 2021. The weighted-average grant date fair value of non-vested shares associated with the 2019-2021 awards was $44.64 per share at December 31, 2021. The weighted-average grant date fair value of shares vested during the year was $44.64 per share and there were no performance shares granted during the year and no unrecognized compensation expense for accounting purposes as of December 31, 2021.

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. The majority of our RSU grants obligate NW Holdings, upon vesting, to issue the RSU holder one share of common stock. The grant may also include 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 depending on the structure of the award agreement. The fair value of an RSU is equal to the closing market price of NW Holdings' common stock on the grant date. During 2021, total RSU expense was $2.0 million compared to $2.0 million in 2020 and $1.8 million in 2019. As of December 31, 2021, there was $3.5 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, 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
Granted	38,160	49.16
Vested	(31,733)	60.06
Forfeited	(1,164)	46.82
Nonvested, December 31, 2021	87,727	$	54.87

Restated Stock Option Plan

The Restated SOP was terminated with respect to new grants in 2012; however, options granted before the Restated SOP was terminated remained outstanding until the earlier of their expiration, forfeiture, or exercise. Options were exercisable for shares of NW Holdings common stock. As of December 31, 2021, there were no options exercisable or outstanding.

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, 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		—
Exercised	(9,438)	45.74		—
Expired	—	—		n/a
Balance outstanding and exercisable, December 31, 2021	—	$	—	$	—

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 2021-2022 ESPP period, each eligible employee may purchase up to $21,235 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	2021		2020		2019
Operations and maintenance expense, for stock-based compensation	$	3,272	$	3,525	$	2,172
Income tax benefit	(866)		(933)		(575)
Net stock-based compensation effect on net income (loss)	2,406		2,592		1,597
Amounts capitalized for stock-based compensation	$	344	$	841	$	430