Stock-Based Compensation

6 Months Ended

Jun. 30, 2023

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

STOCK-BASED COMPENSATION

Stock-based compensation plans are designed to promote stock ownership in NW Holdings by employees, including officers. These compensation plans include a Long Term Incentive Plan (LTIP) and an Employee Stock Purchase Plan (ESPP). For additional information on stock-based compensation plans, see Note 8 in the 2022 Form 10-K and the updates provided below.

Long Term Incentive Plan

Performance Shares

LTIP performance shares incorporate a combination of market, performance, and service-based factors. During the six months ended June 30, 2023, the final performance factor under the 2021 LTIP was approved and 55,250 performance-based shares were granted under the 2021 LTIP for accounting purposes. As such, NW Natural and other subsidiaries began recognizing compensation expense. In February 2022 and 2023, LTIP shares were awarded to participants; however, the agreements allow 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 quarters of 2024 and 2025, respectively, there is not a mutual understanding of the awards' key terms and conditions between NW Holdings and the participants as of June 30, 2023, and therefore, no expense was recognized for the 2022 and 2023 awards. NW Holdings will calculate the grant date fair value and NW Natural will recognize expense over the remaining service period for each award once the final performance factor has been approved.

For the 2022 and 2023 LTIP awards, share payouts range from a threshold of 0% to a maximum of 200% based on achievement of pre-established goals. The performance criteria for the 2022 and 2023 performance shares consists of a three-year Return on Invested Capital (ROIC) threshold that must be satisfied and a cumulative EPS factor, which can be modified by a total shareholder return factor (TSR modifier) relative to the performance of peer group companies over the performance period of three years for each respective award. If the targets were achieved for the 2022 and 2023 awards, NW Holdings would grant for accounting purposes 55,870 and 59,330 shares in the first quarters of 2024 and 2025, respectively.

As of June 30, 2023, there was $0.3 million of unrecognized compensation cost associated with the 2021 LTIP grant, which is expected to be recognized through 2023.

Restricted Stock Units

During the six months ended June 30, 2023, 45,532 RSUs were granted under the LTIP with a weighted-average grant date fair value of $48.24 per share. 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. As of June 30, 2023, there was $4.2 million of unrecognized compensation cost from grants of RSUs, which is expected to be recognized over a period extending through 2027.