Note 15 - Stock-based Compensation

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

15. Stock-Based Compensation

We account for share-based awards in accordance with ASC Topic 718 Compensation–Stock Compensation (“ASC 718”), which requires the fair value of stock-based compensation awards to be amortized as an expense over the vesting period. Stock-based compensation awards are valued at fair value on the date of grant. The following table sets forth share-based award expense activity for the three months ended March 31, 2020 and 2019, which is included as a component of selling general and administrative expenses and expenses in the homebuilding and financial services sections of our consolidated statements of operations and comprehensive income, respectively:

	Three Months Ended
	March 31,
	2020		2019
	(Dollars in thousands)
Stock option grants expense	$	495	$	255
Restricted stock awards expense		1,517		911
Performance share units expense		2,428		3,085
Total stock-based compensation	$	4,440	$	4,251

On August 5, 2019, May 23, 2018, June 20, 2017 and July 25, 2016, the Company granted long term performance share unit awards (“PSUs”) to each of the CEO, the COO, and the Chief Financial Officer (“CFO”) under the Company’s 2011 Equity Incentive Plan. The PSUs are earned based upon the Company’s performance, over a three year period (the “Performance Period”), measured by increasing home sale revenues over a “Base Period.” Each award is conditioned upon the Company achieving an average gross margin from home sales (excluding impairments) of at least fifteen percent (15%) over the Performance Period. Target goals will be earned if the Company’s three year average home sale revenues over the Performance Period (“Performance Revenues”) exceed the home sale revenues over the Base Period (“Base Revenues”) by at least 10% but less than 20%. If Performance Revenues exceed the Base Revenues by at least 5% but less than 10%, 50% of the Target Goals will be earned (“Threshold Goals”). If Performance Revenues exceed the Base Revenues by at least 20%, 200% of the Target Goals will be earned (“Maximum Goals”). For the PSUs granted in 2017, 2018 and 2019, the number of PSUs earned shall be adjusted to be proportional to the partial performance between the Threshold Goals, Target Goals and Maximum Goals. Details for each defined term above for each grant has been provided in the table below.

				Threshold Goal		Target Goal		Maximum Goal				Maximum		Maximum
Date of Award	Performance Period	Base Period	Base Period Revenues	PSUs	Home Sale Revenues	PSUs	Home Sale Revenues	PSUs	Home Sale Revenues	Fair Value per Share		Potential Expense to be Recognized*		Remaining Expense to be Recognized*
July 25, 2016	July 1, 2016 to June 30, 2019	July 1, 2015 to June 30, 2016	$1.975 billion	137,781	$2.074 billion	275,562	$2.173 billion	551,124	$2.370 billion	$	19.66	$	10,834	$	-
June 20, 2017	April 1, 2017 to March 31, 2020	April 1, 2016 to March 31, 2017	$2.426 billion	144,342	$2.547 billion	288,684	$2.669 billion	577,368	$2.911 billion	$	27.83	$	16,070	$	-
May 23, 2018	April 1, 2018 to March 31, 2021	April 1, 2017 to March 31, 2018	$2.543 billion	145,800	$2.670 billion	291,600	$2.797 billion	583,200	$3.052 billion	$	25.57	$	14,915	$	7,641
August 5, 2019	January 1, 2019 to December 31, 2021	January 1, 2018 to December 31, 2018	$2.982 billion	135,000	$3.131 billion	270,000	$3.280 billion	540,000	$3.578 billion	$	32.60	$	17,604	$	17,604

* Dollars in thousands

In accordance with ASC 718, the PSUs were valued on the date of grant at their fair value. The fair value of these grants was equal to the closing price of MDC stock on the date of grant less the discounted cash flows of expected future dividends over the respective vesting period (as these PSUs do not participate in dividends). The grant date fair value and maximum potential expense if the Maximum Goals were met for these awards has been provided in the table above. ASC 718 does not permit recognition of expense associated with performance-based stock awards until achievement of the performance targets are probable of occurring.

2016 PSU Grants. The 2016 PSU awards vested on August 7, 2019 at the Maximum Goal following the achievement of the Maximum Goals and certification by the Compensation Committee that the Maximum Goals had been achieved. For the three months ended March 31, 2019 the Company recorded share-based award expense of $0.9 million related to these awards.

2017 PSU Grants. As of March 31, 2020, the Company determined that achievement of the Maximum Goals for these awards was probable and, as such, the Company recorded share- award expense related to the awards of $1.4 million for the three months ended March 31, 2020. For the three months ended March 31, 2019, the Company recorded share-based award expense of $2.2 million related to these awards.

2018 PSU Grants. As of March 31, 2020, the Company determined that achievement between the Target and Maximum Goals for these awards was probable and, as such, the Company recorded share-based award expense related to the awards of $1.0 million for the three months ended March 31, 2020. At March 31, 2019, the Company concluded that achievement of any of the performance metrics had not met the level of probability required to record compensation expense, and as such, no expense related to these awards had been recognized as of March 31, 2019.

2019 PSU Grants. For the PSUs granted in August of 2019, the Company concluded that achievement of any of the performance metrics has not met the level of probability required to record compensation expense and, as such, no expense related to these awards has been recognized as of March 31, 2020.