Stock Based Compensation

12 Months Ended

Dec. 31, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock Based Compensation

NOTE 12 Stock-Based Compensation

Performance Stock Plan

In 1996, the Company adopted and the shareholders approved a performance stock plan, under which until the suspension of the plan in 2010, up to 28,800,000 Performance Stock Plan (“PSP”) shares could be granted to key employees contingent on the employees’ future years of service with the Company and other performance-based criteria established by the Compensation Committee of the Company’s Board of Directors. Before participants may take full title to Performance Stock, two vesting conditions must be met. Of the grants currently outstanding, specified portions satisfied the first condition for vesting based upon 20% incremental increases in the 20-trading-day average stock price of Brown & Brown’s common stock from the price on the business day prior to date of grant. Performance Stock that has satisfied the first vesting condition is considered “awarded shares.” Awarded shares are included as issued and outstanding common stock shares and are included in the calculation of basic and diluted net income per share. Dividends are paid on awarded shares and participants may exercise voting privileges on such shares. Awarded shares satisfy the second condition for vesting on the earlier of a participant’s: (i) 15 years of continuous employment with Brown & Brown from the date shares are granted to the participants (or, in the case of the July 2009 grant to Powell Brown, 20 years), (ii) attainment of age 64 (on a prorated basis corresponding to the number of years since the date of grant), or (iii) death or disability. On April 28, 2010, the PSP was suspended and any remaining authorized, but unissued shares, as well as any shares forfeited in the future, were reserved for issuance under the 2010 Stock Incentive Plan (the “2010 SIP”).

At December 31, 2020, 10,217,232 shares had been granted, net of forfeitures, under the PSP. As of December 31, 2020, 909,828 shares had met the first condition of vesting and had been awarded, and 9,307,404 shares had satisfied both conditions of vesting and had been distributed to participants. Of the shares that have not vested as of December 31, 2020, the initial stock prices ranged from $8.30 to $10.31.

The Company uses a path-dependent lattice model to estimate the fair value of PSP grants on the grant date.

A summary of PSP activity for the years ended December 31, 2020, 2019 and 2018 is as follows:

	Weighted- average grant date fair value		Granted shares			Awarded shares			Shares not yet awarded
Outstanding at January 1, 2018	$	5.16		1,694,476			1,694,476			—
Granted	$	—		—			—			—
Awarded	$	—		—			—			—
Vested	$	5.53		(453,860	)		(453,860	)		—
Forfeited	$	4.92		(44,524	)		(44,524	)		—
Outstanding at December 31, 2018	$	5.03		1,196,092			1,196,092			—
Granted	$	—		—			—			—
Awarded	$	—		—			—			—
Vested	$	5.29		(115,040	)		(115,040	)		—
Forfeited	$	4.74		(29,760	)		(29,760	)		—
Outstanding at December 31, 2019	$	5.00		1,051,292			1,051,292			—
Granted	$	—		—			—			—
Awarded	$	—		—			—			—
Vested	$	6.06		(119,072	)		(119,072	)		—
Forfeited	$	5.03		(22,392	)		(22,392	)		—
Outstanding at December 31, 2020	$	4.86		909,828			909,828			—

The total fair value of PSP grants that vested during each of the years ended December 31, 2020, 2019 and 2018 was $5.0 million, $3.5 million and $11.9 million, respectively.

Stock Incentive Plans

On April 28, 2010, the shareholders of the Company, Inc. approved the 2010 Stock Incentive Plan (“2010 SIP”), which was suspended on May 1, 2019. On May 1, 2019, the shareholders of the Company, Inc. approved the 2019 Stock Incentive Plan (“2019 SIP”) that provides for the granting of restricted stock, restricted stock units, stock options, stock appreciation rights, and other stock-based awards to employees and directors contingent on performance-based and/or time-based criteria established by the Compensation Committee of the Company’s Board of Directors. In addition, the 2019 SIP provides for a limited delegation of authority of the Company’s Chief Executive Officer to grant awards to individuals who are not subject to Section 16 of the Securities Exchange Act of 1934. The principal purpose of the 2019 SIP is to attract, incentivize and retain key employees by offering those persons an opportunity to acquire or increase a direct proprietary interest in the Company’s operations and future success. The number of shares of stock reserved for issuance under the 2019 SIP is 2,283,475 shares, plus any shares that are authorized for issuance under the 2010 SIP (described below), and not already subject to grants under the 2010 SIP, and that were outstanding as of May 1, 2019, the date of suspension of the 2010 SIP, together with PSP shares, 2010 SIP shares and 2019 SIP shares forfeited after that date. As of May 1, 2019, 6,957,897 shares were available for issuance under the 2010 SIP, which were then transferred to the 2019 SIP.

The Company has granted stock to our employees in the form of Restricted Stock Awards and Performance Stock Awards under the 2010 SIP and 2019 SIP. To date, a substantial majority of stock grants to employees under these plans vest in five to ten years. The Performance Stock Awards are subject to the achievement of certain performance criteria by grantees, which may include growth in a defined book of business, Organic Revenue growth and operating profit growth of a profit center, Organic Revenue growth of the Company and consolidated diluted net income per share growth at certain levels of the Company. The performance measurement period ranges from three to five years. Beginning in 2016, certain Performance Stock Awards have a payout range between 0% to 200% depending on the achievement against the stated performance target. Prior to 2016, the majority of the grants had a binary performance measurement criteria that only allowed for 0% or 100% payout.

Non-employee members of the Board of Directors received shares annually issued pursuant to the 2010 SIP and 2019 SIP as part of their annual compensation. A total of 26,620 shares were issued in January 2018, 27,885 shares were issued in April 2019 and 16,490 shares were issued in May 2020.

The Company uses the closing stock price on the day prior to the grant date to determine the fair value of grants under the 2010 SIP and 2019 SIP and then applies an estimated forfeiture factor to estimate the annual expense. Additionally, the Company uses the path-dependent lattice model to estimate the fair value of grants with PSP-type vesting conditions as of the grant date. SIP shares that satisfied the first vesting condition for PSP-type grants or the established performance criteria are considered awarded shares. Awarded shares are included as issued and outstanding common stock shares and are included in the calculation of basic and diluted net income per share.

A summary of 2010 SIP and 2019 SIP activity for the years ended December 31, 2020, 2019 and 2018 is as follows:

	Weighted- average grant date fair value		Granted shares			Awarded shares			Shares not yet awarded
Outstanding at January 1, 2018	$	15.58		12,821,990			4,809,604			8,012,386
Granted	$	22.87		1,577,721			454,313			1,123,408		(1)
Awarded	$	15.89		—			2,489,905			(2,489,905	)
Vested	$	14.09		(933,916	)		(933,916	)		—
Forfeited	$	16.37		(2,363,420	)		(224,587	)		(2,138,833	)
Outstanding at December 31, 2018	$	16.69		11,102,375			6,595,319			4,507,056
Granted	$	28.53		1,812,047			797,778			1,014,269		(2)
Awarded	$	17.26		299,339			1,954,983			(1,655,644	)
Vested	$	14.29		(1,068,211	)		(1,068,211	)		—
Forfeited	$	19.09		(503,632	)		(209,293	)		(294,339	)
Outstanding at December 31, 2019	$	18.10		11,641,918			8,070,576			3,571,342
Granted	$	46.58		970,997			148,015			822,982		(3)
Awarded	$	19.71		497,082			1,880,512			(1,383,430	)
Vested	$	15.97		(3,059,619	)		(3,059,619	)		—
Forfeited	$	20.75		(356,041	)		(119,637	)		(236,404	)
Outstanding at December 31, 2020	$	19.89		9,694,337			6,919,847			2,774,490

(1) Of the 1,123,408 shares of performance-based restricted stock granted in 2018, the payout for 576,886 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

(2) Of the 1,014,269 shares of performance-based restricted stock granted in 2019, the payout for 501,384 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

(3) Of the 822,982 shares of performance-based restricted stock granted in 2020, the payout for 365,606 shares may be increased up to 200% of the target or decreased to zero, 20,611 shares may be increased up to 120% of the target or decreased to zero, 15,850 shares may be increased up to 150% of the target or decreased to zero, and 56,226 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

The following table sets forth information as of December 31, 2020, 2019 and 2018, with respect to the number of time-based restricted shares granted and awarded, the number of performance-based restricted shares granted, and the number of performance-based restricted shares awarded under our Performance Stock Plan and 2010 and 2019 Stock Incentive Plans:

Year	Time-based restricted stock granted and awarded		Performance-based restricted stock granted			Performance-based restricted stock awarded
2020		148,015		822,982	(1)		1,880,512
2019		797,778		1,014,269	(2)		1,954,983
2018		454,313		1,123,408	(3)		2,489,905

(1) Of the 822,982 shares of performance-based restricted stock granted in 2020, the payout for 365,606 shares may be increased up to 200% of the target or decreased to zero, 20,611 shares may be increased up to 120% of the target or decreased to zero, 15,850 shares may be increased up to 150% of the target or decreased to zero, and 56,226 shares may be increased up to 150% or decreased to 50% of target subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

(2) Of the 1,014,269 shares of performance-based restricted stock granted in 2019, the payout for 501,384 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%.

(3) Of the 1,123,408 shares of performance-based restricted stock granted in 2018, the payout for 576,886 shares may be increased up to 200% of the target or decreased to zero, subject to the level of performance attained. The amount reflected in the table includes all restricted stock grants at a target payout of 100%. 

At December 31, 2020, 8,624,668 shares were available for future grants under the 2019 SIP. This amount is calculated assuming the maximum payout for all restricted stock grants. 

Employee Stock Purchase Plan

The Company has a shareholder-approved Employee Stock Purchase Plan (“ESPP”) with a total of 34,000,000 authorized shares of which 5,378,467 were available for future subscriptions as of December 31, 2020. Employees of the Company who regularly work 20 hours or more per week are eligible to participate in the ESPP. Participants, through payroll deductions, may allot up to 10% of their compensation towards the purchase of a maximum of $25,000 worth of Company stock between August 1st of each year and the following July 31st (the “Subscription Period”) at a cost of 85% of the lower of the stock price as of the beginning or end of the Subscription Period.

The Company estimates the fair value of an ESPP share option as of the beginning of the Subscription Period as the sum of: (1) 15% of the quoted market price of the Company’s stock on the day prior to the beginning of the Subscription Period, and (2) 85% of the value of a one-year stock option on the Company stock using the Black-Scholes option-pricing model. The estimated fair value of an ESPP share option as of the Subscription Period beginning in August 2020 was $12.43. The fair values of an ESPP share option as of the Subscription Periods beginning in August 2019 and 2018, were $7.46 and $5.88, respectively.

For the ESPP plan years ended July 31, 2020, 2019 and 2018, the Company issued 962,131, 976,303 and 985,601 shares of common stock, respectively. These shares were issued at an aggregate purchase price of $29.3 million, or $30.51 per share, in 2020, $24.0 million, or $24.63 per share, in 2019, and $18.7 million, or $18.96 per share, in 2018.

 For the five months ended December 31, 2020, 2019 and 2018 (portions of the 2020-2021, 2019-2020, and 2018-2019 plan years), 381,371, 419,446 and 402,349 shares of common stock (from authorized but unissued shares), respectively, were subscribed to by ESPP participants for proceeds of approximately $14.8 million, $12.8 million and $9.9 million, respectively.

Summary of Non-Cash Stock-Based Compensation Expense

The non-cash stock-based compensation expense for the years ended December 31 is as follows:

(in thousands)	2020		2019		2018
Stock incentive plan	$	50,198	$	39,626	$	28,027
Employee stock purchase plan		8,789		6,504		4,744
Performance stock plan		762		864		748
Total	$	59,749	$	46,994	$	33,519

Summary of Unamortized Compensation Expense

As of December 31, 2020, the Company estimates there to be $112.6 million of unamortized compensation expense related to all non-vested stock-based compensation arrangements granted under the Company’s stock-based compensation plans, based upon current projections of grant measurement against performance criteria. That expense is expected to be recognized over a weighted average period of 3.29 years.