Note 9 - Employee Benefits

12 Months Ended

Dec. 31, 2012

Compensation and Employee Benefit Plans [Text Block]

9.  Employee Benefits

Stock Incentive Plans - Under our 2005 Stock Incentive Plan (the “2005 Plan”), all of our employees and any subsidiary employees, as well as all of our non-employee directors, may be granted stock-based awards, including non-statutory stock options and performance unit awards.  Stock options expire within 7 or 10 years after the date of grant and the exercise price must be at least the fair market value of our common stock on the date of grant.  Stock options issued to non-employee directors upon their annual re-election to our Board of Directors are generally exercisable at the date of grant.  Stock options issued to employees are generally exercisable beginning one year from the date of grant in cumulative amounts of 20% per year. Performance unit awards are subject to vesting requirements over a five-year period, primarily based on our earnings growth.  Options exercised and performance unit award shares issued represent newly issued shares.  The maximum number of shares of common stock available for issuance under the 2005 Plan is 2.85 million shares.  As of December 31, 2012, there were 638,050 shares reserved for issuance under options outstanding and 122,083 shares reserved for issuance under outstanding performance unit awards under the 2005 Plan.

Under our 1995 Plan, officers, directors and employees were granted incentive and non-statutory stock options.  Incentive stock option exercise prices were required to be at least the fair market value of our common stock on the date of grant.  Non-statutory stock option exercise prices were required to be at least 85% of the fair market value of our common stock on the date of grant.  Stock options expire within 10 years after the date of grant.  Stock options issued to non-employee directors upon their annual re-election to our Board of Directors are generally exercisable at the date of grant.  Stock options issued to employees are generally exercisable beginning one year from the date of grant in cumulative amounts of 20% per year.  Options exercised represent newly issued shares.  As of December 31, 2012, there were 25,314 shares reserved for issuance under options outstanding under the 1995 Plan.  No additional options will be granted under the 1995 Plan.

We account for share-based payment arrangements in accordance with FASB ASC 718, Compensation-Stock Compensation, which requires all share-based payments to employees and non-employee directors, including grants of stock options and performance unit awards, to be recognized in the income statement based on their fair values at the date of grant.

We use the Black-Scholes option pricing model to calculate the grant-date fair value of option awards.  The fair value of service-based option awards granted was estimated as of the date of grant using the following weighted average assumptions:

	2012			2011			2010
Expected option life in years(1)		6.1			6.3			6.1
Expected stock price volatility percentage(2)		37	%		39	%		39	%
Risk-free interest rate percentage(3)		1.1	%		2.4	%		2.7	%
Expected dividend yield(4)		0.49	%		0.38	­%		0.05	%
Fair value as of the date of grant	$	7.22		$	8.54		$	9.31

 (1) Expected option life – We use historical employee exercise and option expiration data to estimate the expected life assumption for the Black-Scholes grant-date valuation.  We believe that this historical data is currently the best estimate of the expected term of a new option.  We use a weighted-average expected life for all awards.

(2) Expected stock price volatility – We use our stock’s historical volatility for the same period of time as the expected life.  We have no reason to believe that its future volatility will differ from the past.

(3) Risk-free interest rate – The rate is based on the U.S. Treasury yield curve in effect at the time of the grant for the same period of time as the expected life.

(4) Expected dividend yield – The calculation is based on the total expected annual dividend payout divided by the average stock price.

We use the straight-line attribution method to recognize expense for all service-based option awards with graded vesting.  Service-based option awards become immediately exercisable in full in the event of retirement, death or disability and upon a change in control with respect to all options that have been outstanding for at least six months.  To be eligible for retirement, an employee must reach age 65.

Compensation costs associated with service-based option awards are recognized, net of an estimated forfeiture rate, over the requisite service period, which is the period between the grant date and the earlier of the award’s stated vesting term or the date the employee is eligible for retirement.  We immediately recognize the entire amount of share-based compensation cost for employees that are eligible for retirement at the date of grant.  For awards granted to employees approaching retirement eligibility, we recognize compensation cost on a straight-line basis over the period from the grant date through the retirement eligibility date.  Share-based compensation expense for employees who are not retirement eligible is recognized on a straight-line basis over the stated vesting period of the award.

We had previously issued 107,000 performance-based option shares, and the exercisability of these options was based upon our achievement of certain operating ratios for a period of fiscal years ending with 2010.  These criteria were not met, the options expired unvested effective December 31, 2010, and no compensation expense was recorded relating to these option awards.

In August 2010, we granted 63,400 performance unit awards under our 2005 Stock Incentive Plan to certain employees.  This was our first grant of such awards.  As of December 31, 2010 and each December 31st thereafter through December 31, 2014, each award vests and becomes the right to receive a number of shares of common stock equal to a total vesting percentage multiplied by the number of units subject to such award.  The total vesting percentage for each of the five years is equal to the sum of a performance vesting percentage, which is the percentage increase, if any, in our diluted net income per share for the year being measured over the prior year, and a service vesting percentage of five percentage points.  The goal of the awards is to incentivize the certain employees to increase our earnings an average of fifteen percent per year over five years, which, when combined with the five percent per year service-based component, would result in full vesting over five years.  The performance vesting percentage could be achieved earlier than in five years if annual earnings growth exceeds the average of fifteen percent, or not fully achieved if the annual earnings growth averages less than fifteen percent over the five-year period.  All payments will be made in shares of our common stock.  One half of the vested performance units will be paid to the employees immediately upon vesting, with the other half being credited to the employees’ accounts within the Marten Transport, Ltd. Deferred Compensation Plan, which restricts the sale of vested shares to the later of each employee’s termination of employment or attainment of age 62.

In August 2011, we also granted 41,600 performance unit awards with similar terms to the awards granted in 2010, and which vest from December 31, 2011 through December 31, 2015.

In May 2012, we also granted 39,500 performance unit awards with similar terms to the awards granted in 2010 and 2011, and which vest from December 31, 2012 through December 31, 2016.

The fair value of each performance unit is based on the closing market price on the date of grant.  We recognize compensation expense for these awards based on the estimated number of units probable of achieving the vesting requirements of the awards, net of an estimated forfeiture rate.

The amount of share-based compensation recognized during a period is based on the value of the portion of the awards that are ultimately expected to vest.  Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.  We currently expect, based on an analysis of our historical forfeitures and known forfeitures on existing awards, that approximately 1.25% of unvested outstanding awards will be forfeited each year.  This analysis will be re-evaluated quarterly and the forfeiture rate will be adjusted as necessary.  Ultimately, the actual expense recognized over the vesting period will only be for those shares that vest.

Total share-based compensation expense recorded in 2012 was $1.2 million ($759,000 net of income tax benefit, $0.034 of earnings per basic and diluted share), in 2011 was $1.3 million ($837,000 net of income tax benefit, $0.038 of earnings per basic and diluted share) and in 2010 was $1.3 million ($776,000 net of income tax benefit, $0.035 of earnings per basic and diluted share).  All share-based compensation expense was recorded in salaries, wages and benefits expense.

The benefits of tax deductions in excess of recognized compensation costs (excess tax benefits) are recorded as a financing cash inflow rather than a deduction of taxes paid in operating cash flows.  In 2012, 2011 and 2010, there was $336,000, $142,000 and $338,000, respectively, of excess tax benefits recognized resulting from exercises of options.

As of December 31, 2012, there was a total of $1.3 million of unrecognized compensation expense related to unvested service-based option awards, which is expected to be recognized over a weighted-average period of 3.1 years, and $1.3 million of unrecognized compensation expense related to unvested performance unit awards, which will be recorded based on the estimated number of units probable of achieving the vesting requirements of the awards through 2016.

Option activity in 2012 was as follows:

	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2011		690,768		$	17.62
Granted		96,250			20.48
Exercised		(111,954	)		8.65
Forfeited		(11,700	)		19.29
Outstanding at December 31, 2012		663,364		$	19.52
Exercisable at December 31, 2012		465,144		$	19.23

The 663,364 shares outstanding as of December 31, 2012 have a weighted average remaining contractual life of 4.1 years and an aggregate intrinsic value based on our closing stock price on December 31, 2012 for in-the-money options of $552,000.  The 465,144 shares exercisable as of the same date have a weighted average remaining contractual life of 3.7 years and an aggregate intrinsic value similarly calculated of $513,000.

The fair value of options granted in 2012, 2011 and 2010 was $695,000, $350,000 and $922,000, respectively, for service-based options.  The total intrinsic value of options exercised in 2012, 2011 and 2010 was $1.4 million, $442,000 and $1.0 million, respectively.  Intrinsic value is the difference between the fair value of the acquired shares at the date of exercise and the exercise price, multiplied by the number of options exercised.  Proceeds received from option exercises in 2012, 2011 and 2010 were $968,000, $137,000 and $303,000, respectively.

Nonvested option awards as of December 31, 2012 and changes during 2012 were as follows:

	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (in Years)
Service-based options:
Nonvested at December 31, 2011		204,740		$	8.23		5.0
Granted		96,250			7.22		6.9
Vested		(92,870	)		8.09		4.4
Forfeited		(9,900	)		7.94		4.5
Nonvested at December 31, 2012		198,220		$	7.82		5.2

The total fair value of options which vested during 2012, 2011 and 2010 was $751,000, $856,000 and $729,000, respectively.

             The following table summarizes our nonvested performance unit award activity in 2012:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 2011		60,166		$	19.76
Granted		39,500			20.95
Vested		(23,120)	(1)		20.24
Nonvested at December 31, 2012		76,546		$	20.23

(1) This number of performance unit award shares vested based on our financial performance in 2012 and was distributed or credited to the Marten Transport, Ltd. Deferred Compensation Plan in March 2013.  The fair value of unit award shares that vested in 2012 was $468,000.

Retirement Savings Plan - We sponsor a defined contribution retirement savings plan under Section 401(k) of the Internal Revenue Code.  Employees are eligible for the plan after three months of service. Participants are able to contribute up to the limit set by law, which in 2012 was $17,000 for participants less than age 50 and $22,500 for participants age 50 and above.  We contribute 35% of each participant’s contribution, up to a total of 6% contributed.  Our contribution vests at the rate of 20% per year for the first through fifth years of service.  In addition, we may make elective contributions as determined by the Board of Directors.  No elective contributions were made in 2012, 2011 or 2010.  Total expense recorded for the plan was $909,000 in 2012, $803,000 in 2011 and $633,000 in 2010.

Stock Purchase Plans - An Employee Stock Purchase Plan and an Independent Contractor Stock Purchase Plan are sponsored to encourage employee and independent contractor ownership of our common stock. Eligible participants specify the amount of regular payroll or contract payment deductions and voluntary cash contributions that are used to purchase shares of our common stock.  The purchases are made at the market price on the open market.  We pay the broker’s commissions and administrative charges for purchases of common stock under the plans.