Note 12 - Employee Benefits

12 Months Ended

Dec. 31, 2017

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

1

2

. Employee Benefits

Equity Incentive Plans

- In

May 2015,

our stockholders approved our

2015

Equity Incentive Plan (the

“2015

Plan”). Our Board of Directors adopted the

2015

Plan in

March 2015.

Under our

2015

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, performance unit awards and shares of common stock, of which

799,11

0

shares have been awarded as of

December 31, 2017.

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 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

2015

Plan is

1,333,333

shares. As of

December 31, 2017,

there were

445,172

shares reserved for issuance under options outstanding and

306,383

shares reserved for issuance under outstanding performance unit awards under the

2015

Plan. The

2015

Plan replaces our

2005

Stock Incentive Plan (the

“2005

Plan”), which expired by its terms in

May 2015.

Under the

2005

Plan, officers, directors and employees were granted non-statutory stock options and performance unit awar

ds with similar terms to the options and awards under the

2015

Plan. As of

December 31, 2017,

there were

473,411

shares reserved for issuance under options outstanding and

64,600

shares reserved for issuance under outstanding performance unit awards under the

2005

Plan, which will continue according to their terms.

No

additional awards will be granted under the

2005

Plan.

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:

	201 7			201 6			201 5
Expected option life in years (1)		6.0			6.0			6.0
Expected stock price volatility percentage (2)		25	%		25	%		25	%
Risk-free interest rate percentage (3)		2.0	%		1.4	%		1.8	%
Expected dividend yield (4)		0.59	%		0.50	%		0.44	%
Fair value as of the date of grant	$	4.34		$	3.17		$	3.58

( 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.

Compensation costs associated with service-based option awards with graded vesting are recognized, net of an estimated forfeiture rate, on a straight-line basis

over the requisite service period, which is the period between the grant date and the award’s stated vesting term. Service-based option awards become immediately exercisable in full in the event of death or disability and upon a change in control with respect to all options that have been outstanding for at least

six

months.

In

August

201

1,

we granted

104,000

performance unit awards under our

2005

Stock Incentive Plan to certain employees. This was our

second

grant of such awards. As of

December 31, 2011

and each

December 31

st

thereafter through

December 31, 2015,

each award vested and became 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 was equal to the sum of a performance vesting percentage, which was 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. All payments were made in shares of our common stock. One half of the vested performance units were 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

May 2012,

we granted

98,750

performance unit awards with similar terms to the awards previously granted, and which vested from

December 31, 2012

through

2016.

In

May 2013,

we granted

104,250

performance unit awards with similar terms to the awards previously granted, and which vested from

December 31, 2013

through

2017.

In

May

201

4,

we granted

60,668

performance unit awards with similar terms to the awards previously granted, and also granted

18,337

performance unit awards with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in

2014

vest from

December 31, 2014

through

2018.

In

May 2015,

we granted

58,335

performance unit awards under our

2015

Equity Incentive Plan with similar terms to the awards previously granted, and also granted

32,500

performance unit awards with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in

2015

vest from

December 31, 2015

through

2019.

In

May 2016,

we granted

57,669

performance unit awards under our

2015

Equity Incentive Plan with similar terms to the awards previously granted, except that the calculation of vesting shares is based on our increase in net income instead of our increase in diluted net income per share. As permitted in the performance unit award agreements granted in

2011

through

2015,

the calculation of the performance vesting component beginning with the year

2015

was adjusted to be based on the increase in net income. We also granted

21,671

performance unit awards in

May 2016

and

1,667

awards in

August 2016

with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in

2016

vest from

December 31, 2016

through

2020.

In

May 2017,

we granted

109,169

performance unit awards under our

2015

Equity Incentive Plan with similar terms to the awards granted in

2016,

except that the service-based component was increased from

five

percent to

ten

percent per year. The Compensation Committee adjusted the equity vesting formula to better align it with our long-range growth plan. We also granted

43,342

performance unit awards in

May 2017

and

2,000

awards in

August 2017

with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. All awards granted in

2017

vest from

December 31, 2017

through

2021.

The fair value of each performance unit is based on the closing market price on th

e 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 d

uring 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

2017

was

$1.3

million (

$738

,000

net of income tax benefit,

$0.01

of earnings per basic and diluted share), in

2016

was

$883,000

(

$547,000

net of income tax benefit,

$0.01

of earnings per basic and diluted share), and in

2015

was

$1.4

million (

$870,000

net of income tax benefit,

$0.02

of earnings per basic and diluted share). All share-based compensation expense was recorded in salaries, wages and benefits expense.

As of

December 31,

201

7,

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

$3.9

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

2021.

Effective

January 1, 2017,

we adopted the provision

s of FASB ASU

No.

2016

-

09,

“Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting” which simplifies several aspects of the accounting for share-based payment transactions. The adoption of this standard resulted in a

$176

,000

decrease to our provision for income taxes in

2017,

as the actual increase in our stock price exceeded the grant-date fair value of the period’s exercised options and vested performance unit awards. Excess tax benefits were recognized in additional paid-in capital through

2016.

Option activity in

201

7

was as follows:

	Shares			Weighted Average Exercise Price
Outstanding at December 31, 201 6		922,934		$	10.94
Granted		136,501			16.32
Exercised		(124,016	)		8.83
Forfeited		(16,836	)		11.43
Outstanding at December 31, 201 7		918,583		$	12.02
Exercisable at December 31, 2017		505,355		$	10.42

The

918,583

options outstanding as of

December 31, 2017

have a weighted average remaining contractual life of

4.0

years and an aggregate intrinsic value based on our closing stock price on

December 29, 2017

for in-the-money options of

$7.6

million. The

505,355

options exercisable as of the same date have a weighted average remaining contractual life of

3.1

years and an aggregate intrinsic value similarly calculated of

$5.0

million.

The fair value of option

s granted in

2017,

2016

and

2015

was

$592,000,

$227,000

and

$918,000,

respectively, for service-based options. The total intrinsic value of options exercised in

2017,

2016

and

2015

was

$830,000,

$1.9

million and

$2.4

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

2017,

2016

and

2015

were

$1.1

million,

$4.4

million and

$3.5

million, respectively.

Nonvested service-based option awards as of

December 31,

201

7

and changes during

2017

were as follows:

	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (in Years)
Nonvested at December 31, 201 6		444,476		$	3.46		5.0
Granted		136,501			4.34		6.7
Vested		(151,912	)		3.39		3.4
Forfeited		(15,837	)		3.19		4.3
Nonvested at December 31, 201 7		413,228		$	3.79		5.1

The total fair value of options which vested during

201

7,

2016

and

2015

was

$515

,000,

$534,000

and

$502,000,

respectively.

The following table summarizes our nonvested performance unit award activity in

201

7:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at December 31, 201 6		253,028		$	11.66
Granted		154,511			14.48
Vested		(37,648	)(1)		12.86
Forfeited		(47,229	)		8.58
Nonvested at December 31, 201 7		322,662		$	13.32

( 1 ) This number of performance unit award shares vested based on our financial performance in 201 7 and was distributed or credited to the Marten Transport, Ltd. Deferred Compensation Plan in March 2018. As permitted in the performance unit award agreements granted in 2013 through 2015, the Compensation Committee of our Board of Directors adjusted the calculation of the performance vesting component for 2017 to be based on our increase in net income instead of our increase in diluted net income per share. Additionally, the $56.5 million deferred income taxes benefit related to the federal Tax Cuts and Jobs Act of 2017 was excluded from the calculation of the increase in net income from 2016 to 2017. The fair value of unit award shares that vested in 2017 was $484,000 .  

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

2017

was

$18,000

for participants less than age

50

and

$24,000

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

2017,

2016

or

2015.

Total expense recorded for the plan was

$2.1

million in each of

2017

and

2016

and

$1.9

million in

2015

.

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.