Note 11 - Employee Benefits

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

11. 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, each 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 2,509,687 shares have been awarded as of December 31, 2022. 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.

At our 2019 Annual Meeting of Stockholders held on May 7, 2019, our stockholders approved an amendment to the Marten Transport, Ltd. 2015 Equity Incentive Plan, which was previously approved and adopted by our Board of Directors, subject to approval by our stockholders. The amendment increased the number of shares of common stock authorized for issuance under the 2015 Plan by 1.3 million shares and the number of shares of common stock authorized for issuance pursuant to full-value awards by 558,334 shares. The amendment also adjusted certain numbers to reflect the stock split that occurred in July 2017.

On August 13, 2020, we effected a three-for-two stock split of our common stock, $0.01 par value, in the form of a 50% stock dividend. In July 2020, our Board of Directors approved an increase in the number of shares of common stock authorized for issuance under the 2015 plan, along with in the number of shares reserved for issuance under all outstanding options and performance unit awards and shares held within our Deferred Compensation Plan, to reflect the three-for-two stock split. As a result, the number of shares authorized for issuance under the 2015 Plan, as amended, increased to 3,950,000 shares.

As of December 31, 2022, there were 905,078 shares reserved for issuance under options outstanding and 226,361 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 awards with similar terms to the options and awards under the 2015 Plan. As of December 31, 2022, there were 10,313 shares reserved for issuance under options outstanding under the 2005 Plan, which will continue according to their terms. As of the same date, there were no shares reserved for issuance under outstanding performance unit awards under the 2005 Plan. 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:

	2022			2021			2020
Expected option life in years(1)		6.0			6.0			6.0
Expected stock price volatility percentage(2)		26	%		27	%		28	%
Risk-free interest rate percentage(3)		2.9	%		1.2	%		0.6	%
Expected dividend yield(4)		1.13	%		0.91	%		0.80	%
Fair value as of the date of grant	$	5.79		$	4.29		$	3.85

(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 May 2016, we granted 86,505 performance unit awards under our 2015 Equity Incentive Plan to certain employees. This was our seventh grant of such awards. As of December 31, 2016 and each December 31^st thereafter through December 31, 2020, 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 net income 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 restricted the sale of vested shares to the later of each employee’s termination of employment or attainment of age 62. We also granted 32,513 performance unit awards in May 2016 and 2,501 awards in August 2016 with similar terms to such awards, except that all vested performance units were paid to the employees immediately upon vesting.

In May 2017, we granted 163,754 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 65,013 performance unit awards in May 2017 and 3,000 awards in August 2017 with similar terms to such awards, except that all vested performance units were paid to the employees immediately upon vesting. All awards granted in 2017 vested from December 31, 2017 through 2021.

In May 2018, we granted 68,550 performance unit awards under our 2015 Equity Incentive Plan with similar terms to the awards granted in 2017. We also granted 42,000 performance unit awards in May 2018 and 3,000 awards in August 2018 with similar terms to such awards, except that all vested performance units were paid to the employees immediately upon vesting. These awards granted in 2018 vested from December 31, 2018 through 2022. We also granted 3,000 performance unit awards in December 2018 with similar terms to the awards granted in August 2018, except that the awards vest from December 31, 2019 through 2023.

In May 2019, we granted 60,000 performance unit awards under our 2015 Equity Incentive Plan with similar terms to the awards granted in 2017. We also granted 45,000 performance unit awards in May 2019 with similar terms to such awards, except that all vested performance units will be paid to the employees immediately upon vesting. These awards granted in 2019 vest from December 31, 2019 through 2023.

In May 2020, we granted 73,205 performance unit awards under our 2015 Equity Incentive Plan with similar terms to awards granted in 2017, except that all vested performance units will be paid to the employees immediately upon vesting. These awards granted in 2020 vest from December 31, 2020 through 2024.

In May 2021, we granted 98,400 performance unit awards under our 2015 Equity Incentive Plan with similar terms to awards granted in 2020. These awards granted in 2021 vest from December 31, 2021 through 2025.

In May 2022, we granted 102,900 performance unit awards, and in August 2022, we granted 21,000 performance unit awards, under our 2015 Equity Incentive Plan with similar terms to awards granted in 2020. These awards granted in 2022 vest from December 31, 2022 through 2026.

On May 5, 2020, our Compensation Committee and Board of Directors approved the termination of our deferred compensation plan. The termination was effective May 5, 2021. All remaining shares of Company common stock within the plan were distributed on March 1, 2022.

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 on a quarterly basis 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 2022 was $2.8 million ($2.2 million net of income tax benefit, $0.03 earnings per basic and diluted share), in 2021 was $2.5 million ($1.9 million net of income tax benefit, $0.02 earnings per basic and diluted share) and in 2020 was $1.9 million ($1.4 million net of income tax benefit, $0.02 earnings per basic and diluted share). All share-based compensation expense was recorded in salaries, wages and benefits expense.

As of December 31, 2022, there was a total of $2.3 million of unrecognized compensation expense related to unvested service-based option awards, which is expected to be recognized over a weighted-average period of 3.5 years, and $2.2 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 2026.

Option activity in 2022 was as follows:

	Shares			Weighted Average Exercise Price
Outstanding at December 31, 2021		1,029,466		$	14.00
Granted		141,500			21.05
Exercised		(201,975	)		9.89
Forfeited		(53,600	)		16.61
Outstanding at December 31, 2022		915,391		$	15.84
Exercisable at December 31, 2022		371,241		$	13.38

The 915,391 options outstanding as of December 31, 2022 have a weighted average remaining contractual life of 4.5 years and an aggregate intrinsic value based on our closing stock price on December 31, 2022 for in-the-money options of $3.9 million. The 371,241 options exercisable as of the same date have a weighted average remaining contractual life of 3.0 years and an aggregate intrinsic value similarly calculated of $2.4 million.

The fair value of options granted in 2022, 2021 and 2020 was $819,000, $1.8 million and $160,000, respectively, for service-based options. The total intrinsic value of options exercised in 2022, 2021 and 2020 was $2.0 million, $789,000 and $4.1 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 2022, 2021 and 2020 were $4.0 million, $1.7 million and $4.8 million, respectively.

Nonvested service-based option awards as of December 31, 2022 and changes during 2022 were as follows:

	Shares			Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Life (in Years)
Nonvested at December 31, 2021		631,051		$	4.14		5.9
Granted		141,500			5.79		6.6
Vested		(174,801	)		3.95		4.0
Forfeited		(53,600	)		4.27		5.3
Nonvested at December 31, 2022		544,150		$	4.62		5.5

The total fair value of options which vested during 2022, 2021 and 2020 was $691,000, $411,000 and $539,000, respectively.

The following table summarizes our nonvested performance unit award activity in 2022:

	Shares				Weighted Average Grant Date Fair Value
Nonvested at December 31, 2021		132,126			$	16.10
Granted		123,900				18.79
Vested		(113,996	)	(1)		17.13
Forfeited		(20,163	)			16.13
Nonvested at December 31, 2022		121,867			$	17.83

(1) This number of performance unit award shares vested based on our financial performance in 2022 and was distributed in March 2023. The fair value of unit award shares that vested in 2022 was $2.0 million. 

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 2022 was $20,500 for participants less than age 50 and $27,000 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 2022, 2021 or 2020. Total expense recorded for the plan was $4.0 million in 2022 and $3.0 million in each of 2021 and 2020.

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.