Share-Based Compensation

6 Months Ended

Jun. 30, 2020

Share-based Payment Arrangement [Abstract]

Recipients of the Company’s restricted shares have the same voting rights as any other common shareholder. During the period of restriction, holders of unvested restricted shares are eligible to receive dividend payments on their shares at the same rate and on the same date as any other common shareholder. The restricted shares are service based awards and vest over a four-year period.

Recipients of the Company’s restricted stock units, or RSUs, are entitled to receive dividends with respect to the common shares underlying the RSUs if and when the RSUs are earned, at which time the recipient will be entitled to receive an amount in cash equal to the aggregate amount of cash dividends that would have been paid in respect of the common shares underlying the recipient’s earned RSUs had such common shares been issued to the recipient on the first day of the performance period. To the extent that an award does not vest, the dividends related to unvested RSUs will be forfeited. The RSUs are market-based awards with a service condition and recipients may earn RSUs based on the Company’s total shareholder return, or TSR, relative to the TSRs of the companies that comprise the Nareit Office Index over a three-year performance period. Following the end of the three-year performance period, the number of earned awards will be determined. The earned awards vest in two tranches with 50% of the earned award vesting following the end of the performance period on the date the Compensation Committee of our Board of Trustees, or the Committee, determines the level of achievement of the performance metric and the remaining 50% of the earned award vesting approximately one year thereafter, subject to the grant recipient’s continued employment. Compensation expense for the RSUs is determined using a Monte Carlo simulation model and is recognized ratably from the grant date to the vesting date of each tranche.

LTIP Units are a class of beneficial interests in the Operating Trust that may be issued to employees, officers or trustees of the Operating Trust, the Company or their subsidiaries. Time-based LTIP Units have the same general characteristics as restricted shares and market-based LTIP Units have the same general characteristics as RSUs. Each LTIP Unit will convert automatically into an OP Unit on a one-for-one basis when the LTIP Unit becomes vested and its capital account is equalized with the per-unit capital account of the OP Units. Holders of LTIP Units generally will be entitled to receive the same per-unit distributions as the other outstanding OP Units in the Operating Trust, except that market-based LTIP Units will not participate in distributions until expiration of the applicable performance period, at which time any earned market-based LTIP Units generally will become entitled to receive a catch-up distribution for the periods prior to such time.

2020 Equity Award Activity

During the six months ended June 30, 2020, 387,729 RSUs vested, and, as a result, we issued 387,729 common shares, prior to certain employees surrendering their common shares to satisfy tax withholding obligations (see Note 5).

On June 23, 2020, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the nine independent Trustees $0.1 million in restricted shares or time-based LTIP Units as part of their compensation for the 2020-2021 year of service on the Board of Trustees. These awards equated to 3,184 shares or time-based LTIP Units per Trustee, for a total of 19,104 shares and 9,552 time-based LTIP Units, valued at $31.41 per share and unit, the closing price of our common shares on the New York Stock Exchange, or the NYSE, on that day. These shares and time-based LTIP Units vest one year after the date of the award.

On January 27, 2020, the Committee approved grants in the aggregate amount of 20,116 time-based LTIP Units, 40,841 market-based LTIP Units at target (101,796 market-based LTIP Units at maximum), 85,058 restricted shares and 172,697 RSUs at target (430,447 RSUs at maximum) to the Company’s officers, certain employees, an eligible consultant and to Mr. Zell, the Chairman of our Board of Trustees, as part of their compensation for fiscal year 2019. The restricted shares and time-based LTIP Units were valued at $32.81 per share and per unit, the closing price of our common shares on the New York Stock Exchange (NYSE) on the grant date. The assumptions and fair value for the RSUs and market-based LTIP Units granted during the six months ended June 30, 2020 are included in the following table on a per share and per unit basis.


	2020
Fair value of market-based awards granted	$	40.17
Expected term (years)	4
Expected volatility	12.39		%

Risk-free rate	1.41		%

2019 Equity Award Activity

During the six months ended June 30, 2019, 382,413 RSUs vested, and, as a result, we issued 382,413 common shares, prior to certain employees surrendering their common shares to satisfy tax withholding obligations.

On June 20, 2019, in accordance with the Company’s compensation plan for independent Trustees, the Committee awarded each of the nine independent Trustees $0.1 million in restricted shares or time-based LTIP Units as part of their compensation for the 2019-2020 year of service on the Board of Trustees. These awards equated to 2,940 shares or time-based LTIP Units per Trustee, for a total of 23,520 shares and 2,940 time-based LTIP Units, valued at $34.01 per share and unit, the closing price of our common shares on the NYSE on that day. These shares and time-based LTIP Units vest one year after the date of the award.

On January 29, 2019, the Committee approved grants in the aggregate amount of 112,359 restricted shares and 228,128 RSUs at target (568,609 RSUs at maximum) to the Company’s officers, certain employees and to Mr. Zell, the Chairman of our Board of Trustees, as part of their compensation for fiscal year 2018. The restricted shares were valued at $31.77 per share, the closing price of our common shares on the NYSE on the grant date. The RSUs were valued at $39.65 per share, their fair value on the grant date.

Outstanding Equity Awards

As of June 30, 2020, the estimated future compensation expense for all unvested restricted shares and time-based LTIP Units was $8.1 million. Compensation expense for the restricted share and time-based LTIP Unit awards is being recognized on a straight-line basis over the requisite service period for each separately vesting portion of the award. The weighted average period over which the future compensation expense will be recorded for the restricted shares and time-based LTIP units is approximately 2.5 years.

As of June 30, 2020, the estimated future compensation expense for all unvested RSUs and market-based LTIP Units was $15.9 million. The weighted average period over which the future compensation expense will be recorded for the RSUs and market-based LTIP Units is approximately 2.4 years.

During the three months ended June 30, 2020 and 2019, we recorded $3.3 million and $3.7 million, respectively, and during the six months ended June 30, 2020 and 2019, we recorded $6.6 million and $7.6 million, respectively, of compensation expense, net of forfeitures, in general and administrative expense for grants to our trustees and employees related to our equity compensation plans. Compensation expense recorded during the three months ended June 30, 2020 and 2019 includes $0.0 million and $0.3 million, respectively, and compensation expense recorded during the six months ended June 30, 2020 and 2019 includes $18,000 and $0.8 million, respectively, of accelerated vesting due to staffing reductions. Forfeitures are recognized as they occur. At June 30, 2020, 2,291,799 shares/units remain available for issuance under the Equity Commonwealth 2015 Omnibus Incentive Plan, as amended.