Share-Based Compensation

3 Months Ended

Mar. 31, 2024

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 service period determined by the Compensation Committee of our Board of Trustees, or the Compensation Committee.

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 to 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 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.

2024 Equity Award Activity

During the three months ended March 31, 2024, 391,061 RSUs vested, and, as a result, we issued 391,061 common shares, prior to certain employees surrendering their common shares to satisfy tax withholding obligations (see Note 4).

On January 29, 2024, the Compensation Committee approved grants in the aggregate amount of 142,146 restricted shares and 288,596 RSUs at target (719,326 RSUs at maximum) to the Company’s officers and certain employees, as part of their compensation for fiscal year 2023. The restricted shares were valued at $19.36 per share, the closing price of our common shares on the New York Stock Exchange, or the NYSE, on the grant date. The assumptions and fair value for the RSUs granted during the three months ended March 31, 2024 are included in the following table on a per share basis.


	2024
Fair value of market-based awards granted	$	27.08
Expected term (years)	4
Expected volatility	15.46		%

Risk-free rate	4.06		%

2023 Equity Award Activity

During the three months ended March 31, 2023, 274,739 RSUs vested, and, as a result, we issued 274,739 common shares, prior to certain employees surrendering their common shares to satisfy tax withholding obligations.

On January 26, 2023, the Compensation Committee approved grants in the aggregate amount of 132,794 restricted shares and 269,609 RSUs at target (672,000 RSUs at maximum) to the Company’s officers, certain employees, and to Mr. Zell, the former Chairman of our Board of Trustees, as part of their compensation for fiscal year 2022. The restricted shares were valued at $25.61 per share, the closing price of our common shares on the NYSE on the grant date. The RSUs were valued at $36.51 per share, their fair value on the grant date.

Outstanding Equity Awards

As of March 31, 2024, the estimated future compensation expense for all unvested restricted shares and time-based LTIP Units was $6.3 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 2.9 years.

As of March 31, 2024, the estimated future compensation expense for all unvested RSUs and market-based LTIP Units was $15.7 million. The weighted average period over which the future compensation expense will be recorded for the RSUs and market-based LTIP Units is approximately 2.6 years.

During the three months ended March 31, 2024 and 2023, we recorded $2.6 million and $3.0 million, respectively, of compensation expense, net of forfeitures, in general and administrative expense for grants to our trustees, employees and an eligible consultant related to our equity compensation plans. We did not record any accelerated vesting during the three months ended March 31, 2024 and 2023. Forfeitures are recognized as they occur. At March 31, 2024, 1,443,865 shares/units remain available for issuance under the Equity Commonwealth 2015 Omnibus Incentive Plan, as amended.