Employee Incentive Plans

Short-term Incentive Plans (“STI Plans”)

The Company has annual short-term incentive compensation plans for senior management and certain other employees payable at the Company’s election in cash, shares of common stock, or a combination of cash and shares of common stock. Amounts earned under the 2013 STI plan were based primarily on the economic value added (“EVA”) of the Company’s Fabricated Products business, adjusted for certain safety and individual performance factors. EVA, as defined by the Company’s STI Plans, is the excess of the Company’s adjusted pre-tax operating income for a particular year over a pre-determined percentage of the adjusted net assets of the immediately preceding year, measured over a one-year period. Amounts, if any, that will be earned under the 2014 STI plan are based on the Company’s adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBIDTA”), adjusted for certain safety, quality, delivery, cost and individual performance factors. The Adjusted EBITDA goals under the 2014 STI plan were determined based on the EVA of the Company’s Fabricated Products business. Most of the Company’s production facilities have similar programs for both hourly and salaried employees.

Total costs relating to STI Plans were recorded as follows, for each period presented:



	Quarter Ended
	March 31,
	2014		2013
Cost of products sold, excluding depreciation and amortization and other items	$	1.1	$	1.1
Selling, administrative, research and development, and general	1.3		3.0
Total costs recorded in connection with STI Plans	$	2.4	$	4.1

The following table presents the allocation of the charges detailed above, by reportable segment and business unit:



	Quarter Ended
	March 31,
	2014		2013
Fabricated Products	$	1.9	$	2.9
All Other	0.5		1.2
Total costs recorded in connection with STI Plans	$	2.4	$	4.1

Long-term Incentive Programs (“LTI Programs”)

General. Officers and other key employees of the Company or one or more of its subsidiaries, as well as directors of the Company, are eligible to participate in the Kaiser Aluminum Corporation Amended and Restated 2006 Equity and Performance Incentive Plan (as amended, the “Equity Incentive Plan”). Subject to certain adjustments that may be required from time to time to prevent dilution or enlargement of the rights of participants under the Equity Incentive Plan, a total of 2,722,222 common shares have been authorized for issuance under the Equity Incentive Plan. At March 31, 2014, 761,462 common shares were available for additional awards under the Equity Incentive Plan.

Non-vested Common Shares, Restricted Stock Units and Performance Shares. The Company grants non-vested common shares to its non-employee directors, executive officers and other key employees. The Company also grants restricted stock units to certain employees. The restricted stock units have rights similar to the rights of non-vested common shares, and the employee will receive one common share for each restricted stock unit upon the vesting of the restricted stock unit. In addition to non-vested common shares and restricted stock units, the Company also grants performance shares to executive officers and other key employees. Performance shares granted prior to 2014 are subject to performance requirements pertaining to the Company’s EVA as set forth in each year’s LTI Program, measured over a three-year performance period. EVA, as defined in the Company’s LTI Programs, is the excess of the Company’s adjusted pre-tax operating income for a particular year over a pre-determined percentage of the adjusted net assets of the immediately preceding year. The number of performance shares, if any, that will ultimately vest under the prior year programs and result in the issuance of common shares depends on the average annual EVA achieved for the specified three-year performance period. Performance shares granted in 2014 are subject to market-based requirements pertaining to the Company’s total shareholder return (“TSR”) over a three-year performance period compared to the TSR of a specified group of peer companies. The number of performance shares, if any, that will ultimately vest under the 2014-2016 LTI program and result in the issuance of common shares depends on the percentile ranking of the Company’s TSR compared to the group of peer companies.

During the first quarter of 2014, a portion of the performance shares granted under the 2011-2013 LTI program vested (see “Summary of Activity” below). The vesting of performance shares and resulting issuance and delivery of common shares, if any, under the 2012-2014 and 2013-2015 LTI programs will occur in 2015 and 2016, respectively. The vesting of performance shares and resulting issuance and delivery of common shares, if any, under the 2014-2016 LTI program will occur in 2017. Holders of performance shares do not receive voting rights through the ownership of such shares.

See Note 9 of Notes to Consolidated Financial Statements included in Part II, Item 8. “Financial Statements and Supplementary Data” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 for additional information with respect to the Equity Incentive Plan and the detailed vesting requirements for the different types of equity awards described above.

Non-cash Compensation Expense. Compensation expense relating to all awards under the Equity Incentive Plan is included in Selling, administrative, research and development, and general. Recorded non-cash compensation expense by type of award under LTI Programs was as follows, for each period presented:



	Quarter Ended
	March 31,
	2014		2013
Service-based non-vested common shares and restricted stock units	$	1.1	$	1.7
Performance shares	0.5		0.9
Market-based shares	0.4		—
Total non-cash compensation expense	$	2.0	$	2.6

The following table presents the allocation of the charges detailed above, by reportable segment and business unit:



	Quarter Ended
	March 31,
	2014		2013
Fabricated Products	$	1.0	$	0.6
All Other	1.0		2.0
Total non-cash compensation expense	$	2.0	$	2.6

Unrecognized Gross Compensation Cost Data. The following table presents unrecognized gross compensation cost data as of March 31, 2014:



	Unrecognized gross compensation costs, by award type		Expected period (in years) over which the remaining gross compensation costs will be recognized, by award type
Service-based non-vested common shares and restricted stock units	$	6.6	2.1
Performance shares	$	3.7	1.7
Market-based shares	$	6.3	2.9

Summary of Activity. A summary of the activity with respect to non-vested common shares, restricted stock units and performance shares (both financial performance-based and market-based) for the quarter ended March 31, 2014 is as follows:



	Non-Vested Common Shares				Restricted Stock Units				Performance Shares (Financial performance-based)				Performance Shares (Market-Based)
	Shares		Weighted-Average Grant-Date Fair Value per Share		Units		Weighted-Average Grant-Date Fair Value per Unit		Shares		Weighted-Average Grant-Date Fair Value per Share		Shares	Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2013	143,967		$	51.09	5,472		$	51.03	562,554		$	49.26	—	$	—
Granted	55,613		67.42		2,235		67.42		—		—		160,868	83.18
Vested	(43,640	)	48.61		(2,350	)	46.83		(41,212	)	46.65		—	—
Forfeited	(323	)	52.32		—		—		(1,111	)	50.51		—	—
Canceled	—		—		—		—		(138,051	)	46.65		—	—
Outstanding at March 31, 2014	155,617		$	57.62	5,357		$	59.71	382,180		$	50.49	160,868	$	83.18

A summary of select activity with respect to non-vested common shares, restricted stock units and performance shares for the quarter ended March 31, 2013 is as follows:



	Non-Vested Common Shares				Restricted Stock Units				Performance Shares
	Shares		Weighted-Average Grant-Date Fair Value per Share		Units		Weighted-Average Grant-Date Fair Value per Unit		Shares		Weighted-Average Grant-Date Fair Value per Share
Granted	57,190		$	57.54	2,333		$	57.54	167,312		$	57.54
Vested	(65,646	)	$	40.29	(2,311	)	$	42.74	(32,312	)	$	34.13

Stock Options. The Company has fully-vested stock options from a one-time issuance in 2007. As of both March 31, 2014 and December 31, 2013, 20,791 fully-vested options were outstanding, in each case exercisable to purchase common shares at $80.01 per share and having a remaining contractual life of 3.0 and 3.25 years, respectively. The average fair value of the options granted was $39.90. No new options were granted and no existing options were forfeited or exercised during the quarter ended March 31, 2014.

Vested Stock. From time to time, the Company issues common shares to non-employee directors electing to receive common shares in lieu of all or a portion of their annual retainer fees. The fair value of these common shares is based on the fair value of the shares at the date of issuance and is immediately recognized in earnings as a period expense. Such shares are generally issued during the second quarter of each fiscal year.

Under the Equity Incentive Plan, participants may elect to have the Company withhold common shares to satisfy minimum statutory tax withholding obligations arising in connection with the exercise of stock options and vesting of non-vested shares, restricted stock units and performance shares. Any such shares withheld are canceled by the Company on the applicable vesting dates or earlier dates when service requirements are satisfied, which correspond to the times at which income to the employee is recognized. When the Company withholds these common shares, the Company is required to remit to the appropriate taxing authorities the fair value of the shares withheld as of the vesting date. During the quarters ended March 31, 2014 and March 31, 2013, 30,869 and 35,838 common shares, respectively, were withheld and canceled for this purpose.