Employee Incentive Plans

12 Months Ended

Dec. 31, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Short-Term Incentive Plans ("STI Plans")

We have annual short-term incentive compensation plans for senior management and certain other employees payable at our election in cash, shares of common stock or a combination of cash and shares of common stock. Amounts earned under STI Plans are based on our adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA"), modified for certain safety, quality, delivery, cost and individual performance factors. The Adjusted EBITDA targets are determined based on the return on adjusted net assets. Most of our production facilities have similar programs for both hourly and salaried employees. As of December 31, 2018, we had a liability of $13.1 million recorded within Accrued salaries, wages and related expenses for estimated probable future payments relating to the 12-month performance period of our 2018 STI Plans.

Long-Term Incentive Programs ("LTI Programs")

General. Executive officers and other key employees of the Company, as well as non-employee directors of the Company, are eligible to participate in the Kaiser Aluminum Corporation 2016 Equity and Incentive Compensation Plan ("2016 Plan"). The 2016 Plan was approved by stockholders on May 26, 2016 and replaced and succeeded in its entirety the Kaiser Aluminum Corporation Amended and Restated 2006 Equity and Performance Incentive Plan, except with regard to awards previously granted thereunder that continued to be outstanding. At December 31, 2018, 577,014 shares were available for awards under the 2016 Plan. We issue new shares of our common stock upon vesting under the 2016 Plan.

Non-Vested Common Shares and Restricted Stock Units. We grant non-vested common shares ("RSAs") to our non-employee directors and restricted stock units ("RSUs") to our executive officers and other key employees. The RSUs have rights similar to the rights of RSAs and each RSU that becomes vested entitles the recipient to receive one common share or a cash amount equaling the value of one common share. The service period is generally one year for RSAs granted to non-employee directors and three years for RSUs granted to executive officers and other key employees. Prior to 2016, we granted RSAs to executive officers and other key employees, generally with a three-year service period, but in certain circumstances with a longer service period.

A summary of the activity with respect to RSAs and RSUs for the year ended December 31, 2018 is as follows:



	Shares		Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2017	216,953		$	74.04
Granted	74,138		96.40
Vested	(64,061	)	73.25
Forfeited	(7,517	)	77.17
Outstanding at December 31, 2018	219,513		$	80.99

Performance Shares. We grant performance shares to executive officers and other key employees that vest upon the achievement of specified market or internal performance goals. Performance goals can include: (i) our achieving a total shareholder return ("TSR") compared to the TSR of a specified group of peer companies over a three-year performance period ("TSR-Based Performance Shares"); (ii) achieving targeted improvements to our total controllable cost performance over a three-year performance period; and/or (iii) achieving targeted improvements to our economic value added performance, determined based on our adjusted pre-tax operating income in excess of a capital charge, over a three-year performance period. Each performance share that becomes vested and earned entitles the recipient to receive one common share or a cash amount equaling the value of one common share. The number of performance shares that may be earned and result in the issuance of cash or common shares ranges between 0% to 200% of the target number of underlying common shares, which is approximately one-half of the maximum payout.

Inputs and assumptions used in the Monte Carlo simulations to calculate the fair value at grant date of our TSR-Based Performance Shares were as follows:



	Year Ended December 31,
	2018			2017			2016
Grant date fair value	$	127.41		$	97.88		$	93.02
Grant date stock price	$	101.66		$	79.69		$	80.46
Expected volatility of Kaiser Aluminum¹	24.86		%	22.74		%	17.81		%
Expected volatility of peer companies¹	44.74		%	44.19		%	41.22		%
Risk-free interest rate	2.37		%	1.54		%	1.01		%
Dividend yield	2.16		%	2.50		%	2.24		%

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^1.	Expected volatility based on 2.8 years of daily closing share prices from the valuation date to the end of the performance period.

A summary of the activity with respect to performance shares for the year ended December 31, 2018 is as follows:



	Shares		Weighted-Average Grant-Date Fair Value per Share
Outstanding at December 31, 2017	459,669		$	90.12
Granted ¹	124,833		109.38
Vested	(125,674	)	95.68
Forfeited ¹	(10,261	)	94.85
Canceled ¹	(22,207	)	95.68
Outstanding at December 31, 2018	426,360		$	93.72

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^1.	The number of shares granted and forfeited are presented at their maximum payout; and the number of shares canceled includes the number of shares that did not vest due to performance results falling below those required for maximum payout.

Non-Cash Compensation Expense. Non-cash compensation expense relating to all awards is included in SG&A and R&D. Non-cash compensation expense by type of award under LTI Programs was as follows for each period presented (in millions of dollars):



	Year Ended December 31,
	2018		2017		2016
RSAs and RSUs	$	5.8	$	5.4	$	4.7
Performance shares	4.3		7.7		7.0
Total non-cash compensation expense	$	10.1	$	13.1	$	11.7

Recognized tax benefits relating to non-cash compensation expense were $2.5 million, $4.9 million and $4.4 million for 2018, 2017 and 2016, respectively.

Unrecognized Gross Compensation Cost Data. The following table presents unrecognized gross compensation cost data by type of award as of December 31, 2018:



	Unrecognized Gross Compensation Costs (in millions of dollars)		Expected Period (in years) Over Which the Remaining Gross Compensation Costs Will Be Recognized
RSAs and RSUs	$	8.7	2.5
Performance shares	$	6.0	1.6

The weighted-average grant-date fair value per share for shares granted by type of award was as follows for each period presented:



	Year Ended December 31,
	2018		2017		2016
RSAs and RSUs	$	96.40	$	77.35	$	76.82
Performance shares	$	109.38	$	86.97	$	88.00

Stock Options. As of December 31, 2016, we had 1,543 fully-vested outstanding stock options exercisable to purchase common shares at $80.01 per share, all of which subsequently expired on April 2, 2017. No options were granted during the years ended December 31, 2018 and December 31, 2017, and no options were outstanding as of December 31, 2018 and December 31, 2017.

Participants may elect to have us withhold common shares to satisfy minimum statutory tax withholding obligations arising in connection with the exercise of stock options and vesting of RSAs, RSUs and performance shares. We cancel any such

shares withheld 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 we withhold these common shares, we are required to remit to the appropriate taxing authorities the fair value of the shares withheld as of the vesting date. During 2018, 2017 and 2016, 68,195, 56,495 and 36,055 common shares, respectively, were withheld and canceled for this purpose. The withholding of common shares by us could be deemed a purchase of the common shares.