Share-Based Compensation

3 Months Ended

Mar. 31, 2020

Share Based Compensation [Abstract]

Disclosure Of Compensation Related Costs Share Based Payments [Text Block]

Note 8 – Share-Based Compensation

The Company recognized the following share-based compensation expense in its Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019:

	Three Months Ended
	March 31,
	2020		2019
Stock options	$	432	$	260
Nonvested restricted stock awards and restricted stock units		1,264		698
Employee stock purchase plan		-		23
Director stock ownership plan		40		31
Annual incentive plan		2,946		-
Total share-based compensation expense	$	4,682	$	1,012

Share-based compensation expenses is recorded in SG&A, except for $0.5 million and less than $0.1 million during the three months ended March 31, 2020 and 2019, respectively, recorded within Combination and other acquisition-related expenses. The increase in total share-based compensation expense for the three months ended March 31, 2020 includes annual incentive plan costs as a component of share-based compensation beginning in 2020, described further below.

Stock Options

During the first quarter of 2020, the Company granted stock options under its long-term incentive plan (“LTIP”) that are subject only to time vesting over a three-year period. For the purposes of determining the fair value of stock option awards, the Company used a Black-Scholes option pricing model and the assumptions set forth in the table below:

Number of options granted	49,115
Dividend yield	0.99	%
Expected volatility	31.57	%
Risk-free interest rate	0.36	%
Expected term (years)	4.0

The fair value of these options is amortized on a straight-line basis over the vesting period. As of March 31, 2020, unrecognized compensation expense related to all stock options granted was $2.5 million, to be recognized over a weighted average remaining period of 2.3 years.

Restricted Stock Awards and Restricted Stock Units

During the first quarter of 2020, the Company granted 19,927 nonvested restricted shares and 3,039 nonvested restricted stock units under its LTIP, subject to time-based vesting, generally over a three-year period. The fair value of these grants is based on the trading price of the Company’s common stock on the date of grant. The Company adjusts the grant date fair value of these awards for expected forfeitures based on historical experience. As of March 31, 2020, unrecognized compensation expense related to the nonvested restricted shares was $6.7 million, to be recognized over a weighted average remaining period of 2.2 years, and unrecognized compensation expense related to nonvested restricted stock units was $0.9 million, to be recognized over a weighted average remaining period of 2.2 years.

Performance Stock Units

In March 2020, the Company included performance-dependent stock awards (“PSUs”) as a component of its LTIP, which will be settled in a certain number of shares subject to market-based and time-based vesting conditions. The number of fully vested shares that may ultimately be issued as settlement for each award may range from 0% up to 200% of the target award, subject to the achievement of the Company’s total shareholder return (“TSR”) relative to the performance of the Company’s peer group, the S&P Midcap 400 Materials group. The service period required for the PSUs is three years and the TSR measurement period for the PSUs is from January 1, 2020 through December 31, 2022.

Compensation expense for PSUs is measured based on their grant date fair value and is recognized on a straight-line basis over the three-year vesting period. The grant-date fair value of the PSUs was estimated using a Monte Carlo simulation on the grant date and using the following assumptions: (i) a risk-free rate of 0.28%; (ii) an expected term of 3.0 years; and (iii) a three-year daily historical volatility for each of the companies in the peer group, including Quaker Houghton. As of March 31, 2020, the Company estimates that it will issue approximately 38,000 fully vested shares as of the settlement date of the award based on the conditions of the PSUs and Company’s closing stock price on March 31, 2020.

As of March 31, 2020, there was approximately $3.4 million of total unrecognized compensation cost related to PSUs, which the Company expects to recognize over a weighted-average period of 3.0 years.

Annual Incentive Plan

The Company maintains an Annual Incentive Plan (“AIP”), which may be settled in cash or a certain number of shares subject to performance-based and time-based vesting conditions. It is the Company’s current intention to settle the 2020 AIP in shares, and therefore, expense associated with the AIP in 2020 will be recorded as a component of share-based compensation expense. The number of fully vested shares that may ultimately be issued as settlement for each award is subject to the achievement of the Company’s performance against certain internal financial and non-financial metrics and approval by the Company’s Compensation Committee.

Compensation expense for the AIP is measured based on the estimated total value of the award. The number of shares that will ultimately be issued under the AIP award will be equal to final value of the award converted into a number of shares based on the trading price of the Company’s common stock on the date of settlement. As of March 31, 2020, the Company estimates that it will issue approximately 93,000 fully vested shares as of the settlement date of the award based on the conditions of the AIP, the Company’s projected performance against its performance metrics and Company’s closing stock price on March 31, 2020.