STOCK-BASED COMPENSATION STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

STOCK-BASED COMPENSATION

15. STOCK-BASED COMPENSATION

WESCO sponsors a stock-based compensation plan. The 1999 Long-Term Incentive Plan, as amended and restated (the “LTIP”) was designed to be the successor plan to all prior plans. Any shares remaining reserved for future issuance under the prior plans are available for issuance under the LTIP. The LTIP is administered by the Compensation Committee of the Board.

On May 31, 2017, the Company renewed and restated the LTIP, increasing the maximum number of shares of common stock that may be issued under the plan by 1.7 million shares to 3.4 million. Under the LTIP, the total number of shares of common stock authorized to be issued will be reduced by 1 share of common stock for every 1 share that is subject to a stock appreciation right granted, and 1.83 shares of common stock for every 1 share that is subject to an award other than a stock appreciation right granted on or after May 31, 2017. As of December 31, 2019, 2.6 million shares of common stock were reserved under the LTIP for future equity award grants.

WESCO’s stock-based employee compensation plans are comprised of stock-settled stock appreciation rights, restricted stock units and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair value of stock-settled stock appreciation rights and performance-based awards with market conditions is determined using the Black-Scholes and Monte Carlo simulation models, respectively. The fair value of restricted stock units and performance-based awards with performance conditions is determined by the grant-date closing price of WESCO’s common stock. The forfeiture assumption is based on WESCO’s historical employee behavior that is reviewed on an annual basis. No dividends are assumed. For stock-settled stock appreciation rights that are exercised and for restricted stock units and performance-based awards that vest, shares are issued out of WESCO's outstanding common stock.

Stock-settled stock appreciation rights vest ratably over a three-year period and terminate on the tenth anniversary of the grant date unless terminated sooner under certain conditions. Vesting of restricted stock units is based on a minimum time period of three years. Vesting of performance-based awards is based on a three-year performance period, and the number of shares earned, if any, depends on the attainment of certain performance levels. Outstanding awards would vest upon the consummation of a change in control transaction and performance-based awards would vest at the target level.

Performance-based awards granted in 2019 were based on two equally-weighted performance measures: the three-year average growth rate of WESCO's net income and the three-year cumulative return on net assets. Performance-based awards granted in 2018 were based on two equally-weighted performance measures: the three-year average growth rate of the Company’s fully diluted earnings per share and the three-year cumulative return on net assets. From 2015 to 2017, the two equally-weighted performance-based award metrics were the three-year average growth rate of WESCO's net income and WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period.

WESCO recognized $19.1 million, $16.4 million and $14.8 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the years ended December 31, 2019, 2018 and 2017, respectively. As of December 31, 2019, there was $20.7 million of total unrecognized compensation expense related to non-vested stock-based compensation arrangements for all awards previously made of which approximately $13.0 million is expected to be recognized in 2020, $6.9 million in 2021 and $0.8 million in 2022.

The total intrinsic value of awards exercised during the years ended December 31, 2019, 2018, and 2017 was $10.7 million, $8.2 million, and $17.2 million, respectively. The gross deferred tax benefit associated with the exercise of stock-based awards totaled $2.5 million, $2.0 million, and $6.4 million in 2019, 2018, and 2017, respectively.

The following table sets forth a summary of stock-settled stock appreciation rights and related information for the periods presented:

	Year Ended December 31,
	2019							2018				2017
	Awards		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Life	Aggregate Intrinsic Value (In thousands)		Awards		Weighted-Average Exercise Price		Awards		Weighted-Average Exercise Price
Beginning of year	2,351,633		$	59.26				2,238,607		$	57.75	2,439,487		$	52.62
Granted	213,618		54.63					509,046		62.68		455,807		71.21
Exercised	(113,099	)	35.01					(192,700	)	40.74		(495,181	)	42.19
Canceled	(115,103	)	65.27					(203,320	)	68.69		(161,506	)	66.06
End of year	2,337,049		59.72		5.6	$	13,039	2,351,633		59.26		2,238,607		57.75
Exercisable at end of year	1,723,370		$	59.00	4.7	$	12,053	1,453,932		$	57.93	1,331,580		$	56.96

The following table sets forth the weighted-average assumptions used to estimate the fair value of stock-settled stock appreciation rights granted during the periods presented:

	Year Ended December 31,
	2019	2018	2017
Stock-settled stock appreciation rights granted	213,618	509,046	455,807
Risk free interest rate	2.5%	2.5%	1.9%
Expected life (in years)	5	5	5
Expected volatility	29%	28%	29%

The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve rate as of the grant date. The expected life is based on historical exercise experience and the expected volatility is based on the volatility of the Company's daily stock prices over a five-year period preceding the grant date.

The weighted-average fair value per stock-settled stock appreciation right granted was $16.36, $18.38 and $20.52 for the years ended December 31, 2019, 2018 and 2017, respectively.

The following table sets forth a summary of time-based restricted stock units and related information for the periods presented:

	Year Ended December 31,
	2019				2018				2017
	Awards		Weighted-Average Fair Value		Awards		Weighted-Average Fair Value		Awards		Weighted-Average Fair Value
Unvested at beginning of year	327,798		$	57.87	290,054		$	58.11	257,096		$	57.47
Granted	192,106		54.13		122,062		62.40		100,993		71.33
Vested	(136,777	)	46.52		(64,166	)	67.91		(44,720	)	84.57
Forfeited	(19,398	)	59.62		(20,152	)	58.15		(23,315	)	57.52
Unvested at end of year	363,729		$	60.00	327,798		$	57.87	290,054		$	58.11

The following table sets forth a summary of performance-based awards and related information for the periods presented:

	Year Ended December 31,
	2019				2018				2017
	Awards		Weighted-Average Fair Value		Awards		Weighted-Average Fair Value		Awards		Weighted-Average Fair Value
Unvested at beginning of year	138,896		$	59.33	148,508		$	60.23	149,320		$	60.36
Granted	126,874		54.64		44,144		62.80		39,978		76.63
Vested	(25,696	)	42.44		—		—		—		—
Forfeited	(44,769	)	52.11		(53,756	)	64.67		(40,790	)	76.77
Unvested at end of year	195,305		$	60.24	138,896		$	59.33	148,508		$	60.23

The following table sets forth the assumptions used to estimate the fair value of performance shares granted during the periods presented:

	Year ended December 31,
	2019		2018		2017
Grant date share price	$	54.64	$	62.80	$	71.67
WESCO expected volatility	n/a		n/a		29		%
Peer group median volatility	n/a		n/a		24		%
Risk-free interest rate	n/a		n/a		1.5		%
Correlation of peer company returns	n/a		n/a		114		%

The unvested performance-based awards in the table above include 17,507 shares in which vesting of the ultimate number of shares is dependent upon WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. These awards are accounted for as awards with market conditions; compensation cost is recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest.

Vesting of the remaining 177,798 shares of performance-based awards in the table above is dependent upon the achievement of certain performance targets, including 77,856 that are dependent upon the three-year average growth rate of WESCO's net income, 19,797 that are dependent upon the three-year average growth rate of the Company's fully diluted earnings per share, and 80,145 that are based upon the three-year cumulative return on net assets. These awards are accounted for as awards with performance conditions; compensation cost is recognized over the performance period based upon WESCO's determination of whether it is probable that the performance targets will be achieved.