Stock-based Compensation

9 Months Ended

Sep. 30, 2014

Stock-based Compensation

Stock-based Compensation

Note 3. Stock-based Compensation

Equity Incentive Plan

The Company’s equity incentive plan was originally approved by stockholders on April 27, 2005 and again on May 20, 2014.  Under the equity incentive plan, the Company is authorized to issue up to 2,000,000 shares of common stock awards as defined in the Plan to employees and directors.

The Restricted Stock Awards (RSAs) granted in 2014 and 2013 to employees vest over 36 months.  Director RSAs generally vest at the end of 12 months.  During the first nine months of 2014, the RSAs granted were valued at $23.61 per share, based upon the fair market value of the Company’s common stock on the date of grant.

During the nine months ended September 30, 2014 and 2013, the Company also granted performance-based Restricted Stock Unit Awards (RSUs) of 37,143 shares and 50,267 shares of common stock, respectively, to officers.  Each award reflects a target number of shares that may be issued to the award recipient.  The 2014 and 2013 awards may be earned upon the completion of the three-year performance period ending on March 4, 2017 and March 5, 2016, respectively.  Whether RSUs are earned at the end of the performance period will be determined based on the achievement of certain performance objectives set by the Board of Director Compensation Committee in connection with the issuance of the RSUs.  The performance objectives are based on the Company’s business plan covering the performance period.  The performance objectives include achieving the budgeted return on equity, budgeted investment in utility plant, customer service standards, water quality standards, and/or safety standards.  Depending on the results achieved during the three-year performance period, the actual number of shares that a grant recipient receives at the end of the performance period may range from 0% to 200% of the target shares granted, provided that the grantee is continuously employed by the Company through the vesting date.  If, prior to the vesting date, employment is terminated by reason of death, disability or normal retirement, then a pro rata portion of this award will vest.  RSUs were not dilutive as of September 30, 2014 and 2013 and will not be included in diluted shares for financial reporting until they are either dilutive or earned.  The 2014 and 2013 RSUs are recognized as expense ratably over the three year performance period using a fair market value of $23.61 per share and $20.62 per share, respectively, and an estimate of RSUs earned during the performance period.

The Company has recorded compensation costs for the RSAs and RSUs in operating expense in the amount of $1.5 million and $1.3 million for the nine months ended September 30, 2014 and September 30, 2013, respectively.