Stock-based Compensation

3 Months Ended

Mar. 31, 2015

Stock-based Compensation

Stock-based Compensation

Note 3. Stock-based Compensation

Equity Incentive Plan

During the three months ended March 31, 2015 and 2014, the Company granted annual Restricted Stock Awards (RSAs) of 59,151 and 58,378 shares, respectively, of common stock to officers and directors of the Company and 5,193 shares of RSAs were cancelled during the three months ended March 31, 2015. Employee RSAs granted in 2015 and 2014 vest over 36 months.  Director RSAs generally vest at the end of 12 months. During the first three months of 2015 and 2014, the RSAs granted were valued at $24.30 and $23.61 per share, respectively, based upon the fair market value of the Company’s common stock on the date of grant.

During the three months ended March 31, 2015 and 2014, the Company granted performance-based Restricted Stock Unit Awards (RSUs) of 37,137 shares and 37,143 shares of common stock, respectively, to officers.  Each award reflects a target number of shares that may be issued to the award recipient.  The 2015 and 2014 awards may be earned upon the completion of the three-year performance period ending on March 3, 2018 and March 4, 2017, 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 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 are not included in diluted shares for financial reporting until authorized by the Board of Director Compensation Committee.  The 2015 and 2014 RSUs are recognized as expense ratably over the three year performance period using a fair market value of $24.30 per share and $23.61 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 $0.6 million and $0.5 million for the three months ended March 31, 2015 and March 31, 2014, respectively.