NOTE 5 – STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with ASC 718 "Compensation – Stock Compensation", as interpreted by the SEC Staff Accounting Bulletins No. 107 and No. 110. Under ASC 718, stock-based compensation is based on the fair value of the award on the date of grant, which is recognized over the related service period, net of estimated forfeitures. For awards with graded vesting conditions, the values of the awards are determined by valuing each tranche separately and expensing each tranche over the required service period. The service period is the period over which the related service is performed, which is generally the same as the vesting period. The Company uses the Black-Scholes option-pricing model to determine the compensation expense related to stock options.

Incentive Compensation Plan

The Company maintains the Hudson Global, Inc. 2009 Incentive Stock and Awards Plan (the “ISAP”) pursuant to which it can issue equity-based compensation incentives to eligible participants. The ISAP permits the granting of stock options and restricted stock as well as other types of equity-based awards. The Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”) will establish such conditions as it deems appropriate on the granting or vesting of stock options or restricted stock. While the Company historically granted both stock options and restricted stock to its employees, since 2008 the Company has granted primarily restricted stock to its employees.

The ISAP provides that an aggregate of 1,600,000 shares of the Company’s common stock are reserved for issuance to participants. The Compensation Committee administers the ISAP and may designate any of the following as a participant under the ISAP: any officer or other employee of the Company or its affiliates or individuals engaged to become an officer or employee, consultants or other independent contractors who provide services to the Company or its affiliates and non-employee directors of the Company. As of March 31, 2012, there were no shares of the Company’s common stock available for future issuance. On April 26, 2012, the Company’s stockholders approved an amendment to the ISAP to, among other things, increase the number of shares of the Company’s common stock that are reserved for issuance to participants by 2,500,000 shares.

The Company also maintains the Director Deferred Share Plan (the “Director Plan”) pursuant to which it can issue restricted stock units to its non-employee directors. A restricted stock unit is equivalent to one share of the Company’s common stock and is payable only in common stock issued under the ISAP upon a director ceasing service as a member of the Board of Directors of the Company.

For the three months ended March 31, 2012 and 2011, the Company’s stock-based compensation expense related to stock options, restricted stock and restricted stock units were as follows:

	For The Three Months Ended March 31,
	2012		2011
Stock options	$	245	$	82
Restricted stock		625		517
Restricted stock units		51		-
Total	$	921	$	599

Stock Options

Stock options granted under the ISAP generally expire ten years after the date of grant and have an exercise price of at least 100% of the fair market value of the underlying stock on the date of grant and generally vest ratably over a four year period.

As of March 31, 2011, the Company had approximately $900 of unrecognized stock-based compensation expense related to outstanding non-vested stock options. The Company expects to recognize that cost over a weighted average service period of approximately 1.7 years .

Changes in the Company’s stock options for the three months ended March 31, 2012 and 2011 were as follows:

	For The Three Months Ended March 31,
	2012					2011
				Weighted					Weighted
	Number of			Average		Number of			Average
	Options			Exercise Price		Options			Exercise Price
	Outstanding			per Share		Outstanding			per Share
Options outstanding at January 1,		1,396,350		$	11.36		1,548,300		$	12.64
Expired		(10,750	)		15.68		(8,625	)		16.59
Options outstanding at March 31,		1,385,600			11.33		1,539,675			12.62
Options exercisable at March 31,		973,100		$	13.94		1,057,425		$	12.73

Restricted Stock

A summary of the quantity and vesting conditions for shares of restricted stock granted for the three months ended March 31, 2012 was as follows:

	Number of
	Shares of
	Restricted
Vesting conditions	Stock Granted
Performance and service conditions (1)		562,830
Vest 50% on each of the second and third anniversaries of the grant date with service conditions only		30,000
Vest one-third on each of the first three anniversaries of the grant date with service conditions only		15,000
Total shares of restricted stock granted for the three months ended March 31, 2012		607,830

(1)The performance conditions with respect to the restricted stock may be satisfied as follows:

(a) 50% of the shares of restricted stock may be earned on the basis of performance as measured by a “Take-out Ratio,” defined as the percentage of the direct, front line costs incurred for the year ending December 31, 2012 divided by the gross margin for the year ending December 31, 2012;

(b) 25% of the shares of restricted stock may be earned on the basis of performance as measured by an employee engagement score for the year ending December 31, 2012 based on an employee survey to be conducted by a global human resources consulting firm;

(c) 25% of the shares of restricted stock may be earned on the basis of performance as measured by “Cash Efficiency,” defined as (1) cash flow from operations for the year ending December 31, 2012 divided by (2) gross margin minus selling, general and administrative expenses for the year ending December 31, 2012.

To the extent shares are earned on the basis of performance, such shares will vest on the basis of service as follows:

(a) 33% of the shares vest on the later of the first anniversary of the grant date or the determination that the performance conditions have been satisfied;

(b) 33% of the shares vest on the second anniversary of the grant date;

(c) 34% of the shares vest on the third anniversary of the grant date; provided that, in each case, the named executive officer remains employed by the Company from the grant date through the applicable service vesting date.

As of March 31, 2012, the Company had approximately $4,279 of unrecognized stock-based compensation expense related to outstanding non-vested restricted stock. The Company expects to recognize that cost over a weighted average service period of 1.8 years.

Changes in the Company’s restricted stock for the three months ended March 31, 2012 and 2011were as follows:

	For The Three Months Ended March 31,
	2012					2011
	Number of			Weighted		Number of			Weighted
	Shares of			Average		Shares of			Average
	Restricted			Grant Date		Restricted			Grant Date
	Stock			Fair Value		Stock			Fair Value
Non-vested restricted stock at January 1,		1,166,082		$	5.12		953,037		$	3.64
Granted		607,830			4.59		640,125			6.36
Vested		(366,299	)		5.04		(216,189	)		3.43
Forfeited		(100,347	)		5.61		(69,819	)		2.41
Non-vested restricted stock at March 31,		1,307,266		$	4.86		1,307,154		$	5.07

Restricted Stock Units

As of March 31, 2012, the Company had approximately $336 of unrecognized stock-based compensation expense related to outstanding non-vested restricted stock units. The Company expects to recognize that cost over a weighted average service period of 2.0 years.

Changes in the Company’s restricted stock units for the three months ended March 31, 2012 and 2011were as follows:

	For The Three Months Ended March 31,
	2012				2011
	Number of		Weighted		Number of		Weighted
	Shares of		Average		Shares of		Average
	Restricted		Grant-Date		Restricted		Grant-Date
	Stock Unit		Fair Value		Stock Unit		Fair Value
Non-vested restricted stock units at January 1,		100,000	$	5.18		-	$	-
Granted		-		-		-		-
Vested		-		-		-		-
Non-vested restricted stock units at March 31,		100,000	$	5.18		-	$	-

Defined Contribution Plan and Non-cash Employer-matching contributions

The Company maintains the Hudson Global, Inc. 401(k) Savings Plan (the “401(k) plan”). The 401(k) plan allows eligible employees to contribute up to 15% of their earnings to the 401(k) plan. The Company has the discretion to match employees’ contributions up to 3% through a contribution of the Company’s common stock. Vesting of the Company’s contribution occurs over a five-year period. For the three months ended March 31, 2012 and 2011, the Company’s expenses and contributions to satisfy the prior years’ employer-matching liability for the 401(k) plan were as follows:

	For The Three Months Ended March 31,
(in thousands, except otherwise stated)	2012		2011
Expense recognized for the 401(k) plan	$	193	$	205
Contributions to satisify prior years' employer-matching liability
Number of shares of the Company's common stock issued		124,404		91,944
Market value per share of the Company's common stock on contribition date (in dollars)	$	5.35	$	6.55
Non-cash contribution made for employer matching liability	$	666	$	602