STOCK-BASED COMPENSATION

Incentive Compensation Plan

The Company maintains the Hudson Global, Inc. 2009 Incentive Stock and Awards Plan, as amended and restated on April 26, 2012 (the “ISAP”), pursuant to which it can issue equity-based compensation incentives to eligible participants. The ISAP permits the granting of stock options, restricted stock and restricted stock units, and 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, restricted stock, restricted stock units and other types of equity-based awards. The Company grants primarily restricted stock to its employees, although the Company has recently also granted restricted stock units to certain of its employees. A restricted stock unit is equivalent to one share of the Company’s common stock and is payable only in common stock of the Company issued under the ISAP.

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 September 30, 2013, there were 2,115,185 shares of the Company’s common stock available for future issuance under the ISAP.

A summary of the quantity and vesting conditions for restricted stock and restricted stock unit awards granted to the Company's employees for the nine months ended September 30, 2013 was as follows:



Vesting conditions	Number of Shares of Restricted Stock Granted	Number of Restricted Stock Units Granted	Total
Performance and service conditions (1) (2)	540,721	65,200	605,921
Vest one-third on each of the first three anniversaries of the grant date with service conditions only	21,500	—	21,500
Vest 50% on each of the second and third anniversaries of the grant date with service conditions only	30,000	—	30,000
Vest 100% on the second anniversary of the grant date with service conditions only	160,000	—	160,000
Vest 100% on the third anniversary of the grant date with service conditions only	90,000	—	90,000
Immediately vested	1,100	—	1,100
Total shares of stock award granted	843,321	65,200	908,521


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


(a)	50% of the shares of restricted stock or restricted stock units 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, 2013 divided by the gross margin for the year ending December 31, 2013;


(b)	25% of the shares of restricted stock or restricted stock units may be earned on the basis of performance as measured by an employee engagement score for the year ending December 31, 2013 based on an employee survey to be conducted by a human resources consulting firm;


(c)	25% of the shares of restricted stock or restricted stock units 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, 2013 divided by (2) gross margin minus selling, general and administrative expenses for the year ending December 31, 2013.


(2)	To the extent shares of restricted stock or restricted stock units are earned based on the performance vesting conditions, such shares or share units will vest on the basis of service as follows:


(a)	33% of the shares or share units will 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 or share units will vest on the second anniversary of the grant date;


(c)	34% of the shares or share units will vest on the third anniversary of the grant date; provided that, in each case, the grantee remains employed by the Company from the grant date through the applicable service vesting date.

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. During the nine months ended September 30, 2013, the Company granted 102,200 restricted stock units to its non-employee directors pursuant to the Director Plan. The restricted stock units vest immediately upon grant and are credited to each of the non-employee director's retirement accounts under the Director Plan.

For the three and nine months ended September 30, 2013 and 2012, the Company’s stock-based compensation expense related to stock options, restricted stock and restricted stock units was as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Stock options	$	59	$	149	$	296	$	542
Restricted stock	328		305		1,226		1,299
Restricted stock units	34		52		431		545
Total	$	421	$	506	$	1,953	$	2,386

Stock Options

As of September 30, 2013, the Company had approximately $144 of unrecognized stock-based compensation expense related to outstanding unvested stock options. The Company expects to recognize that cost over a weighted average service period of 0.62 years.

Changes in the Company’s stock options for the nine months ended September 30, 2013 and 2012 were as follows:



	Nine Months Ended
	September 30,
	2013				2012
	Number of Options		Weighted Average Exercise Price per Share		Number of Options		Weighted Average Exercise Price per Share
Options outstanding at January 1,	1,238,650		$	11.21	1,396,350		$	11.36
Expired/forfeited	(200,200	)	8.13		(59,700	)	12.62
Options outstanding at September 30,	1,038,450		11.81		1,336,650		11.31
Options exercisable at September 30,	838,450		$	13.39	924,150		$	14.04

Restricted Stock

As of September 30, 2013, the Company had approximately $1,803 of unrecognized stock-based compensation expense related to outstanding unvested restricted stock. The Company expects to recognize that cost over a weighted average service period of 1.79 years.

Changes in the Company’s restricted stock for the nine months ended September 30, 2013 and 2012 were as follows:



	Nine Months Ended
	September 30,
	2013				2012
	Number of Shares of Restricted Stock		Weighted Average Grant Date Fair Value		Number of Shares of Restricted Stock		Weighted Average Grant Date Fair Value
Unvested restricted stock at January 1,	1,028,916		$	4.87	1,166,082		$	5.12
Granted	843,321		2.40		638,230		4.59
Vested	(387,825	)	5.10		(429,950	)	4.90
Forfeited	(442,214	)	4.20		(156,568	)	5.37
Unvested restricted stock at September 30,	1,042,198		$	3.08	1,217,794		$	4.88

Restricted Stock Units

As of September 30, 2013, the Company had approximately $191 of unrecognized stock-based compensation expense related to outstanding unvested restricted stock units. The Company expects to recognize that cost over a weighted average service period of 1.6 years.

Changes in the Company’s restricted stock units for the nine months ended September 30, 2013 and 2012 were as follows:



	Nine Months Ended
	September 30,
	2013				2012
	Number of Restricted Stock Units		Weighted Average Grant-Date Fair Value		Number of Restricted Stock Units		Weighted Average Grant-Date Fair Value
Unvested restricted stock units at January 1,	100,000		$	5.18	100,000		$	5.18
Granted	167,400		2.88		76,023		5.13
Vested	(152,200	)	3.84		(76,023	)	5.13
Forfeited	(5,000	)	2.42		—		—
Unvested restricted stock units at September 30,	110,200		$	3.67	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% of the employees' earnings through a contribution of the Company’s common stock to the 401(k) plan. Vesting of the Company’s contribution occurs over a five-year period. For the three and nine months ended September 30, 2013 and 2012, the Company’s current year expenses and contributions to satisfy the prior years’ employer-matching liability for the 401(k) plan were as follows:



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
($ in thousands, except otherwise stated)	2013		2012		2013		2012
Expense recognized for the 401(k) plan	$	110	$	144	$	452	$	511
Contributions to satisfy prior years' employer-matching liability
Number of shares of the Company's common stock issued (in thousands)	—		—		—		124
Market value per share of the Company's common stock on contribution date (in dollars)	$	—	$	—	$	—	$	5.35
Non-cash contribution made for employer matching liability	$	—	$	—	$	—	$	666
Additional cash contribution made for employer-matching liability	$	—	$	—	$	651	$	—
Total contribution made for employer-matching liability	$	—	$	—	$	651	$	666