Share-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement, Noncash Expense [Abstract]

We account for share-based awards under the provisions of ASC 718, Compensation—Stock Compensation, which established the accounting for share-based awards exchanged for employee services. Accordingly, share-based compensation cost is measured at the grant date based on the fair value of the award and we expense these costs using the straight-line method over the requisite service period, generally three years. We recognize actual forfeitures by reducing the employee share-based compensation expense in the same period as the forfeitures occur. Share-based compensation expense was approximately $11.3 million, $11.4 million, and $9.5 million, tax effected by $2.6 million, $2.5 million, and $2.2 million for the years ended December 31, 2021, 2020, and 2019, respectively. Our unrecognized compensation expense related to our share-based awards was as follows as of December 31, 2021:


	Unrecognized Compensation Expense		Weighted Average Remaining Recognition Period
	(In thousands)

Restricted stock awards	$	—	0
Restricted stock units	$	6,911	1.49
Performance stock units	$	4,332	1.09

2016 Equity and Cash Incentive Plan. On May 18, 2016, our stockholders approved the Kraton Corporation 2016 Equity and Cash Incentive Plan, as amended or as restated, (the “2016 Plan”). Under the 2016 Plan, there are a total of 2,975,296 shares of our common stock reserved for issuance. As of December 31, 2021 and 2020 there were 2,007,236 and 1,804,184 shares of our common stock available for issuance under the 2016 Plan, respectively.

2019 Equity Inducement Plan. On April 17, 2019, our board of directors approved the Kraton Corporation 2019 Equity Inducement Plan (the “Inducement Plan”). Under the Inducement Plan, there are a total of 150,000 shares of our common stock reserved for issuance. As of December 31, 2021, there were 97,039 shares of our common stock available for issuance under the Inducement Plan.

Non-qualified Stock Option Activity

Non-qualified option activities for the year ended December 31, 2021 are as follows:


	Options	Weighted Average Exercise Price		Aggregate Intrinsic Value(1)		Weighted Average Remaining Contractual Term
	(In thousands)			(In thousands)
Outstanding at December 31, 2020	348	$	30.49
Granted	—	—
Exercised	(192)	33.26
Forfeited	—	—
Expired	(15)	36.49
Outstanding and exercisable at December 31, 2021	141	$	26.09	$	2,870	1.66

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(1)The intrinsic value of a stock option is the amount by which the market value of the underlying stock exceeds the exercise price of the option as of December 31, 2021.

These options have a ten year term. During the year ended December 31, 2021, net proceeds of $6.4 million were received from the exercise of stock options.


	Years Ended December 31,
	2021		2020		2019
	(In thousands)
Options exercised	192		3		116
Total intrinsic value of options exercised	$	2,518	$	—	$	623

Restricted Stock Awards and Restricted Stock Units

We may grant to certain employees time-vested restricted stock awards and time-vested restricted stock units. Holders of restricted stock units do not have any beneficial ownership in the common stock underlying the restricted stock units and the grant represents an unsecured promise to deliver common stock on a future date. Actual shares of common stock underlying the

restricted stock units will not be issued until the earlier of the passage of the vesting period, a change in control that also results in the termination of the grantee’s employment, or the death/disability of the participant. We issued 20,096, 78,336, and 23,447 restricted stock awards to members of the board of directors during the years ended December 31, 2021, 2020, and 2019, respectively, which vested on the grant date. We granted 184,843, 360,153, and 192,214 restricted stock units to our employees during the years ended December 31, 2021, 2020, and 2019, respectively, which are subject to a three-year cliff vesting.

The following table represents the non-vested restricted stock awards and restricted stock units granted, vested, and forfeited during 2021.


	Restricted Stock Awards			Restricted Stock Units
	Shares	Weighted- average Grant-date Fair Value		Shares	Weighted- average Grant-date Fair Value
	(In thousands)			(In thousands)
Non-vested shares at December 31, 2020	73	$	45.13	445	$	17.34
Granted	20	39.82		185	39.77
Vested	(93)	43.98		(180)	21.68
Forfeited	—	—		(4)	36.05
Non-vested shares at December 31, 2021	—	$	—	446	$	24.28

The aggregate intrinsic value was $21.9 million and the weighted average remaining contractual term was 0.83 for restricted stock units. The intrinsic value of a restricted stock unit is the amount by which the market value of the underlying restricted stock unit exceeds the grant date value of the restricted stock unit as of December 31, 2021.

The total fair value of shares vested during the years ended December 31, 2021, 2020, and 2019 pursuant to restricted stock awards and restricted stock units was $10.9 million, $3.6 million, and $6.7 million, respectively.

Performance Share Units

We may grant to certain employees performance share units, which vest after the achievement of performance criteria and time vesting established at grant or a change in control that also results in the termination of the grantee’s employment, whichever is earlier. Holders of performance share units do not have any beneficial ownership in the shares of our common stock underlying the performance share units, and the grant represents an unsecured promise to deliver shares of our common stock on a future date. The performance share units vest at the end of a three-year period assuming continued employment and assuming the Company’s achievement of the performance measures established by our compensation committee when the performance share units were initially granted. When performance share units vest, a number of shares of our common stock from 0% to 200% of the initial grant amount will be issued, depending on the level of achievement of such performance measures. We granted 132,150, 358,316, and 137,508 performance share units to our employees during the years ended December 31, 2021, 2020, and 2019, respectively. During the year ended December 31, 2020, we modified certain performance measures for the 2018 and 2019 performance share units as a result of the Cariflex divestiture. The impacts of these modifications resulted in a $2.9 million increased compensation cost for the year ended December 31, 2020.

The following table represents the non-vested performance share units granted, vested, and forfeited during 2021.


	Shares	Weighted- average Grant-date Fair Value		Aggregate Intrinsic Value(1)		Weighted Average Remaining Contractual Term
	(In thousands)			(In thousands)
Non-vested shares at December 31, 2020	548	$	23.25
Granted(2)	132	45.34
Vested	(87)	28.94
Forfeited	(43)	61.30
Non-vested shares at December 31, 2021	550	$	24.66	$	25,494	1.09

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(1)The intrinsic value of a performance share unit is the amount by which the market value of the underlying performance share unit exceeds the grant date value of the performance share unit as of December 31, 2021.

(2)Shares granted during fiscal 2021 include 43,358 additional shares awarded for the final 200% achievement of the 2018 Performance Share Program, which was certified in the first quarter of fiscal 2021. The remaining 88,792 granted shares were for the 2021 Performance Share Program.

The total fair value of shares vested during the year ended December 31, 2021 and 2019 pursuant to performance share units was $3.7 million and $2.4 million, respectively.

Weighted-Average Assumptions for Performance Share Unit Grant Date Fair Value

For the performance share units granted in 2021, a component of the performance targets was based on relative total shareholder return over the three-year performance cycle compared to an industry peer group. The weighted average fair value using a Monte Carlo simulation model and the corresponding weighted average assumptions for the performance share units granted were as follows:


	2021			2020			2019
Risk-free interest rate	0.25		%	0.84		%	2.51		%
Expected dividend yield	—		%	—		%	—		%
Expected volatility	82.6		%	50.9		%	32.2		%
Fair value per performance share award	$	66.87		$	6.46		$	60.68