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Share-Based Compensation and Pensions
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Share-Based Compensation and Pensions 19. SHARE-BASED COMPENSATION AND PENSIONS
Share-based compensation
The 2016 and 2006 Equity Incentive Plans are our primary share-based compensation plans. We also maintain other share-based compensation plans as discussed below. The table below provides a summary of the compensation costs for all of our share-based compensation plans for the years ended December 31, 2019, 2018 and 2017:
 
2019
 
2018
 
2017
Share-based compensation plans:
 
 
 
 
 
Restricted shares and restricted share units
$
6,564

 
$
7,641

 
$
7,302

Performance share units
23,582

 
1,968

 
5,832

Cash-settled stock appreciation rights
2,575

 
(3,316
)
 
8,875

Other share-based compensation plans:
 
 
 
 
 
Northshore incentive plan
3,652

 
2,792

 
3,156

StarStone incentive plan
223

 
—

 
—

Deferred compensation and ordinary share plan for non-employee directors
992

 
1,155

 
758

Employee share purchase plan
411

 
430

 
403

Total share-based compensation
$
37,999

 
$
10,670

 
$
26,326


Restricted Shares and Restricted Share Units
Restricted shares and restricted share units are service awards that typically vest over three years. These awards are share-settled and are recorded in additional paid-in capital on the consolidated balance sheets. The fair value of these awards is measured at the grant date and expensed over the service period. The following table summarizes the activity related to restricted shares and restricted share awards during 2019:
 
Number of
Shares
 
Weighted-Average Share Price
Nonvested — January 1
59,936

 
$191.89
Granted
50,054

 
176.16
Vested
(42,462
)
 
189.98
Forfeited
(2,956
)
 
206.85
Nonvested — December 31
64,572

 
180.49

The unrecognized compensation cost related to our unvested restricted share and restricted share unit awards as of December 31, 2019 was $6.0 million. This cost is recognizable over the next 2.10 years, which is the weighted average contractual life.
Performance Share Units ("PSUs")
PSUs are share-settled and vest on the third anniversary of the grant date. The number of shares to vest will be determined by a performance adjustment based on either (i) the change in fully diluted book value per share ("FDBVPS") over three years, or (ii) average annual non-GAAP operating income return on equity, excluding StarStone.
Performance Share Units based on FDBVPS
The following table summarizes the awards granted, the unvested PSU awards at December 31, 2019, and the performance criteria and associated performance multipliers at various levels of achievement.
Grant Year
 
Inception-to-date Activity Roll-forward
 
Performance Criteria:
Change in FDBVPS (3 year)
 
Performance Multiplier
Levels Per Award Agreements
PSUs Granted
at Target
 
Forfeited
 
Estimated Change in Multiplier
 
Nonvested at December 31, 2019
 
Threshold
 
Target
 
Maximum
 
Threshold
 
Target
 
Maximum
2017
 
36,321

 
(12,176
)
 
9,560

 
33,705

 
20.00
%
 
30.00
%
 
40.00
%
 
50.00
%
 
100.00
%
 
150.00
%
2017
 
91,875

 
—

 
18,081

 
109,956

 
30.30
%
 
35.65
%
 
41.00
%
 
50.00
%
 
100.00
%
 
150.00
%
2018
 
39,682

 
(11,414
)
 
—

 
28,268

 
25.00
%
 
32.50
%
 
40.00
%
 
50.00
%
 
100.00
%
 
150.00
%
2019
 
18,308

 
(798
)
 
—

 
17,510

 
20.00
%
 
30.00
%
 
40.00
%
 
60.00
%
 
100.00
%
 
150.00
%
 
 
186,186

 
(24,388
)
 
27,641

 
189,439

 
 
 
 
 
 
 
 
 
 
 
 

An increase of Target to Maximum or more in FDBVPS results in a settlement of 100% to a maximum of 150% of the units granted, respectively. An increase of Threshold to Target in FDBVPS results in a settlement of 50% to 100% of the units granted, respectively for 2017 and 2018 awards, and settlement of 60% to 100% for the 2019 awards. Straight-line interpolation applies within these ranges, and no settlement occurs if the increase in FDBVPS is less than the Threshold.
Performance Share Units based on Average Annual Non-GAAP Operating Income Return on Equity ("Operating ROE")
The following table summarizes the awards granted, the unvested units at December 31, 2019, and the performance criteria and associated performance multipliers at various levels of achievement.
Grant Year
 
Inception-to-date Activity Roll-forward
 
Performance Criteria:
Average Annual Operating ROE
 
Performance Multiplier
Levels Per Award Agreements
PSUs Granted
at Target
 
Forfeited
 
Estimated Change in Multiplier
 
Nonvested at December 31, 2019
 
Threshold
 
Target
 
Maximum
 
Threshold
 
Target
 
Maximum
2019
 
18,308

 
(798
)
 
—

 
17,510

 
9.60
%
 
12.00
%
 
14.40
%
 
60.00
%
 
100.00
%
 
150.00
%

Annual Operating ROE is calculated based upon the non-GAAP operating income return on opening shareholder's equity, excluding StarStone. Average Annual Operating ROE is the sum of the three individual year annual operating ROE %'s divided by three. An Average Annual Operating ROE of Target to Maximum or more results in a settlement of 100% to a maximum of 150% of the units granted, respectively. An Average Annual Operating ROE of Threshold to Target results in a settlement of 60% to 100%. Straight-line interpolation applies within these ranges and no settlement occurs if the Average Annual Operating ROE is less than the Threshold.
Performance Multipliers
For expense purposes we assume a Target vesting at the initial time of award. At the end of each reporting period, we estimate the expected performance multiplier, as shown in the table below:
Award Description
 
2019
 
2018
 
2017
2017 FDBVPS Type I (30.00% Target Change)
 
139%
 
50%
 
100%
2017 FDBVPS Type II (35.65% Target Change)
 
120%
 
50%
 
100%
2018 FDBVPS
 
100%
 
50%
 
n/a
2019 FDBVPS
 
100%
 
n/a
 
n/a
2019 Average Operating ROE
 
100%
 
n/a
 
n/a

The unrecognized compensation cost related to our unvested PSU share awards as of December 31, 2019 was $7.9 million. This cost is recognizable over the next 1.51 years, which is the weighted average contractual life.
Roll-forward of Performance Share Units
The following table summarizes the activity related to PSUs during 2019:
 
Number of
Shares
 
Weighted-Average Share Price
Nonvested — January 1
159,168

 
$190.77
Granted
36,616

 
166.42
Increase for above target vest
27,641

 
188.62
Vested
(2,631
)
 
195.60
Forfeited
(13,845
)
 
198.37
Nonvested — December 31
206,949

 
185.61

Cash-Settled Stock Appreciation Rights
Cash-settled stock appreciation right awards ("SARs") give the holder the right, upon exercise, to receive in cash the difference between the market price per share of our ordinary shares at the time of exercise and the exercise price of the SARs. The exercise price of each SAR is equal to the market price of our ordinary shares on the date of the grant. Vested SARs are exercisable for periods not to exceed either 4 years or 10 years from the date of grant. We have not granted any new SAR awards since 2015.
The following table summarizes the activity related to SARs during 2019:
 
Number of
SARs
 
Weighted-Average Exercise Price of SARs
 
Weighted-Average Expected Term (in years)
 
Aggregate
Intrinsic  Value(1)
Balance, beginning of year
109,081

 
$
142.37

 
 
 
 
Exercised
(19,854
)
 
138.07

 
 
 
 
Balance, end of year
89,227

 
143.33

 
2.39
 
$
6,133

(1) The aggregate intrinsic value is calculated as the pre-tax difference between the exercise price of the underlying share awards and the closing price per share of our ordinary shares of $206.86 on December 31, 2019.
Compensation expense for SARs is based on the estimated fair value on the date of grant using the Black-Scholes valuation model, which requires the use of subjective assumptions related to the expected stock price volatility, expected term, expected dividend yield and risk-free interest rate. SARs are liability-classified awards for which compensation expense and the liability are re-measured using the then-current Black Scholes assumptions at each interim reporting date based upon the portion of the requisite service period rendered. The unrecognized compensation cost related to our SARs as of December 31, 2019 was less than $0.1 million.
The following table sets forth the assumptions used to estimate the fair value of the SARs using the Black-Scholes option valuation model as of December 31, 2019, 2018 and 2017:
 
2019
 
2018
 
2017
Weighted-average fair value per SAR
$
76.03

 
$
45.85

 
$
75.38

Weighted-average volatility
19.75
%
 
18.94
%
 
19.44
%
Weighted-average risk-free interest rate
1.64
%
 
2.72
%
 
1.65
%
Dividend yield
0.00
%
 
0.00
%
 
0.00
%

Joint Share Ownership Plan
Under the JSOP, we have the ability to make equity awards to our U.K.-based staff through which a recipient acquires jointly held interests in a set number of our Voting Ordinary Shares together with the independent trustee of the EB Trust at fair market value, pursuant to the terms of a joint ownership agreement. The Voting Ordinary Shares underlying any JSOP award remain in the EB Trust, and the recipient ultimately receives the value of the appreciation above a threshold on those shares, measured between date of grant and a pre-set measuring date that follows a vesting period (typically three years). JSOP awards are generally settled in Voting Ordinary Shares and may include performance and other conditions, typically related to share price appreciation above a hurdle, that must be met in order for the award to vest. Voting rights in respect of shares held in the EB Trust are contractually waived. Shares held in the EB Trust are classified as treasury shares.
No awards under the JSOP were made during 2019. Subsequent to December 31, 2019, a JSOP award comprising 565,630 underlying Voting Ordinary Shares was made to our Chief Executive Officer (the "CEO JSOP Award"). The CEO JSOP Award was granted on January 21, 2020 and cliff-vests after 3 years. The ultimate value of the CEO JSOP Award at vesting, if any, is determined based on the price of a Voting Ordinary Share appreciating above a certain threshold between the date of grant and the vesting date. If the higher of the closing price per Share on January 20, 2023 and the 10-day volume weighted average price per Share for the ten consecutive trading days ending on January 20, 2023 (each, the "Market Price") is $266.00 or greater (the "Hurdle"), the award will have a value equal to the applicable Market Price per Share, less $205.89, multiplied by 565,630. If the higher of the Market Price per Voting Ordinary Share is less than $266.00 on such date, the award will have no value.
Other share-based compensation plans
Northshore Incentive Plan
Our subsidiary, Northshore, has long-term incentive plans that award time-based restricted shares of Northshore to certain Atrium employees. Shares generally vest over two to three years. These share awards have been classified as liability awards. The unrecognized compensation cost related to the Northshore incentive plan at December 31, 2019 was $0.9 million. This cost is expected to be recognized over the next 0.36 years, which is the weighted average contractual life of the awards.
StarStone Incentive Plan
Our subsidiary, StarStone, has long-term incentive plans that are cash-settled plans for StarStone employees. The awards are based on StarStone's performance over two to three years. These share awards have been classified as liability awards. The unrecognized compensation cost related to the StarStone incentive plan at December 31, 2019 was $1.8 million. This cost is expected to be recognized over the next 2 years.
Deferred Compensation and Ordinary Share Plan for Non-Employee Directors
The following table summarizes the number of units outstanding for the years ended December 31, 2019, 2018 and 2017 under the Enstar Group Limited Deferred Compensation and Ordinary Share Plan for Non-Employee Directors (the "Deferred Compensation Plan"):
 
2019
 
2018
 
2017
Restricted share units credited to the accounts of non-employee directors
5,976

 
5,691

 
3,852


Employee Share Purchase Plan
We provide an Employee Share Purchase Plan whereby eligible employees may purchase Enstar shares at a 15% discount to market price, in an amount of share value limited to the lower of $21,250 or 15% of the employee's base salary. The 15% discount is expensed as compensation cost.
The following table summarizes the number of shares issued to employees under the Employee Share Purchase Plan for the years ended December 31, 2019, 2018 and 2017:
 
2019
 
2018
 
2017
Number of shares issued to employees
15,269

 
14,183

 
12,401


Pension Plans
We provide retirement benefits to eligible employees through various plans that we sponsor. Pension expense can be affected by changes in our employee headcount. The table below summarizes the pension expenses related to our Defined Contribution Plans and our Defined Benefit Plan for the years ended December 31, 2019, 2018 and 2017.
 
2019
 
2018
 
2017
Defined contribution plans
$
11,798

 
$
11,434

 
$
12,247

Defined benefit plan
684

 
2,243

 
1,988

Total pension expense
$
12,482

 
$
13,677

 
$
14,235


Defined Benefit Plan
During 2019, an actuarial review was performed on the defined benefit plan, which determined that the plan’s unfunded liability, as of December 31, 2019 and 2018 was $8.9 million and $8.4 million, respectively. As of December 31, 2019 and 2018, we had an accrued liability of $8.9 million and $8.4 million, respectively, for this plan.