Earnings per Share

12 Months Ended

Dec. 31, 2021

Note 5 — Earnings per Share

Basic earnings per share is computed by dividing the Company’s net income attributable to its common stockholders by the weighted average number of shares outstanding during the reporting period.

Under the two-class method of computing basic earnings per share, basic earnings per share is calculated by dividing net income for basic earnings per share by the weighted average number of common shares outstanding during the period. The two-class method includes an earnings allocation formula that determines earnings per share for each participating security according to dividends declared and undistributed earnings for the period. The Company's net income for basic earnings per share is reduced by the amount allocated to participating restricted shares of Class A common stock which participate for purposes of calculating earnings per share.

For the years ended December 31, 2021 and 2020, the Company’s basic earnings per share was determined as follows:


	For the Years Ended December 31,
	2021		2020
	(in thousands, except share and per share amounts)
Net Income Allocated to:
Class A Common Stock	$	18,657	$	8,868
Participating Shares of Restricted Class A Common Stock		22		6
Net Income for Basic Earnings Per Share	$	18,679	$	8,874
Basic Weighted-Average Shares Outstanding		17,394,327		17,196,939
Add: Participating Shares of Restricted Class A Common Stock1		20,367		11,235
Total Basic Weighted-Average Shares Outstanding		17,414,694		17,208,174
Basic Earnings per Share	$	1.07	$	0.52

Certain unvested shares of Class A common stock granted to employees have nonforfeitable rights to dividends and therefore participate fully in the results of the Company from the date they are granted. They are included in the computation of basic earnings per share using the two-class method for participating securities.

Diluted earnings per share adjusts this calculation to reflect the impact of all outstanding membership units of the operating company, phantom Class B units, phantom Class A common stock, phantom Delayed Exchange Class B units, outstanding Class B unit options, options to purchase Class A common stock, and restricted Class A common stock, to the extent they would have a dilutive effect on earnings per share for the reporting period. Net income for diluted earnings per share generally assumes all outstanding operating company membership units are converted into Company stock at the beginning of the reporting period and the resulting change to the Company's net income associated with its increased interest in the operating company is taxed at the Company’s effective tax rate, exclusive of any prior period and other adjustments. When this conversion results in an increase in earnings per share or a decrease in loss per share, diluted net income and diluted earnings per share are assumed to be equal to basic net income and basic earnings per share for the reporting period.

For the years ended December 31, 2021 and 2020, the Company’s diluted net income was determined as follows:


	For the Years Ended December 31,
	2021			2020
	(in thousands)
Net Income Attributable to Non-Controlling Interests of Pzena Investment Management, LLC	$	86,781		$	42,421
Less: Assumed Corporate Income Taxes		(21,799	)		(10,529	)
Assumed After-Tax Income of Pzena Investment Management, LLC		64,982			31,892
Net Income of Pzena Investment Management, Inc.		18,679			8,874
Diluted Net Income	$	83,661		$	40,766

Under the two-class method, earnings per share is calculated by dividing net income for diluted earnings per share by the weighted average number of common shares outstanding during the period, plus the dilutive effect of any potential common shares outstanding during the period using the more dilutive of the treasury method or two-class method. The two-class method includes an earnings allocation formula that determines earnings per share for each participating security according to dividends declared and undistributed earnings for the period. The Company’s net income for diluted earnings per share is reduced by the amount allocated to participating Class B units for purposes of calculating earnings per share. Dividend equivalent distributions paid per share on the Company’s unvested Class B units are equal to the dividends paid per share of Class A common stock of the Company.

For the years ended December 31, 2021 and 2020, the Company’s diluted earnings per share were determined as follows:


	For the Years Ended December 31,
	2021		2020
	(In thousands, except share and per share amounts)
Diluted Net Income Allocated to:
Class A Common Stock	$	76,421	$	37,732
Participating Shares of Restricted Class A Common Stock		22		6
Participating Class B Units and Class B-1 Units		7,218		3,028
Total Diluted Net Income Attributable to Shareholders	$	83,661	$	40,766
Basic Weighted-Average Shares Outstanding		17,414,694		17,208,174
Dilutive Effect of Class B Units		55,037,164		54,156,631
Dilutive Effect of Options1		1,586,602		12,637
Dilutive Effect of Phantom Units		2,687,583		1,874,199
Dilutive Effect of Restricted Shares of Class A Common Stock2		33,231		12,660
Dilutive Weighted-Average Shares Outstanding		76,759,274		73,264,301
Add: Participating Class B Units and Class B-1 Units3		7,248,364		5,879,409
Total Dilutive Weighted-Average Shares Outstanding		84,007,638		79,143,710
Diluted Earnings per Share	$	1.00	$	0.52

Represents the dilutive effect of options to purchase Class B units, Delayed Exchange Class B units, and Class A common stock.

Certain restricted shares of Class A common stock granted to employees are not entitled to dividend or dividend equivalent payments until they are vested and are therefore non-participating securities and are not included in the computation of basic earnings per share. They are included in the computation of diluted earnings per share when the effect is dilutive using the treasury stock method.

Unvested Class B Units granted to employees have nonforfeitable rights to dividends and therefore participate fully in the results of the operating company's operations from the date they are granted. Vested and unvested Class B-1 units are entitled to receive distributions for the duration of the holder’s employment with the operating company, will participate in additional value to the extent there has been appreciation subsequent to the issuance of the Class B-1 membership unit. Unvested Class B units and vested and unvested Class B-1 units are included in the computation of diluted earnings per share using the two-class method for participating securities.

Approximately 0.3 million options to purchase Class B units, 0.6 million options to purchase shares of Class A common stock, and 0.5 million contingent options to purchase shares of Class A common stock were excluded from the calculation of diluted earnings per share for the year ended December 31, 2021, as their inclusion would have had an antidilutive effect based on current market prices or because the option had contingent vesting requirements that were not met. Approximately 5.5 million options to purchase Class B units, 0.2 million options to purchase shares of Class A common stock, and 1.0 million contingent options to purchase Class A common stock were excluded from the calculation of diluted earnings per share for the year ended December 31, 2020, as their inclusion would have had an antidilutive effect based on current market prices or because the option had contingent vesting requirements that were not met.