Compensation and Benefits

9 Months Ended

Sep. 30, 2020

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Compensation and Benefits

Note 3—Compensation and Benefits

Compensation and benefits expense to employees and members is comprised of the following:

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2020		2019		2020		2019
	(in thousands)
Cash Compensation and Other Benefits	$	12,768	$	13,166	$	41,483	$	40,744
Non-Cash Compensation		3,040		2,846		9,043		8,476
Total Compensation and Benefits Expense	$	15,808	$	16,012	$	50,526	$	49,220

All non-cash compensation awards granted have varying vesting schedules and are issued at prices equal to the assessed fair market value at the time of issuance, as discussed below. Details of non-cash compensation awards granted during the nine months ended September 30, 2020 and 2019 are as follows:

	For the Nine Months Ended September 30,
	2020				2019
	Amount		Fair Value1		Amount		Fair Value1
Class B-1 Units2		2,092,879	$	3.98		—	$	—
Options to Purchase Shares of Class A Common Stock3		146,804	$	2.03		—	$	—
Restricted Shares of Class A Common Stock4		16,806	$	4.74		—	$	—
Restricted Class B Units		—	$	—		44,470	$	7.87
Options to Purchase Delayed Exchange Class B Units5		—	$	—		314,960	$	1.27

1 Represents the grant date fair value per share, unit, or option.

2 Represents Class B-1 units issued under the 2007 Equity Incentive Plan (as defined below). These Class B-1 units are entitled to receive dividends for the duration of the holder’s employment, and upon the end of employment are exchanged for shares of Class A common stock in an amount based upon the appreciation in price of the Class A common stock from the date of grant to the date of exchange. Amounts reflected include the impact of a modification as of May 1, 2020, which resulted in the cancellation of 166,804 Class B-1 Units.

3 Represents options to purchase shares of Class A common stock issued under the 2007 Equity Incentive Plan. These options become exercisable five years from the date of grant. Amounts reflected include the impact of a modification as of May 1, 2020, which resulted in the issuance of 146,804 options to purchase shares of Class A common stock.

4 Represents shares of Class A common stock issued under the 2007 Equity Incentive Plan.  These shares vest ratably over a period of four years from the date of grant.  These shares are restricted and may not be sold until the seventh anniversary of the date of grant. Amounts reflected include the impact of a modification as of May 1, 2020, which resulted in the issuance of 16,806 restricted shares of Class A common stock.

5 Represents options to purchase Delayed Exchange Class B units issued under the 2006 Equity Incentive Plan (as defined below).  These options become exercisable five years from the date of grant.  Upon exercise, the resulting Delayed Exchange Class B units may not be exchanged pursuant the Amended and Restated Operating Agreement until the seventh anniversary of the exercise date and are not entitled to any benefits under the Tax Receivable Agreement.

As part of the Company's year-end bonus structure, certain employee members may elect to have all or part of year-end cash compensation paid in the form of cash, or equity issued pursuant to Pzena Investment Management, LLC Amended and Restated 2006 Equity Incentive Plan (“the 2006 Equity Incentive Plan”).  For the year ended December 31, 2019, $3.8 million of cash compensation was elected to be paid in the form of equity, which was issued and vested immediately on January 1, 2020. As of May 1, 2020, 42,735 options to purchase Delayed Exchange Class B Units originally issued as of January 1, 2020 were cancelled and 42,735 options to purchase restricted shares of Class A common stock were issued. As of May 1, 2020, 16,806 Delayed Exchange Class B Units originally issued as of January 1, 2020 were cancelled and 16,806 restricted shares of Class A common stock were issued. These modifications did not result in any additional compensation expense. Details of awards associated with these elections including the impact of these modification are as follows:

	January 1,
	2020
	Amount		Fair Value1
Delayed Exchange Class B Units2		620,543	$	5.95
Restricted Shares of Class A Common Stock3		16,806	$	5.95
Options to Purchase Restricted Shares of Class A Common Stock4		42,735	$	1.17

1 Represents the grant date fair value per share or unit.

2 Represents Class B units issued under the 2006 Equity Incentive Plan. These units vest immediately upon grant, but may not be exchanged pursuant to the Amended and Restated Operating Agreement of the operating company until the seventh anniversary of the date of grant. These units are also not entitled to any benefits under the Tax Receivable Agreement between the Company and members of the operating company.

3 Represents shares of Class A common stock issued under the 2007 Equity Incentive Plan. These shares vest immediately upon grant, but are restricted and may not be sold until the seventh anniversary of the date of grant.

4 Represents options to purchase shares of Class A common stock issued under the 2007 Equity Incentive Plan. These options are exercisable on the date of grant. Upon exercise, the resulting Class A shares are restricted and may not be sold until the seventh anniversary of the date of exercise.

Pursuant to the 2006 Equity Incentive Plan, the operating company issues Class B units, phantom Class B units and options to purchase Class B units.  The operating company also issues Delayed Exchange Class B units pursuant to the 2006 Equity Incentive Plan.  These Delayed Exchange Class B units vest immediately upon grant, but may not be exchanged pursuant to the

Amended and Restated Operating Agreement of the operating company until at least the seventh anniversary of the date of grant.  These Delayed Exchange Class B units are also not entitled to any benefit under the Tax Receivable Agreement between the Company and members of the operating company.  The operating company also issues phantom Delayed Exchange Class B units and options to purchase Delayed Exchange Class B units. Under the Pzena Investment Management, Inc. 2007 Equity Incentive Plan (“the 2007 Equity Incentive Plan”), the Company issues shares of restricted Class A common stock, Class B-1 units, options to purchase Class A common stock, options to purchase restricted Class A shares of common stock and contingently vesting options to acquire shares of Class A common stock.  During each of the three and nine months ended September 30, 2020 and 2019, no contingently vesting options vested.  During the three months ended September 30, 2020 and 2019, 20,581 and 5,501 Delayed Exchange Class B units were issued to certain employee members, respectively, for approximately $0.1 million and less than $0.1 million in cash, respectively. During the nine months ended September 30, 2020 and 2019, 548,136 and 16,137 Delayed Exchange Class B units were issued to certain employee members, respectively, for approximately $2.3 million and $0.1 million in cash, respectively.

Under the Pzena Investment Management, LLC Amended and Restated Bonus Plan (the “Bonus Plan”), eligible employees whose compensation is in excess of certain thresholds are required to defer a portion of that excess.  These deferred amounts may be invested, at the employee’s discretion, in certain investment options designated by the Compensation Committee of the Company's Board of Directors.  Amounts deferred in any calendar year reduce that year’s compensation expense and are amortized and vest ratably over a four-year period commencing the following year.  The Company also issued to certain of its employees deferred compensation with certain investment options that also vest ratably over a four-year period. During the nine months ended September 30, 2020, 10,971 phantom Delayed Exchange Class B units and less than $0.1 million in future deferred compensation obligations were forfeited associated with an employee departure. No forfeitures occurred during the three months ended September 30, 2020, or three and nine months ended September 30, 2019. As of September 30, 2020 and December 31, 2019, the liability associated with all deferred compensation investment accounts was $2.9 million and $3.6 million, respectively.

Pursuant to the Pzena Investment Management, Inc. Non-Employee Director Deferred Compensation Plan (the “Director Plan”), non-employee directors may elect to have all or part of their compensation otherwise payable in cash, deferred in the form of phantom shares of Class A common stock of the Company issued under the 2007 Equity Incentive Plan.  Elections to defer compensation under the Director Plan are made on a year-to-year basis.  Distributions under the Director Plan are made in a single distribution of shares of Class A common stock at such time as elected by the participant when the deferral was made.  Since inception of the Director Plan in 2009, the Company’s directors have elected to defer 100% of their compensation in the form of phantom shares of Class A common stock.  Amounts deferred in any calendar year are amortized over the calendar year and reflected as General and Administrative Expense. During the nine months ended September 30, 2020, the Company’s Board of Directors agreed to waive compensation for the full year of 2020. As a result, 49,673 phantom shares of Class A common stock were forfeited. As of September 30, 2020 and December 31, 2019, there were 493,207 and 455,028 phantom shares of Class A common stock outstanding, respectively.  For the three and nine months ended September 30, 2020 and 2019, no distributions were made under the Director Plan.

As of September 30, 2020 and December 31, 2019, the Company had approximately $34.9 million and $39.4 million, respectively, in unrecorded compensation expense related to unvested awards issued pursuant to its Bonus Plan and certain agreements; Class B units, option grants, Delayed Exchange Class B units, phantom Delayed Exchange Class B units, and phantom Class B units issued under the 2006 Equity Incentive Plan; and restricted Class A common stock and contingently vesting option grants issued under the 2007 Equity Incentive Plan.  The Company anticipates that this unrecorded cost will amortize over the respective vesting periods of the awards.