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Equity-Based Compensation
 12 Months Ended
Dec. 31, 2018
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Equity-Based Compensation EQUITY-BASED COMPENSATION
SemGroup Corporation equity awards
We have reserved a total of 3,710,220 shares of common stock for issuance pursuant to employee and director compensation programs. Awards under these programs give the recipients the right to receive shares of common stock, once specified service, performance or market related vesting conditions are met. The awards typically have a one year
vesting period for non-management directors and three years for employees. The awards may be subject to accelerated vesting in the event of involuntary terminations. We record expense for these awards (and corresponding increases to additional paid-in capital) based on the grant date fair value of the awards over the vesting period. We use authorized but unissued shares to satisfy our equity-based payment obligations. Although these awards are to be settled in shares, we may elect to give participants the option of surrendering a portion of the awards, to meet statutory minimum tax withholding requirements. The activity related to these awards during the period from December 31, 2015 to December 31, 2018 is summarized below:
 
Unvested
Shares
 
Average
Grant Date
Fair Value
 
Aggregate Fair Value of Shares (in thousands)
Outstanding at December 31, 2015
411,308

 
$
75.25

 
 
Awards granted - 2016
702,309

 
$
19.18

 


Awards vested - 2016
(168,096
)
 
$
20.38

 
$
3,426

Awards forfeited - 2016
(34,255
)
 
$
42.42

 
 
Outstanding at December 31, 2016
911,266

 
$
31.09

 
 
Awards granted - 2017
377,766

 
$
35.22

 


Awards vested - 2017
(149,961
)
 
$
33.60

 
$
5,039

Awards forfeited - 2017
(54,981
)
 
$
81.80

 
 
Outstanding at December 31, 2017
1,084,090

 
$
29.07

 
 
Awards granted - 2018
781,100

 
$
22.10

 
 
Awards vested - 2018
(202,545
)
 
$
23.18

 
$
4,695

Awards forfeited - 2018
(188,410
)
 
$
49.72

 
 
Outstanding at December 31, 2018
1,474,235

 
$
21.04

 
 

Of the awards vested during the years ended December 31, 2018, 2017 and 2016, 57,041, 42,347 and 46,941 shares were withheld to satisfy minimum tax requirements, respectively.
Included in the awards granted for the year ended December 31, 2016, is 128,585 restricted stock awards granted in exchange for Rose Rock equity based awards which were canceled as part of the Merger transaction described in Note 5. Incremental compensation expense was not significant. Accrued unvested unit distribution rights associated with unvested Rose Rock restricted unit awards carried over to the restricted stock awards issued in the exchange.
For certain of the awards granted in 2018, 2017, and 2016, the number of shares that will vest is contingent upon our achievement of certain specified targets. Awards with performance conditions are valued based on the grant date closing price on the New York Stock Exchange based on the number of awards expected to vest. Awards with market conditions are valued using Monte Carlo simulations and were granted in 2017 and 2016. There were no awards with market conditions granted in 2018. The following table sets forth the assumptions used in the valuations of these awards granted in 2017 and 2016:
 
2017
 
2016
Volatility
54.2%
 
51.9%
Risk-free interest rate
1.57%
 
0.98%

Volatility assumptions were based on historical volatility using a simple average calculation of volatility over a period equal to the vesting period of the awards.  We do not expect future volatility over the term of the awards to be significantly different from historical volatility. 
If we meet the specified maximum targets, approximately 558 thousand additional shares could vest.
The holders of certain restricted stock awards are entitled to equivalent dividends (“UDs”) to be settled in cash upon vesting of the restricted stock awards. The UDs are subject to the same forfeiture and acceleration conditions as the associated restricted stock awards. At December 31, 2018, the value of UDs related to unvested restricted stock awards was approximately $2.7 million.
Compensation costs expensed for restricted stock awards for the years ended December 31, 2018, 2017 and 2016 were $11.4 million, $10.1 million and $8.8 million, respectively. As of December 31, 2018, there was $13.9 million of total unrecognized compensation cost related to our non-vested restricted stock awards, which is expected to be recognized over a weighted-average period of 16 months.
Director retainer
For the year ended December 31, 2016, we issued 2,676 shares of common stock to a director, in lieu of an annual cash retainer. No shares were issued to directors in lieu of an annual cash retainer for the years ended December 31, 2017 and 2018.
Employee stock purchase plan
Our employee stock purchase plan ("ESPP") allows eligible employees to contribute up to 10% of their base earnings toward the semi-annual purchase of our common stock, subject to an annual maximum dollar amount. The purchase price is 85% of the closing price on the last business day of the offering period. We have reserved a total of 1,000,000 shares of common stock for issuance under the ESPP. During the years ended December 31, 2018, 2017 and 2016, we issued 53,757, 39,545 and 46,836 shares, respectively, under our ESPP.
Rose Rock equity-based compensation
Prior to the Merger, certain of our employees who supported Rose Rock participated in Rose Rock's equity-based compensation program. Awards under this program generally represented awards of restricted common units representing limited partner interests of Rose Rock. Generally, the awards vested three years after the date of grant for employees and one year after the date of grant for non-management directors, contingent upon the continued service of the recipients and may have been subject to accelerated vesting in the event of involuntary terminations. Awards were valued based on the grant date closing price listed on the New York Stock Exchange. Compensation expense was recognized over the vesting period and was discounted for estimated forfeitures. Vesting of these awards diluted our ownership interest. The activity related to these awards is summarized below:
 
Unvested Units
 
Average Grant Date Fair Value
 
Aggregate Fair Value of Units (in thousands)
Outstanding at December 31, 2015
100,191

 
$
38.70

 
 
Awards granted - 2016
117,204

 
$
9.62

 
 
Awards vested - 2016
(57,458
)
 
$
11.58

 
$
665

Awards forfeited - 2016
(1,846
)
 
$
26.55

 
 
Awards converted to SemGroup awards
(158,091
)
 
$
19.57

 
 
Outstanding at December 31, 2016
—

 
$
—

 
 
Of the awards vested during the year ended December 31, 2016, 254 were withheld to satisfy minimum tax requirements.
Compensation cost expensed for the year ended December 31, 2016, was $1.2 million and represents an increase in noncontrolling interests in consolidated subsidiaries.
The holders of certain of these restricted unit awards were entitled to equivalent distributions (“UUDs”) to be received upon vesting of the restricted unit awards. As part of the Merger transaction, the value of these cash settled UUDs related to unvested restricted units was transferred to SemGroup and is now included in the balance for SemGroup UD's noted above.