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Equity-Based Compensation
12 Months Ended
Dec. 31, 2019
Equity-Based Compensation  
Equity-Based Compensation

13. Equity-Based Compensation

The RE/MAX Holdings, Inc. 2013 Omnibus Incentive Plan (the “Incentive Plan”) includes restricted stock units which may have time-based or performance-based vesting criteria. The Company recognizes equity-based compensation expense in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income. The Company recognizes corporate income tax benefits relating to the vesting of restricted stock units in “Provision for income taxes” in the accompanying Consolidated Statements of Income.

Employee stock-based compensation expense under the Company’s Incentive Plan, net of the amount capitalized in internally developed software, is as follows (in thousands):

Year Ended December 31, 

2019

    

2018

    

2017

Expense from Time-based awards (a)

$

7,554

$

5,189

$

2,523

Expense from Performance-based awards (a)(b)

(179)

4,126

377

Expense from bonus to be settled in shares (c)

3,788

Equity-based compensation capitalized (a)

(229)

(139)

Equity-based compensation expense

10,934

9,176

2,900

Tax benefit from equity-based compensation

(1,548)

(1,297)

(637)

Deficit / (excess) tax benefit from equity-based compensation

55

(145)

(324)

Net compensation cost

$

9,441

$

7,734

$

1,939

(a)Includes expense recognized and costs capitalized in connection with the awards granted to booj employees and former owners at the time of acquisition.
(b)Expense recognized for performance-based awards is re-assessed each quarter based on expectations of achievement against the performance conditions. For the year ended December 31, 2019, the Company reversed expense that had been recognized in 2018 for awards granted for certain booj work deliverables. This reversal was primarily a result of modifying the awards to extend the due date of the performance conditions, primarily through December 31, 2019, as the achievement of the goals at the previous date was no longer probable. Accounting for these modifications resulting in the reversal of the cumulative expense previously recognized and expensing the modified awards over the new vesting period resulting in a net $0.3 million recognized in 2019. Also, for the year ended December 31, 2019, certain conditions were no longer deemed probable of being met for other performance awards tied to the achievement of a revenue target measured over a three-year performance period. The cumulative expense previously recognized was reversed in the current period, resulting in a negative expense of ($0.5) million in 2019.
(c)In 2019, the Company revised its annual bonus plan so that half of the bonus for most employees will be settled in shares. The share amounts to be issued will be determined based on the stock price at the time of vesting in early 2020. These amounts are recognized as “Accrued liabilities” in the accompanying Consolidated Balance Sheets and are not included in “Additional paid-in capital” until shares are issued.

Time-based Restricted Stock Units

Time-based restricted stock units (“RSUs”) are valued using the Company’s closing stock price on the date of grant. Grants awarded to the Company’s Board of Directors generally vest over a one-year period. Grants awarded to the Company’s employees, other than booj employees and former owners in connection with the acquisition, generally vest equally in annual installments over a three-year period. Grants awarded to booj employees and former owners in connection with the acquisition vest in three installments over a four-year period. Compensation expense is recognized on a straight-line basis over the vesting period.

The following table summarizes equity-based compensation activity related to RSUs:

    

RSUs

    

Weighted average
grant date fair
value per share

Balance, January 1, 2019

298,610

$

51.97

Granted (a)

257,087

$

38.43

Shares vested (including tax withholding) (b)

(80,008)

$

43.30

Forfeited

(20,237)

$

45.41

Balance, December 31, 2019

455,452

$

46.15

(a)The weighted average grant date fair value for the years ended December 31, 2018 and 2017 were $53.04 and $55.45 per RSU granted, respectively.
(b)Pursuant to the terms of the Incentive Plan, RSUs withheld by the Company for the payment of the employee's tax withholding related to an RSU vesting are added back to the pool of shares available for future awards.

At December 31, 2019, there was $12.6 million of total unrecognized RSU expense. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 2.1 years for RSUs.

Performance-based Restricted Stock Units

Performance-based restricted stock units (“PSUs”) granted to employees, other than booj employees and former owners in connection with the acquisition, are stock-based awards in which the number of shares ultimately received depends on the Company’s achievement of either a specified revenue target or the Company’s total shareholder return (“TSR”) relative to a peer company index over a three-year performance period or achievement of both. If the minimum threshold conditions are not met, no shares will vest. The number of shares that could be issued range from 0% to 150% of the participant’s target award. PSUs are valued on the date of grant using a Monte Carlo simulation for the TSR element of the award. PSUs that vest upon achievement of a specified revenue target are valued using the Company’s closing stock price on the date of grant. The Company’s expense will be adjusted based on the estimated achievement of revenue versus target. Earned PSUs cliff-vest at the end of the three-year performance period. Compensation expense is recognized on a straight-line basis over the vesting period based on the Company’s probable performance, with cumulative to-date adjustments made when revenue performance expectations change.

PSUs granted to booj employees and former owners in connection with the acquisition are stock-based awards in which the number of shares ultimately received depends on the achievement of certain technology milestones set forth in the related purchase agreement. The number of shares that could be issued range from 0% to 100% of the participant’s target award. The awards were valued using the Company’s closing stock price on the date of grant. The Company’s expense will be adjusted based on the estimated achievement of the milestones. The majority of these PSUs vested July 29, 2019 and December 31, 2019. The remaining PSUs vest on February 15, 2020 to the extent the corresponding milestones are achieved and provided the participant is still an employee of the Company at the time of vesting. Compensation expense is recognized on a straight-line basis over the vesting period based on the Company’s estimated performance, subject to adjustment for changes in expectations of the achievement of the technology milestones.

The following table summarizes equity-based compensation activity related to PSUs:

    

PSUs

    

Weighted average
grant date fair
value per share

Balance, January 1, 2019

179,615

$

55.75

Granted (a)(b)

119,410

$

38.87

Shares vested

(97,436)

$

36.20

Forfeited

(61,625)

$

56.24

Balance, December 31, 2019

139,964

$

45.31

(a)Represents the total participant target award.
(b)The weighted average grant date fair value for the years ended December 31, 2018 and 2017 were $55.38 and $57.88 per PSU granted, respectively.

At December 31, 2019, there was $2.3 million of total unrecognized PSU expense. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.8 years for PSUs.

After giving effect to all outstanding awards (assuming maximum achievement of performance goals for performance-based awards), there were 2,122,970 additional shares available for the Company to grant under the Incentive Plan as of December 31, 2019.