Equity-Based Compensation

12 Months Ended

Dec. 31, 2020

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,
	2020		2019		2018
Expense from time-based awards (a)	$	12,224	$	7,554	$	5,189
Expense from performance-based awards (a)(b)		2,150		(179)		4,126
Expense from bonus to be settled in shares (c)		1,925		3,788		—
Equity-based compensation capitalized		(32)		(229)		(139)
Equity-based compensation expense		16,267		10,934		9,176
Tax deficit / (benefit) from equity-based compensation		(2,308)		(1,548)		(1,297)
Deficit / (excess) tax benefit from equity-based compensation		378		55		(145)
Net compensation cost	$	14,337	$	9,441	$	7,734

(a) Includes awards granted to booj, First, wemlo and Gadberry 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 resulted 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 a portion of the bonus for most employees would be settled in shares if the Company met certain performance metrics. While the normal bonus plan was eliminated earlier in the year, the Board of Directors agreed to pay a discretionary bonus in December 2020 given the performance of the Company in the second half of the year and opted to pay a portion in shares. The exact share amounts to be issued will be determined based on the stock price at the time of vesting in early 2021. These amounts are recognized as “Accrued liabilities” in the accompanying Consolidated Balance Sheets and are not included in “Additional paid-in capital” until the shares are issued.

Time-based Restricted Stock

Time-based restricted stock units and restricted stock awards 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 grants issued to former owners in connection with acquisitions, generally vest equally in annual installments over a three-year period. Grants awarded to former owners in connection with acquisitions vest in varying lengths from two to four years. Refer to Note 6, Acquisitions, for additional discussion regarding the details of these transactions. Compensation expense is recognized on a straight-line basis over the vesting period.

The following table summarizes equity-based compensation activity related to time-based restricted stock units and restricted stock awards:

	Shares	Weighted average grant date fair value per share
Balance, January 1, 2020	455,452	$	46.15
Granted (a)	769,750	$	33.05
Shares vested (including tax withholding) (b)	(189,354)	$	44.41
Forfeited	(17,840)	$	35.94
Balance, December 31, 2020	1,018,008	$	36.74

(a) The weighted average grant date fair value per share for the years ended December 31, 2019 and 2018 were $38.43 and $53.04, respectively.

(b) Pursuant to the terms of the Incentive Plan, shares withheld by the Company for the payment of the employee's tax withholding related to shares vesting are added back to the pool of shares available for future awards.

At December 31, 2020, there was $25.1 million of total unrecognized expense. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 2.0 years.

Performance-based Restricted Stock

Performance-based restricted stock units (“PSUs”) granted to employees, other than booj employees and former owners in connection with the acquisitions, 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. 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 booj acquisition were stock-based awards in which the number of shares received were dependent on the achievement of certain technology milestones set forth in the related purchase agreement. The awards were valued using the Company’s closing stock price on the date of grant. The Company’s expense was adjusted based on the final achievement of the milestones. Most of these PSUs vested in 2019. The remaining PSUs vested in early 2020 based on the achieved milestone.

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

	Shares	Weighted average grant date fair value per share
Balance, January 1, 2020	139,964	$	45.31
Granted (a) (b)	205,188	$	29.90
Shares vested (including tax withholding)	(6,331)	$	38.49
Forfeited (c)	(57,086)	$	49.08
Balance, December 31, 2020	281,735	$	23.37

(a) The weighted average grant date fair value per share for the years ended December 31, 2019 and 2018 were $38.87 and $55.38, respectively.

(b) Represents the total participant target award.

(c) Includes forfeiture of the performance awards granted in 2018 that were set to vest on December 31, 2020 as the performance conditions were not met.

At December 31, 2020, there was $5.1 million of total unrecognized PSU expense. This compensation expense is expected to be recognized over the weighted-average remaining vesting period of 1.9 years for PSUs.

After giving effect to all outstanding awards (assuming maximum achievement of performance goals for performance-based awards), there were 1,407,058 additional shares available for the Company to grant under the Incentive Plan as of December 31, 2020.