Stock-Based Compensation

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

On an annual basis since 2015, the Company has implemented a long-term incentive plan ("LTIP") which grants awards to employees and officers selected by the Compensation Committee of the Board of Directors (the “Compensation Committee”). PSU awards are earned based on achievement against one or more performance metrics established by the Compensation Committee in respect of a specified performance period. Earned PSUs range from zero to a specified maximum percentage of a participant’s target award based on the performance of applicable performance metrics, and are subject to vesting terms based on continued employment.

The first performance period ran from January 1, 2015 through December 31, 2017, with PSUs earned based on achievement of EBITDA metrics established by the Compensation Committee and total shareholder return relative to a peer group. Once earned and vested, PSUs were settled in one common share per vested PSU (or, at the Company’s election, cash equal to the fair market value thereof). There is no exercise price. The first vesting period ran through March 31, 2018 (the “2015 Plan”). All PSUs are granted under, and are subject to the terms and conditions of, the Company’s 2014 Omnibus Incentive Compensation Plan, and do not increase the number of shares previously reserved for issuance under that plan. On August 2, 2016 the Compensation Committee established a consecutive LTIP (the “2016 Plan”) having consistent terms as compared to the 2015 Plan. On March 31, 2019 the vesting period ended for the “2016 Plan” and earned and vested PSUs settled in one common share of the Company per vested PSU - issued to participants on April 30, 2019, except for certain PSUs settled in cash at fair market value to cover wage taxes or as substitute for share transfer restrictions. On July 31, 2017 the Compensation Committee established another consecutive LTIP (the "2017 Plan") having consistent terms as compared to the 2015 and 2016 Plan. On July 12, 2018 the Compensation Committee established a consecutive LTIP (the "2018 Plan") and on July 16, 2019 the Compensation Committee established a consecutive LTIP (the “2019 Plan”). The achievement metrics have changed for the 2019 Plan from EBITDA performance to a 'return on capital employed' and a 'total shareholder return' target. All PSUs are granted under, and are subject to the terms and conditions of, the Company’s 2014 Omnibus Incentive Compensation Plan (the “Omnibus Plan”).

In its “2019 Plan” the company issued beside PSUs ("2019 Plan PSU") also a tranche of restricted share units (“RSUs”) for its selected employees and officers ("2019 Plan RSU"). RSUs vest by one-third on each of the first, second and third anniversary of the grant date. The RSUs are subject to certain further restrictions after vesting. Settlement of selected employees and officer RSUs is within 75 days following the third anniversary of the grant date.

Specific Members of our Executive Committee received RSUs upon signing. These sign-on RSUs vest by one-third on each of the first, second and third anniversary of the grant date.

In April 2018 the Compensation Committee established a stock compensation plan for the Board of Directors under the existing Omnibus Incentive Compensation Plan.

The following table provides detail as to expenses recorded within operating income with respect to stock based compensation:


	Three Months Ended March 31,
			2020			2019
			(In thousands)

2016 Plan	$	—		$	1,083
2017 Plan	—			1,195

2018 Plan	(1,242)			1,275
Sign on RSU incentive	134			—
2019 Plan	(30)			—
Total expenses	$	(1,139)		$	3,553

Due to lowered expectations for EBITDA and ROCE in the full year 2020 and upcoming year 2021 performance condition of 2018 Plan and 2019 Plan are no longer expected to be met. Expenses recorded in prior years for 2018 Plan and 2019 Plan were partly reversed for the three months ended March, 31, 2020.

In the following table summarizes the activity of our PSUs within the three months ended March 31, 2020:


Period granted	Performance period	PSUs outstanding at January 1,	PSUs granted	Performance based adjustment	PSUs settled	PSUs forfeited	PSUs outstanding at March 31,	PSUs expected to vest	Weighted average grant date fair value

2017	2017 - 2020	418,252	—	(40,087)	(378,165)	—	—	—	$	24.89
2018	2018 - 2021	355,766	—	—	—	(2,949)	352,817	299,418	$	39.24
2019	2019 - 2022	229,727	—	—	—	(1,895)	227,832	215,933	$	11.48
	Total 2020	1,003,745	—	(40,087)	(378,165)	(4,844)	580,649	515,351

In the following table summarizes the activity of our RSUs within the three months ended March 31, 2020:


Period granted	Vesting period	RSUs outstanding January 1,	RSUs granted	Performance based adjustment	RSUs settled	RSUs forfeited	RSUs outstanding at March 31,	RSUs expected to vest	Weighted average grant date fair value
Sign-on RSUs:
2018	2018 - 2021	23,878	—	—	—	—	23,878	23,878	$	25.81
2019	2019 - 2022	45,257	—	—	—	—	45,257	45,257	$	15.89
2019 Plan:
2019	2019 - 2022	128,447	—	—	—	(1,895)	126,552	126,552	$	14.74
	Total 2020	197,582	—	—	—	(1,895)	195,687	195,687

Certain members of our Board of Directors receive compensation in form of restricted shares (“RSs”) in accordance with the 2014 Non-employee Director Plan. Under this plan 24,080 RSs are currently outstanding. The RSs vested on April 30, 2020, the first anniversary of the grant date.

At March 31, 2020, we had unrecognized compensation cost of $5.6 million, based on the target amounts, related to unvested PSUs, RSUs and RSs, which is expected to be recognized over a weighted average period of 1.3 years.

The closing price of the Company's shares and therefore the intrinsic value of one PSU or RSU outstanding was $7.46 as of March 31, 2020, $18.99 as of March 31, 2019 and $27.10 as of March 31, 2018. Total intrinsic value of PSUs and RSUs amounted to $5.8 million as of March 31, 2020, $31.0 million as of March 31, 2019.

The following table lists the inputs to the valuation model used for calculating the grant date fair values under the 2019, 2018 and 2017 Plans:


	2017 Plan	2018 Plan	2019 Plan PSU
Expected term (in years)	3	3	3
Dividend yield (%)	1.88%	1.94%	4.65%
Expected volatility OEC (%)	33.77%	30.22%	33.30%
Expected volatility peer group (%)	17.30%	20.09%	17.62%
Correlation	0.4574	0.3659	0.5205
Risk-free interest rate (%)	1.45%	1.46%	1.83%
Model used	Monte Carlo	Monte Carlo	Monte Carlo
Weighted average fair value of PSUs granted	$24.89	$39.24	$11.48

In March 2020, 378,165 PSUs (including a performance adjustment reduction of 40,087 PSUs) were settled for the 2017 Plan. In April 2019, 977,106 PSUs (including performance adjustment of 299,499 PSUs) were settled for the 2016 Plan. The expected term of share awards represents the weighted average period the share awards are expected to remain outstanding. The remaining contractual terms of share units outstanding is March 2021 for the 2018 Plan and December 2021 for the 2019 Plan.

The Company used a combination of historical and implied volatility of its traded shares, or blended volatility, in deriving the expected volatility assumption. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of stock options. The dividend yield assumption is based on the Company's history.

Stock-based compensation expense is comprised of the following line items:


	Three Months Ended March 31,
			2020			2019
			(In thousands)
Cost of sales	$	29		$	12
Selling expenses	(172)			737
General and administrative expenses	(910)			2,598
Research and development costs	(87)			206
Stock-based compensation expense	$	(1,139)		$	3,553

The assumption for estimating expected forfeitures is based on previous experience and based on 3% leavers rate per year. Actual forfeitures are recorded as they occur. For the three months ended March, 31, 2020 expenses recorded in prior years for 2018 and 2019 Plan were partly reversed as the performance condition for the EBITDA and ROCE metrics are no longer expected to be met.