COMPENSATION EXPENSE

Compensation generally includes salaries, bonuses, equity and profit sharing awards. Bonuses, equity and profit sharing awards are accrued over the service period to which they relate. Guaranteed payments made to the Company's senior professionals who are members of Medley LLC are recognized as compensation expense. The guaranteed payments to the Company’s Co-Chief Executive Officers are performance based and are periodically set subject to maximums based on the Company’s total assets under management. Such maximums aggregated to $0.8 million and $1.3 million during the three months ended September 30, 2020 and 2019, respectively. Such maximums aggregated to $2.3 million and $3.8 million during the nine months ended September 30, 2020 and 2019, respectively. During the three and nine months ended September 30, 2020, the Company's Co-Chief Executive Officers received guaranteed payments in the aggregate of $0.2 million and $0.8 million, respectively. Neither of the Company’s Co-Chief Executive Officers received any guaranteed payments during the three and nine months ended September 30, 2019.

Retirement Plan

The Company sponsors a defined-contribution 401(K) retirement plan that covers all employees. Employees are eligible to participate in the plan immediately, and participants are 100% vested from the date of eligibility. The Company makes contributions to the plan of 3% of an employee’s eligible wages through June 30, 2020, up to a maximum limit as determined by the Internal Revenue Service. The Company also pays all administrative fees related to the plan. During the three and nine months ended September 30, 2020, the Company's accrued contributions to the plan were less than $0.1 million and $0.3 million, respectively. During the three and nine months ended September 30, 2019, the Company's accrued contributions to the plan were less than $0.1 million and $0.4 million, respectively. As of September 30, 2020 and December 31, 2019 the Company's outstanding liability to the plan was $0.3 million and $0.4 million, respectively.

Stock-Based Compensation

In connection with the IPO, the Company adopted the Medley Management Inc. 2014 Omnibus Incentive Plan (as amended, the "Plan"). The purpose of the Plan is to provide a means through which the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) of the Company can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of Medley Management Inc.’s Class A common stock or Medley LLC’s unit interests, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company’s stockholders. The Plan provides for the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), restricted LLC Units of Medley LLC, stock bonuses, other stock-based awards and cash awards. Shares of Class A common stock issued by the Company in settlement of awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the market or by private purchase or a combination of the foregoing. The maximum aggregate number of awards available to be granted under the plan, as amended and adjusted for the Company's reverse stock split (Note 19), as of September 30, 2020, is 900,000, of which all or any portion may be issued as shares of Medley Management Inc.'s Class A common stock or Medley LLC's unit interests. As of September 30, 2020, there were 0.3 million awards available to be granted under the Plan.

On October 22, 2020, at the Company's 2020 Annual Meeting of Stockholders held on such date, the Company’s stockholders approved an amendment to the Plan to increase the number of awards available for issuance thereunder by 10,000 to 19,000.

The fair value of RSUs granted under the Plan is determined to be the fair value of the underlying shares on the date of grant. The fair value of restricted LLC Units of Medley LLC is based on the public share price of MDLY at date of grant, adjusted for different distribution rights. The aggregate fair value of these awards is charged to compensation expense on a straight-line basis over the vesting period, which is generally up to five years, with the exception of certain restricted LLC Units that will only vest upon certain conditions such as death, disability, termination without cause or change of control. For these awards, compensation expense is recognized when such condition is met.

During the three months ended September 30, 2020 and 2019, stock-based compensation was $1.1 million and $2.0 million, respectively. Stock-based compensation for the nine months ended September 30, 2020 and 2019 was $2.9 million and $5.2 million, respectively.

A summary of RSU and restricted LLC Unit activity during the nine months ended September 30, 2020 is as follows:



	Number of RSUs		Weighted Average Grant Date Fair Value		Number of Restricted LLC Units	Weighted Average Grant Date Fair Value
Balance at December 31, 2019	172,971		$	53.86	237,973	$	38.27
Granted	118,197		4.98		41,858	20.76
Forfeited	(17,149	)	31.91		—	—
Vested	(72,435	)	49.54		—	—
Balance at September 30, 2020	201,584		$	28.61	279,831	$	35.65

The aggregate grant date fair value of RSUs vested during the nine months ended September 30, 2020 was $3.6 million. The vesting of 72,435 RSUs resulted in the issuance of 48,772 Class A common shares to employees and independent directors. The employee RSUs were net-share settled such that the Company withheld awards with the aggregate fair value equivalent to the employees' minimum statutory tax obligations in accordance with the terms of the Plan. Total employee tax obligations amounted to $0.2 million and payments to the appropriate taxing authorities are reflected as a financing activity on the Company's condensed consolidated statements of cash flows.

During the nine months ended September 30, 2020 and 2019, previously recognized compensation reversed relating to forfeited RSUs was $1.2 million and $1.0 million, respectively. In addition, during the nine months ended September 30, 2020 and 2019, the Company reclassified cumulative dividends of $0.4 million and $0.3 million, respectively, from retained earnings to other compensation expense as a result of such forfeitures. Unamortized compensation cost related to unvested RSUs and restricted LLC units as of September 30, 2020 was $7.4 million and is expected to be recognized over a weighted average period of 1.7 years. Such amount excludes unamortized compensation of $1.0 million relating to certain restricted LLC Units which only vest upon death, disability, termination without cause or change of control.