SHARE-BASED COMPENSATION

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

We recognized employee share-based compensation expense of $2.4 million and $2.2 million during the three months ended June 30, 2014 and 2013, respectively, and the related income tax expense recognized was $0.7 million and $0.9 million for the same periods. We recognized employee share-based compensation expense of $7.1 million and $8.1 million during the six months ended June 30, 2014 and 2013, respectively, and the related income tax expense recognized was $2.3 million and $3.1 million, respectively, for the same period. We did not capitalize any share-based compensation during the three and six months ended June 30, 2014 and 2013.

The unrecognized compensation cost related to our unvested restricted stock as of June 30, 2014 is estimated to be $13.6 million and is expected to be recognized over a weighted-average period of 1.4 years. We do not have unrecognized cost related to our unvested stock options as of June 30, 2014. No phantom stock was outstanding as of June 30, 2014.

During May 2014, we issued 197,865 shares of common stock to our outside directors under the Key Energy Services, Inc. 2014 Equity and Cash Incentive Plan that was approved by our stockholders on May 15, 2014. These shares vested immediately and we recognized $1.6 million of expense related to these awards. Additionally, during May 2013, we recognized $1.8 million of expense related to similar awards.

On January 30, 2014, the Compensation Committee of the Board of Directors adopted the 2014 Performance Unit Plan (the “2014 PU Plan”) and granted performance units pursuant to the Performance Award Agreement (“2012 PU Award Agreement”) under the Key Energy Services, Inc. 2012 Equity and Cash Incentive Plan (the “2012 Plan”). We believe that the 2014 PU Plan and 2012 PU Award Agreement will enable us to obtain and retain employees who will contribute to our long term success by aligning the interests of our executives with the interests of our stockholders by providing compensation that is linked directly to increases in share value.

In January 2014, we issued 0.5 million performance units to our executive officers under the 2012 Plan with such material terms as set forth in the 2012 PU Award Agreement. In February 2014, we issued 0.1 million performance units to certain other employees under the 2014 PU Plan. The performance units are measured based on two performance periods from January 1, 2014 to December 31, 2014 and from January 1, 2015 to December 31, 2015. One half of the performance units are measured based on the first performance period, and the other half are measured based on the second performance period. The number of performance units that may be earned by a participant is determined at the end of each performance period based on the relative placement of Key’s total stockholder return for that period within the peer group, as follows:



Company Placement for the Performance Period	Percentile Ranking in Peer Group		Performance Units Earned as a Percentage of Target
First	100	%	200	%
Second	91	%	180	%
Third	82	%	160	%
Fourth	73	%	140	%
Fifth	64	%	120	%
Sixth	55	%	100	%
Seventh	45	%	75	%
Eighth	36	%	50	%
Ninth	27	%	25	%
Tenth	18	%	0	%
Eleventh	9	%	0	%
Twelfth	0	%	0	%

If any performance units vest for a given performance period, the award holder will be paid a cash amount equal to the vested percentage of the performance units multiplied by the closing stock price of our common stock on the last trading day of the performance period. We account for the performance units as a liability-type award as they are settled in cash. As of June 30, 2014, the fair value of outstanding performance units was $6.0 million, and is being accreted to compensation expense over the vesting terms of the awards. As of June 30, 2014, the unrecognized compensation cost related to our unvested performance units is estimated to be $3.3 million and is expected to be recognized over a weighted-average period of 1.1 years.

- Definition

The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.

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