Stock Plans

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

The 2016 Management Equity Incentive Plan provides for various forms of stock-based compensation for eligible key employees through May 2026. Management stock-based compensation includes stock options, restricted stock awards, restricted stock units and performance stock units. The 2017 Non-Employee Directors’ Equity Incentive Plan provides for grants of stock options and restricted stock to non-employee directors through May 2027. We issue treasury shares for stock option exercises and grants of restricted stock and performance stock. Please refer to Note 7—Capital Stock for further information regarding stock compensation share issuance.

Stock compensation expense is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)	2020		2019		2020		2019
Stock compensation (benefit) expense(a)	$	(1,309)	$	4,044	$	3,042	$	10,130
Income tax (expense) benefit	(319)		987		742		2,472
Stock compensation (benefit) expense, net of tax	$	(990)	$	3,057	$	2,300	$	7,658

(a) The Company adjusted cumulative stock compensation expense for changes in expected performance against target metrics for unvested performance stock units. This resulted in a benefit during the three months ended September 30, 2020.

A summary of stock option activity for the nine months ended September 30, 2020, follows:


	Shares	Weighted Average Exercise Price
Outstanding at January 1, 2020	559,656	$	45.78

Exercised	(162,983)	42.76
Forfeited	(954)	42.00

Outstanding at September 30, 2020	395,719	47.03
Exercisable at September 30, 2020	392,726	$	47.03

Restricted stock awards and restricted stock units are valued at the market value of the stock on the grant date. A summary of restricted stock activity for the nine months ended September 30, 2020, follows:


	Shares	Weighted Average Grant Date Fair Value
Unvested at January 1, 2020	172,701	$	90.38
Granted	48,138	122.69
Vested	(63,104)	81.56
Forfeited	(5,081)	104.53
Unvested at September 30, 2020	152,654	$	103.75

Performance stock units have a market condition modifier and are valued at an estimated fair value using a Monte Carlo model. The final number of shares to be issued for performance stock units granted in the first quarter of 2020 may range from 0% to 200% of the target award based on achieving the specified performance targets over the performance period plus an additional modifier based on total shareholder return (TSR) over the performance period. The following weighted average assumptions were used in estimating the fair value of the performance stock units granted in the first quarter of 2020.


Fair value per unit			$127.36
Risk-free interest rate			1.16%
Expected dividend yield			1.48%
Expected volatility			24.8%
MSA stock beta			0.988

The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date converted into an implied spot rate yield curve. Expected dividend yield is based on the most recent annualized dividend divided by the one year average closing share price. Expected volatility is based on the ten year historical volatility using daily stock prices. Expected life is based on historical stock option exercise data.

A summary of performance stock unit activity for the nine months ended September 30, 2020, follows:


	Shares	Weighted Average Grant Date Fair Value
Unvested at January 1, 2020	238,035	$	85.39
Granted	65,982	127.33
Performance adjustments	33,499	72.36
Vested	(132,036)	73.00
Forfeited	(3,698)	120.69
Unvested at September 30, 2020	201,782	$	104.41

The performance adjustments above relate primarily to the final number of shares issued for the 2017 performance unit awards which vested in the first quarter of 2020 at 135.7% of the target award based on both cumulative performance against the operating margin and revenue growth targets and MSA's TSR during the three-year performance period.