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Long-term Equity-based Compensation Plans
6 Months Ended
Jun. 30, 2014
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]  
Long-term Equity-based Compensation Plans
Note 5 - Long-term Equity-based Compensation Plans
As of June 30, 2014, there were 8,187,171 common shares available for future grants under Kemper’s long-term equity-based compensation plan, of which 552,450 shares were reserved for future grants based on the performance level attained under the terms of outstanding performance-based restricted stock and performance-based restricted stock unit (“RSU”) awards. Equity-based compensation expense was $4.5 million and $3.0 million for the six months ended June 30, 2014 and 2013, respectively. Total unamortized compensation expense related to nonvested awards at June 30, 2014 was $7.0 million, which is expected to be recognized over a weighted-average period of 2 years.
Outstanding equity-based compensation awards at December 31, 2013 consisted of tandem stock option and stock appreciation rights (“Tandem Awards”), time-vested restricted stock, performance-based restricted stock and deferred stock units (“DSUs”). Effective February 4, 2014, the Company began issuing time-based and performance-based RSUs. Recipients of restricted stock receive full dividend and voting rights on the same basis as all other outstanding shares of Kemper common stock. Recipients of RSUs and DSUs receive full dividend equivalents on the same basis as all other outstanding shares of Kemper common stock, but do not receive voting rights until such shares are issued. Except for equity-based compensation awards granted to each member of the Board of Directors who is not employed by the Company (“Non-employee Directors”), all outstanding awards are subject to forfeiture until certain restrictions have lapsed.
Note 5 - Long-term Equity-based Compensation Plans (continued)
The Company uses the Black-Scholes option pricing model to estimate the fair value of each Tandem Award on the date of grant. The assumptions used in the Black-Scholes pricing model for Tandem Awards granted during the six months ended June 30, 2014 and 2013 were as follows:
 
Six Months Ended
 
Jun 30, 2014
 
Jun 30, 2013
Range of Valuation Assumptions
 
 
 
 
 
 
 
Expected Volatility
25.76
%
-
44.43
%
 
39.10
%
-
48.23
%
Risk-free Interest Rate
1.07

-
2.14

 
0.62

-
1.38

Expected Dividend Yield
2.53

-
2.60

 
2.83

-
3.00

Weighted-Average Expected Life in Years
 

 
 
 
 

 
 
Employee Grants
4

-
7
 
4

-
7
Director Grants
6
 
6

Tandem Award activity for the six months ended June 30, 2014 is presented below.
 
Shares Subject
to Award
 
Weighted-
Average
Exercise Price
Per Share ($)
 
Weighted-
Average
Remaining
Contractual Life
(in Years)
 
Aggregate
Intrinsic Value
($ in Millions)
Outstanding at Beginning of the Year
2,543,673

 
$
41.37

 
 
 
 
Granted
284,000

 
36.59

 
 
 
 
Exercised
(26,375
)
 
28.76

 
 
 
 
Forfeited or Expired
(464,123
)
 
47.88

 
 
 
 
Outstanding at June 30, 2014
2,337,175

 
$
39.65

 
4.49
 
$
5.0

Vested and Expected to Vest at June 30, 2014
2,299,770

 
$
39.77

 
4.43
 
$
4.8

Exercisable at June 30, 2014
1,773,360

 
$
41.57

 
3.16
 
$
3.2


The weighted-average grant-date fair values of Tandem Awards granted during the six months ended June 30, 2014 and 2013 were $10.46 per option and $10.20 per option, respectively. Total intrinsic value of Tandem Awards exercised was $0.3 million and $0.4 million for the six months ended June 30, 2014 and 2013, respectively. The total tax benefit realized for tax deductions from exercises of Tandem Awards was $0.1 million and $0.2 million for the six months ended June 30, 2014 and 2013, respectively. Cash received from exercises of Tandem Awards was insignificant for each of the six month periods ended June 30, 2014 and 2013.
Note 5 - Long-term Equity-based Compensation Plans (continued)
Information pertaining to Tandem Awards outstanding at June 30, 2014 is presented below.
 
 
 
 
Outstanding
 
Exercisable
Range of Exercise Prices
 
Shares
Subject to Award
 
Weighted-
Average
Exercise Price
Per Share ($)
 
Weighted-
Average
Remaining
Contractual
Life (in Years)
 
Shares
Subject to Tandem
Award
 
Weighted-
Average
Exercise Price
Per Share ($)
$
10.00

-
$
15.00

 
16,750

 
$
13.55

 
4.60
 
16,750

 
$
13.55

15.01

-
20.00

 
8,000

 
16.48

 
4.85
 
8,000

 
16.48

20.01

-
25.00

 
30,750

 
23.38

 
5.57
 
30,750

 
23.38

25.01

-
30.00

 
390,250

 
28.86

 
7.08
 
237,062

 
28.75

30.01

-
35.00

 
246,250

 
33.18

 
8.62
 
87,623

 
32.69

35.01

-
40.00

 
587,500

 
36.90

 
6.51
 
335,500

 
37.23

40.01

-
45.00

 
194,902

 
43.10

 
0.59
 
194,902

 
43.10

45.01

-
50.00

 
806,005

 
48.59

 
1.67
 
806,005

 
48.59

50.01

-
55.00

 
56,768

 
51.16

 
0.60
 
56,768

 
51.16

10.00

-
55.00

 
2,337,175

 
39.65

 
4.49
 
1,773,360

 
41.57


The grant-date fair values of time-based restricted stock and time-based RSU awards are determined using the closing price of Kemper common stock on the date of grant. Activity related to nonvested time-based restricted stock and nonvested time-based RSUs for the six months ended June 30, 2014 was as follows:
 
Time-based Restricted
Stock Awards
 
Time-based RSU Awards
 
Number of Shares
 
Weighted-
Average
Grant-Date
Fair Value
Per Share
 
Number of RSUs
 
Weighted-
Average
Grant-Date
Fair Value
Per RSU
Nonvested Balance at Beginning of the Year
101,627

 
$
31.48

 

 
$

Granted
2,000

 
38.59

 
41,425

 
36.58

Vested

 

 

 

Forfeited
(15,576
)
 
31.00

 
(1,200
)
 
36.47

Nonvested Balance at End of Period
88,051

 
31.72

 
40,225

 
36.58


Note 5 - Long-term Equity-based Compensation Plans (continued)
The grant-date fair values of the performance-based restricted stock and performance-based RSU awards are determined using the Monte Carlo simulation method. Activity related to nonvested performance-based restricted stock and nonvested performance-based RSUs for the six months ended June 30, 2014 was as follows:
 
Performance-based Restricted Stock Awards
 
Performance-based RSU Awards
 
Number of Shares
 
Weighted-
Average
Grant-Date
Fair Value
Per Share
 
Number of RSUs
 
Weighted-
Average
Grant-Date
Fair Value
Per RSU
Nonvested Balance at Beginning of the Year
176,800

 
$
39.54

 

 
$

Granted

 

 
66,575

 
40.50

Vested
(54,934
)
 
39.83

 

 

Forfeited
(3,991
)
 
40.73

 
(300
)
 
40.50

Nonvested Balance at End of Period
117,875

 
39.37

 
66,275

 
40.50


The initial number of shares or RSUs awarded to each participant of a performance-based award represents the shares that would vest, or, in the case of a RSU, that would vest and would be issued, if the performance level attained were to be at the “target” performance level. For performance above the target level, each participant would receive a grant of additional shares of stock up to a maximum of 100% of the initial number of shares or RSUs awarded to the participant. The final payout of these awards will be determined based on Kemper’s total shareholder return over a three-year performance period relative to a peer group comprised of all the companies in the S&P Supercomposite Insurance Index. The number of additional shares that would be granted if the Company were to meet or exceed the maximum performance levels related to the outstanding performance-based awards for the 2014, 2013 and 2012 three-year performance periods was 66,275 common shares, 58,300 common shares and 59,575 common shares, respectively, at June 30, 2014. For the 2011 three-year performance period, the Company exceeded target performance levels with a total payout percentage, including the target payout percentage, of 118%. Accordingly, an additional 9,014 shares of stock were issued to award recipients on February 1, 2014 (the “2011 Additional Shares”).
The total fair value of the shares of restricted stock that vested during the six months ended June 30, 2014 and the 2011 Additional Shares that were issued was $2.4 million and the tax benefits for tax deductions realized from such shares was $0.8 million. The total fair value of the shares of restricted stock that vested during the six months ended June 30, 2013 and the additional shares that were issued in connection with the 2010 performance-based restricted stock awards was $2.6 million and the tax benefits for tax deductions realized from such shares was $0.9 million.
The grant-date fair values of DSU awards granted to Non-employee Directors are determined using the closing price of Kemper common stock on the date of grant. DSU awards granted to Non-employee Directors are fully vested on the date of grant. Activity related to DSU awards for the six months ended June 30, 2014 was as follows:
 
Number of DSUs
 
Weighted-
Average
Grant-Date
Fair Value
Per DSU
Vested Balance at Beginning of the Year
4,000

 
$
31.50

Granted and Vested
4,000

 
37.53

Vested Balance at End of Period
8,000

 
34.52