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Share-Based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Share-Based Compensation and Other Employee Plans

In May 2018, our shareholders approved The Taubman Company LLC 2018 Omnibus Long-Term Incentive Plan (2018 Omnibus Plan). The 2018 Omnibus Plan provides for the award of restricted shares, restricted share units, restricted profits units of TRG (TRG Profits Units), options to purchase common shares, unrestricted shares, and dividend equivalent rights, in each case with or without performance conditions, to acquire up to an aggregate of 2.8 million common shares and TRG Profits Units to directors, officers, employees, and other service providers of TCO and its affiliates. Every share or TRG Profits Unit subject to awards under the 2018 Omnibus Plan shall be counted against this limit as one share or TRG Profits Unit for every one share or TRG Profits Unit granted. The amount of shares or TRG Profits Units available for future grants is adjusted when the number of contingently issuable common shares or units are settled. If an award issued under the 2018 Omnibus Plan is forfeited, expires without being exercised, or is used to pay tax withholding on such award, the shares of TRG Profits Units become available for issuance under new awards. TRG Profits Units are intended to constitute "profits interests" within the meaning of Treasury authority under the Internal Revenue Code of 1986, as amended. In addition, non-employee directors have the option to defer their compensation under a deferred compensation plan. The 2018 Omnibus Plan allows us to permit or require the deferral of all or a part of an award payment into a deferred compensation arrangement. Prior to the adoption of the 2018 Omnibus Plan, we provided share-based compensation through The Taubman Company LLC 2008 Omnibus Long-Term Incentive Plan (2008 Omnibus Plan), as amended, which expired in May 2018.

TRG Profits Units

There were no TRG Profits Units granted in 2019. The following types of TRG Profits Units awards previously were granted to certain senior management employees: (1) a time-based award with a three-year cliff vesting period (Restricted TRG Profits Units); (2) a performance-based award that is based on the achievement of relative total shareholder return (TSR) over a three-year period (Relative TSR Performance-based TRG Profits Units); and (3) a performance-based award that is based on the achievement of net operating income (NOI) over a three-year period (NOI Performance-based TRG Profits Units). The maximum number of Relative TSR and NOI Performance-based TRG Profits Units are issued at grant, eventually subject to a recovery and cancellation of previously granted amounts depending on actual performance against TSR and NOI measures over the three-year performance measurement period. NOI Performance-based TRG Profits Units provide for a cap on the maximum number of units vested if absolute TSR level is not positive over a three year period. Relative TSR and NOI Performance-based TRG Profits Units are generally subject to the same performance measures as the TSR-Based and NOI-Based Performance Share Units (see Other Management Employee Grants below). Despite the difference in scaling of the grant programs, the final outcome of the TSR and NOI performance measures will result in similar numbers of either TRG Units or common shares being issued at vesting under both the TRG Profits Units program and the Performance Share Unit program, respectively.

Each such award represents a contingent right to receive a TRG Unit upon vesting and the satisfaction of certain tax-driven requirements and, as to the TSR and NOI Performance-based TRG Profits Units, the satisfaction of certain performance-based requirements. Until vested, a TRG Profits Unit entitles the holder to only one-tenth of the distributions otherwise payable by TRG on a TRG Unit. Therefore, we account for these TRG Profits Units as participating securities in TRG. A portion of the TRG Profits Units award represents estimated cash distributions that otherwise would have been payable during the vesting period and, upon vesting, there will be an adjustment in actual number of TRG Profits Units realized under each award to reflect TRG's actual cash distributions during the vesting period.

All TRG Profits Units issued will vest by March 2021 if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier. Each holder of a TRG Profits Unit will be treated as a limited partner in TRG from the date of grant. To the extent the vested TRG Profits Units have not achieved the applicable criteria for conversion to TRG Units, vesting and economic equivalence to a TRG Unit prior to the tenth anniversary of the date of grant, the awards will be forfeited pursuant to the terms of the award agreement.

Other Management Employee Grants

During 2019, 2018, and 2017, other types of awards granted to management employees include those described below. These generally vest in March 2022, March 2021, and March 2020, respectively, if continuous service has been provided, or upon retirement or certain other events (such as death or disability) if earlier.

TSR - Based Performance Share Units (TSR PSU) - Each TSR PSU represents the right to receive, upon vesting, shares of common stock ranging from 0-300% of the TSR PSU based on our market performance relative to that of a peer group. The TSR PSU grants include a cash payment upon vesting equal to the aggregate cash dividends that would have been paid on such shares of common stock during the vesting period.

NOI - Based Performance Share Units (NOI PSU) - Each NOI PSU represents the right to receive, upon vesting, shares of common stock ranging from 0-300% of the NOI PSU based on our NOI performance, as well as a cash payment upon vesting equal to the aggregate cash dividends that would have been paid on such shares of common stock during the vesting period. These awards also provide for a cap on the maximum number of units vested if absolute TSR is not positive over a three-year period.

Restricted Share Units (RSU) - Each RSU represents the right to receive upon vesting one share of common stock, as well as a cash payment upon vesting equal to the aggregate cash dividends that would have been paid on such shares of common stock during the vesting period.

Expensed and Capitalized Costs

The compensation cost charged to income for our share-based compensation plans was $6.4 million, $9.2 million, and $10.8 million for the years ended December 31, 2019, 2018, and 2017, respectively. During the year ended December 31, 2019, a reversal of $0.3 million of prior-period share-based compensation expense was recognized related to the Taubman Asia President transition as a reduction of General and Administrative Expense on our Consolidated Statement of Operations and Comprehensive Income (Loss). Compensation cost capitalized as part of properties and deferred leasing costs was $0.3 million, $0.9 million, and $0.9 million for the years ended December 31, 2019, 2018, and 2017, respectively.

Valuation Methodologies

We estimated the grant-date fair values of share-based grants using the methods as follows. Expected volatility and dividend yields are based on historical volatility and yields of our common stock, respectively, as well as other factors. The risk-free interest rates used are based on the U.S. Treasury yield curves in effect at the grant date. We assume no forfeitures for failure to meet the service requirement of Performance Share Units (PSU) or TRG Profits Units, due to the small number of participants and low turnover rate.

The valuations of all grants utilized our common stock price at the grant date. Common stock prices when used in valuing TRG Profits Units are further adjusted by the present value of expected differences in dividends payable on the common stock versus the distributions payable on the TRG Profits Units over the vesting period. We estimated the value of grants dependent on TSR performance using a Monte Carlo simulation and considering historical returns of TCO and the peer group.

For awards dependent on NOI performance, we consider the NOI measure a performance condition under applicable accounting standards, and as such, have estimated a grant-date fair value for each of its possible outcomes. The compensation cost ultimately will be recognized equal to the grant-date fair value of the award that coincides with the actual outcome of the NOI performance. The weighted average grant-date fair value shown for NOI-dependent awards corresponds with management's current expectation of the probable outcome of the NOI performance measure. The product of the NOI-dependent awards outstanding and the grant-date fair value represents the compensation cost being recognized over the service periods.

The valuations of TRG Profits Units consider the possibility that sufficient share price appreciation will not be realized, such that the conversion to TRG Units will not occur and the awards will be forfeited.

Summaries of Activity for the years ended December 31, 2019, 2018, and 2017

Restricted TRG Profits Units



	Number of Restricted TRG Profits Units		Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2017	45,940		$	59.49
Granted	46,076		57.84
Forfeited	(30,885	)	57.85
Outstanding at December 31, 2017	61,131		$	59.08
Granted	8,154		49.29
Outstanding at December 31, 2018	69,285		$	57.93
Units recovered and cancelled ⁽¹⁾	(368	)	59.49
Vested and converted ⁽²⁾	(46,506	)	59.45
Outstanding at December 31, 2019	22,411		$	54.73


(1)	This reflects the recovery and cancellation of previously granted Restricted TRG Profits Units, which vested on March 1, 2019, as a result of the actual cash distributions made during the vesting period.


(2)	This represents the conversion of Restricted TRG Profits Units to TRG Units, which satisfied certain tax-driven requirements on April 1, 2019 and had previously vested.

As of December 31, 2019, there was $0.2 million of total unrecognized compensation cost related to nonvested Restricted TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 0.9 years.

Relative TSR Performance-based TRG Profits Units



	Number of relative TSR Performance-based TRG Profits Units		Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2017	103,369		$	26.42
Granted	103,666		23.14
Forfeited	(77,302	)	23.42
Outstanding at December 31, 2017	129,733		$	25.59
Granted	18,345		22.22
Outstanding at December 31, 2018	148,078		$	25.17
Units recovered and cancelled ⁽¹⁾	(76,489	)	26.42
Vested and converted ⁽²⁾	(21,169	)	26.30
Outstanding at December 31, 2019	50,420		$	22.81

(1)

This reflects the recovery and cancellation of previously granted (300% of target grant amount) Relative TSR Performance-based TRG Profits Units, which vested on March 1, 2019, as a result of the performance payout ratio of 22% and the actual cash distributions made during the vesting period. That is, despite the completion of applicable employee service requirements, the number of Relative TSR Performance-based TRG Profits Units ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period.


(2)	This represents the conversion of Restricted TRG Profits Units to TRG Units, which satisfied certain tax-driven requirements on April 1, 2019 and had previously vested.

As of December 31, 2019, there was $0.2 million of total unrecognized compensation cost related to nonvested Relative TSR Performance-based TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 1.0 year.

NOI Performance-based TRG Profits Units



	Number of NOI Performance-based TRG Profits Units		Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2017	103,369		$	41.87
Granted	103,666		19.35
Forfeited	(75,431	)	20.59
Outstanding at December 31, 2017	131,604		$	19.69
Granted	18,345		16.43
Outstanding at December 31, 2018	149,949		$	19.29
Units recovered and cancelled ⁽¹⁾	(68,730	)	17.47
Vested and converted ⁽²⁾	(30,799	)	18.86
Outstanding at December 31, 2019	50,420		$	2.99

(1)

This reflects the recovery and cancellation of previously granted (300% of target grant amount) NOI Performance-based TRG Profits Units, which vested on March 1, 2019, as a result of the performance payout ratio of 30% and the actual cash distributions made during the vesting period. That is, despite the completions of applicable employee service requirements, the number of NOI Performance-based TRG Profits Units ultimately considered earned is determined by the extent to which the NOI performance measure was achieved during the performance period.


(2)	This represents the conversion of Restricted TRG Profits Units to TRG Units, which satisfied certain tax-driven requirements on April 1, 2019 and had previously vested.

As of December 31, 2019, there was $0.1 million of total unrecognized compensation cost related to nonvested NOI Performance-based TRG Profits Units outstanding. This cost is expected to be recognized over an average period of 1.2 years.

TSR - Based Performance Share Units



	Number of TSR PSU			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2017	166,027			$	138.93
Granted	5,046			80.16
Vested - three-year grants	(50,459	)	⁽¹⁾	90.51
Vested - 2012 and 2013 special grants	(79,764	)	⁽²⁾	181.99
Outstanding at December 31, 2017	40,850			$	107.38
Granted	10,393			78.82
Vested	(37,046	)	⁽³⁾	110.09
Outstanding at December 31, 2018	14,197			$	79.13
Granted	20,936			85.44
Forfeited	(5,758	)		82.59
Outstanding at December 31, 2019	29,375			$	82.95

(1)

Based on our market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting during the year ended December 31, 2017 was 30,601 shares for the TSR PSU three-year grants. The shares of common stock were issued at a weighted average rate of 0.60x and in the range of 0.00x to 1.00x. That is, despite the completion of the applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period. Included in the vested PSUs are awards that vested early due to a retirement and as a result of our restructuring and reduction in our workforce (Note 1).

(2)

Based on our market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting during the year ended December 31, 2017 was zero shares for the 2012 and 2013 TSR PSU special grants. That is, despite the completion of the applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period.

(3)

Based on our market performance relative to that of a peer group, the actual number of shares of common stock issued upon vesting during the year ended December 31, 2018 was 45,941 shares for the TSR PSU three-year grants. The shares of common stock were issued at a rate of 1.24x. That is, despite the completion of the applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which the TSR market performance measure was achieved during the performance period.

The total intrinsic value of TSR PSU vested during the years ended December 31, 2018 and 2017 was $2.7 million and $2.1 million, respectively. None vested in 2019.

As of December 31, 2019, there was $1.3 million of total unrecognized compensation cost related to nonvested TSR PSU outstanding. This cost is expected to be recognized over an average period of 1.8 years.

NOI - Based Performance Share Units



	Number of NOI PSU			Weighted Average Grant-Date Fair Value
Outstanding at January 1, 2017	—			$	—
Granted	5,046			67.04
Vested	(1,242	)	⁽¹⁾	67.50
Outstanding at December 31, 2017	3,804			$	67.00
Granted	10,393			58.28
Outstanding at December 31, 2018	14,197			$	60.59
Granted	20,936			52.41
Forfeited	(5,758	)		57.42
Outstanding at December 31, 2019	29,375			$	40.95

(1)

The actual number of shares of common stock issued upon vesting during the year ended December 31, 2017 was 1,242 shares (1.0x). That is, despite the completion of applicable employee service requirements, the number of shares ultimately considered earned is determined by the extent to which NOI was achieved during the performance period. These NOI PSU vested as a result of our restructuring and reduction in our workforce (Note 1).

The total intrinsic value of NOI PSU vested during the year ended December 31, 2017 was $0.1 million. No NOI PSU vested in 2019 or 2018.

As of December 31, 2019, there was $0.8 million of total unrecognized compensation cost related to nonvested NOI PSU outstanding. This cost is expected to be recognized over an average period of 1.9 years.

Restricted Share Units



	Number of RSU			Weighted average Grant Date Fair Value
Outstanding at January 1, 2017	231,903			$	70.40
Granted	102,568			63.33
Forfeited	(12,499	)		67.78
Vested	(126,951	)		66.98
Outstanding at December 31, 2017	195,021			$	69.22
Granted	69,931			58.28
Forfeited	(6,985	)		63.21
Vested	(73,294	)		73.91
Outstanding at December 31, 2018	184,673			$	63.44
Granted	87,720			52.41
Forfeited	(19,249	)		57.90
Vested	(73,298	)		66.22
Outstanding at December 31, 2019	179,846			$	57.73

Fully vested at December 31, 2019	10,133		⁽¹⁾	58.75


(1)	These RSU were vested and outstanding as of December 31, 2019. The related shares were issued on January 3, 2020.

Based on an analysis of historical employee turnover, we have made an annual forfeiture assumption of 2.70% of grants when recognizing compensation costs relating to the RSU.

The total intrinsic value of RSU vested during the years ended December 31, 2019, 2018, and 2017 was $3.4 million, $4.6 million, and $8.6 million, respectively.

As of December 31, 2019, there was $4.2 million of total unrecognized compensation cost related to nonvested RSU outstanding. This cost is expected to be recognized over an average period of 1.7 years.

Options

Options were granted to purchase TRG Units, which are exchangeable for new shares of our common stock under the Continuing Offer (Note 15). The options had ten-year contractual terms.



	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Range of Exercise Prices
Outstanding at January 1, 2017	202,586	$	48.35	0.7	$	45.9	-	$	51.15
Exercised	(202,586)	48.35
Outstanding at December 31, 2017	0	$	—

The total intrinsic value of options exercised during the year ended December 31, 2017 was $3.5 million. Cash received from option exercises for the year ended December 31, 2017 was $9.8 million. No options were granted in 2018 and 2019.

Unit Option Deferral Election

Under a prior option plan, the 2008 Omnibus Plan, and the 2018 Omnibus Plan, vested unit options can be exercised by tendering mature units with a market value equal to the exercise price of the unit options. In 2002, Robert S. Taubman, our chief executive officer, exercised options for 3.0 million units by tendering 2.1 million mature units and deferring receipt of 0.9 million units under the unit option deferral election. As TRG pays distributions, the deferred option units receive their proportionate share of the distributions in the form of cash payments. Under an amendment executed in January 2011 and subsequent deferral elections (the latest being made in September 2016), beginning in December 2022 (unless Mr. Taubman retires earlier), the deferred options units will be issued as TRG Units in five annual installments. The deferred option units are accounted for as participating securities of TRG.

Non-Employee Directors’ Stock Grant and Deferred Compensation

The 2008 Omnibus Plan previously provided, and the 2018 Omnibus Plan currently provides, a quarterly grant to each non-employee director of TCO, shares of our common stock based on the fair value of our common stock on the last business day of the preceding quarter. The annual fair market value of the grant was $125,000 in 2019, 2018, and 2017. Certain directors have elected to defer receipt of their shares as described below.

The Non-Employee Directors’ Deferred Compensation Plan (DCP), which was approved by our Board of Directors, allows each non-employee director of TCO the right to defer the receipt of all or a portion of his or her annual director retainer fee until the termination of his or her service on our Board of Directors and for such deferred amount to be denominated in restricted stock units. The number of restricted stock units received equals the amount of the deferred retainer fee divided by the fair market value of the common stock on the business day immediately before the date the director would otherwise have been entitled to receive the retainer fee. The restricted stock units represent the right to receive equivalent shares of common stock at the end of the deferral period. During the deferral period, when we pay cash dividends on our common stock, the directors’ notional deferral accounts will be credited with dividend equivalents on their deferred restricted stock units, payable in additional restricted stock units based on the fair market value of our common stock on the business day immediately before the record date of the applicable dividend payment. There were 74,632 restricted stock units outstanding under the DCP at December 31, 2019.

Other Employee Plan

We have a voluntary retirement savings plan established in 1983 and amended and restated effective January 1, 2012 (the Plan). We believe the Plan is qualified in accordance with Section 401(k) of the Internal Revenue Code (the Code). We contribute an amount ranging from 0% to 4% of the qualified wages of all qualified employees depending on our performance and matches employee contributions in excess of 2%, up to 5%, for a total contribution in the range of 0% to 9% of qualified wages. In addition, we may make discretionary contributions within the limits prescribed by the Plan and imposed in the Code. Our contributions and costs relating to the Plan were $2.6 million in 2019, $3.0 million in 2018, and $2.5 million in 2017.