Compensation Plans

12 Months Ended

Dec. 31, 2019

Note 7 – Compensation Plans

Equity Incentive Compensation Plan

There are several components to the Company’s Equity Incentive Compensation Plan (“Equity Plan”) that are described in this section. Various types of equity awards have been granted by the Company in different periods.

As of December 31, 2019, approximately 4.4 million shares of common stock were available for grant under the Equity Plan. The issuance of a direct share benefit, such as a share of common stock, a stock option, a restricted share, an RSU, or a PSU, counts as one share against the number of shares available to be granted under the Equity Plan. Each PSU has the potential to count as two shares against the number of shares available to be granted under the Equity Plan based on the final performance multiplier.

Performance Share Units

The Company grants PSUs to eligible employees as part of its Equity Plan. The number of shares of the Company’s common stock issued to settle PSUs ranges from zero to two times the number of PSUs awarded and is determined based on certain performance criteria over a three-year performance period. PSUs generally vest on the third anniversary of the date of the grant or upon other triggering events as set forth in the Equity Plan. Employees who are retirement eligible at the time a PSU award was granted, vest in each portion of that award equally in six-month increments over a three-year period beginning at grant date. Retirement eligible employees must stay with the Company through the entire six-month vesting period to receive that increment of vesting and any non-vested portions of a PSU award will be forfeited when the employee leaves the Company.

The fair value of PSUs is measured at the grant date with a stochastic Monte Carlo simulation using geometric Brownian motion (“GBM Model”). A stochastic process is a mathematically defined equation that can create a series of outcomes over time. These outcomes are not deterministic in nature, which means that by iterating the equations multiple times, different results will be obtained for those iterations. In the case of the Company’s PSUs, the Company cannot predict with certainty the path its stock price or the stock prices of its peers will take over the three-year performance period. By using a stochastic simulation, the Company can create multiple prospective stock pathways, statistically analyze these simulations, and ultimately make inferences regarding the path the stock price may take. As such, because future stock prices are stochastic, or probabilistic with some direction in nature, the stochastic method, specifically the GBM Model, is deemed an appropriate method by which to determine the fair value of the PSUs. Significant assumptions used in this simulation include the Company’s expected volatility, dividend yield, and risk-free interest rate based on U.S. Treasury yield curve rates with maturities consistent with a three-year vesting period, as well as the volatilities and dividend yields for each of the Company’s peers.

For PSUs granted in 2017, which the Company has determined to be equity awards, the settlement criteria include a combination of the Company’s Total Shareholder Return (“TSR”) on an absolute basis, and the Company’s TSR relative to the TSR of certain peer companies over the associated three-year performance period. The fair value of the PSUs granted in 2017 was measured on the grant date using the GBM Model. As these awards depend entirely on market-based settlement criteria, the associated compensation expense is recognized on a straight-line basis within general and administrative expense and exploration expense over the vesting period of the awards.

For PSUs granted in 2018 and 2019, the settlement criteria include a combination of the Company’s TSR relative to the TSR of certain peer companies and the Company’s cash return on total capital invested (“CRTCI”) relative to the CRTCI of certain peer companies over the associated three-year performance period. In addition to these performance measures, the award agreements for these grants also stipulate that if the Company’s absolute TSR is negative over the three-year performance period, the maximum number of shares of common stock that can be issued to settle outstanding PSUs is capped at one times the number of PSUs granted on the award date, regardless of the Company’s TSR and CRTCI performance relative to its peer group. The fair value of the PSUs granted in 2018 and 2019 was measured on the applicable grant dates using the GBM Model, with the assumption that the associated CRTCI performance condition will be met at the target amount at the end of the respective performance periods. Compensation expense for PSUs granted in 2018 and 2019 is recognized within general and administrative expense and exploration expense over the vesting periods of the respective awards. As these awards depend on a combination of performance-based settlement criteria and market-based settlement criteria, compensation expense may be adjusted in future periods as the number of units expected to vest increases or decreases based on the Company’s expected CRTCI performance relative to the applicable peer companies.

The Company records compensation expense associated with the issuance of PSUs based on the fair value of the awards as of the date of grant. Total compensation expense recorded for PSUs was $10.9 million, $10.3 million, and $9.7 million for the years ended December 31, 2019, 2018, and 2017, respectively. As of December 31, 2019, there was $15.9 million of total unrecognized expense related to PSUs, which is being amortized through 2022.

A summary of the status and activity of non-vested PSUs is presented in the following table:



	For the Years Ended December 31,
	2019				2018				2017
	PSUs ⁽¹⁾		Weighted-Average Grant-Date Fair Value		PSUs ⁽¹⁾		Weighted-Average Grant-Date Fair Value		PSUs ⁽¹⁾		Weighted-Average Grant-Date Fair Value
Non-vested at beginning of year	1,711,259		$	20.68	1,533,491		$	22.97	828,923		$	43.25
Granted	793,125		$	12.80	572,924		$	24.45	977,731		$	15.86
Vested	(346,021	)	$	26.32	(233,102	)	$	44.25	(94,338	)	$	85.85
Forfeited	(135,778	)	$	16.98	(162,054	)	$	21.79	(178,825	)	$	44.99
Non-vested at end of year	2,022,585		$	16.87	1,711,259		$	20.68	1,533,491		$	22.97

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⁽¹⁾	The number of awards assumes a multiplier of one. The final number of shares of common stock issued may vary depending on the three-year performance multiplier, which ranges from zero to two.

The fair value of the PSUs granted in 2019, 2018, and 2017 was $10.2 million, $14.0 million, and $15.5 million, respectively.

During the years ended December 31, 2019, 2018, and 2017, PSUs that were granted in 2016, 2015, and 2014, respectively did not satisfy the minimum performance requirements. This resulted in a multiplier of zero times and therefore no shares of common stock were issued upon settlement.

The total fair value of PSUs that vested during the years ended December 31, 2019, 2018, and 2017 was $9.1 million, $10.3 million, and $8.1 million, respectively.

Employee Restricted Stock Units

The Company grants RSUs to eligible persons as part of its Equity Plan. Each RSU represents a right to receive one share of the Company’s common stock upon settlement of the award at the end of the specified vesting period. RSUs generally vest one-third of the total grant on each anniversary date of the grant over a three-year vesting period or upon other triggering events as set forth in the Equity Plan. Employees who are retirement eligible at the time an RSU award is granted, vest in each portion of that award equally in six-month increments over a three-year period beginning at grant date. Retirement eligible employees must stay with the Company through the entire six-month vesting period to receive that increment of vesting and any non-vested portions of an RSU award will be forfeited when the employee leaves the Company.

The Company records compensation expense associated with the issuance of RSUs based on the fair value of the awards as of the date of grant. The fair value of an RSU is equal to the closing price of the Company’s common stock on the day of the grant. Compensation expense for RSUs is recognized within general and administrative expense and exploration expense over the vesting periods of the respective awards. Total compensation expense recorded for employee RSUs for the years ended December 31, 2019, 2018, and 2017, was $11.1 million, $10.8 million, and $10.3 million, respectively. As of December 31, 2019, there was $16.9 million of total unrecognized compensation expense related to non-vested RSU awards, which is being amortized through 2022.

A summary of the status and activity of non-vested RSUs granted to employees is presented in the following table:



	For the Years Ended December 31,
	2019				2018				2017
	RSUs		Weighted- Average Grant-Date Fair Value		RSUs		Weighted- Average Grant-Date Fair Value		RSUs		Weighted- Average Grant-Date Fair Value
Non-vested at beginning of year	1,243,163		$	21.50	1,244,262		$	20.25	604,116		$	37.39
Granted	978,932		$	12.36	583,552		$	25.77	1,020,780		$	16.64
Vested	(466,535	)	$	21.94	(407,529	)	$	24.30	(246,025	)	$	43.99
Forfeited	(223,429	)	$	18.16	(177,122	)	$	17.26	(134,609	)	$	26.38
Non-vested at end of year	1,532,131		$	16.01	1,243,163		$	21.50	1,244,262		$	20.25

The fair value of RSUs granted to eligible employees in 2019, 2018, and 2017 was $12.1 million, $15.0 million, and $17.0 million, respectively.

A summary of the shares of common stock issued to settle employee RSUs is presented in the table below:



	For the Years Ended December 31,
	2019		2018		2017
Shares of common stock issued to settle RSUs ⁽¹⁾	466,535		407,529		246,025
Less: shares of common stock withheld for income and payroll taxes	(132,136	)	(115,784	)	(74,747	)
Net shares of common stock issued	334,399		291,745		171,278

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⁽¹⁾	During the years ended December 31, 2019, 2018, and 2017, the Company issued shares of common stock to settle RSUs that related to awards granted in previous years. The Company and a majority of grant recipients mutually agreed to net share settle a portion of the awards to cover income and payroll tax withholdings in accordance with the Company’s Equity Plan and individual award agreements.

The total fair value of employee RSUs that vested during the years ended December 31, 2019, 2018, and 2017 was $10.2 million, $9.9 million, and $10.8 million, respectively.

Director Shares

In 2019, 2018, and 2017, the Company issued 96,719, 63,741, and 71,573 shares, respectively, of its common stock to its non-employee directors under the Equity Plan. In 2017, the Company issued 8,794 RSUs to a non-employee director. For the years ended December 31, 2019, 2018, and 2017, the Company recorded $1.2 million, $1.7 million, and $1.6 million, respectively, of compensation expense related to director shares and RSUs issued.

All shares issued to non-employee directors fully vest on December 31 of the year granted. The RSUs issued to a non-employee director in 2017 fully vested on December 31, 2017, and will settle upon the earlier to occur of May 25, 2027, or the director resigning from the Board of Directors.

Employee Stock Purchase Plan

Under the Company’s Employee Stock Purchase Plan (“ESPP”), eligible employees may purchase shares of the Company’s common stock through payroll deductions of up to 15 percent of eligible compensation, without accruing in excess of $25,000 in value from purchases for each calendar year. The purchase price of the stock is 85 percent of the lower of the fair market value of the stock on either the first or last day of the purchase period. The ESPP is intended to qualify under Section 423 of the Internal Revenue Code (the “IRC”). The Company had approximately 1.3 million shares of its common stock available for issuance under the ESPP as of December 31, 2019. There were 314,868, 199,464, and 186,665 shares issued under the ESPP in 2019, 2018, and 2017, respectively. Total proceeds to the Company for the issuance of these shares were $3.2 million for each of the years ended December 31, 2019, and 2018, respectively, and $2.6 million for the year ended December 31, 2017.

The fair value of ESPP grants is measured at the date of grant using the Black-Scholes option-pricing model. Expected volatility is calculated based on the Company’s historical daily common stock price, and the risk-free interest rate is based on U.S. Treasury yield curve rates with maturities consistent with a six-month vesting period.

The fair value of ESPP shares issued during the periods reported were estimated using the following weighted-average assumptions:



	For the Years Ended December 31,
	2019		2018		2017
Risk free interest rate	2.3	%	1.8	%	0.9	%
Dividend yield	0.7	%	0.4	%	0.5	%
Volatility factor of the expected market price of the Company’s common stock	56.6	%	55.9	%	62.5	%
Expected life (in years)	0.5		0.5		0.5

The Company expensed $1.1 million for each of the years ended December 31, 2019, and 2018, respectively, and $1.0 million for the year ended December 31, 2017, based on the estimated fair value of the ESPP grants.

401(k) Plan

The Company has a defined contribution plan (the “401(k) Plan”) that is subject to the Employee Retirement Income Security Act of 1974. The 401(k) Plan allows eligible employees to contribute a maximum of 60 percent of their base salaries up to the contribution limits established under the IRC. For employees hired before December 31, 2014, the Company matches 100 percent of each employee’s contribution in cash on a dollar for dollar basis, up to six percent of the employee’s base salary and performance bonus, and may make additional contributions at its discretion. The Company matches 150 percent of contributions made by employees hired after December 31, 2014, up to six percent of the employee’s base salary and performance bonus in lieu of pension plan benefits, and may make additional contributions at its discretion. Please refer to Note 8 – Pension Benefits for additional discussion of pension benefits. The Company’s matching contributions to the 401(k) Plan were $5.1 million, $4.9 million, and $4.5 million for the years ended December 31, 2019, 2018, and 2017, respectively.