Note 18 - Share-based Compensation

12 Months Ended

Dec. 31, 2021

Notes to Financial Statements

Share-based Payment Arrangement [Text Block]

18. Share-Based Compensation

We have five plans under which we have awarded share-based compensation grants: The 1997 Non-Employee Directors Option Plan ("1997 Plan"), which provided for stock option grants to our non-employee Directors, the 2007 Stock Incentive Plan (“2007 Plan”), the Amended and Restated 2010 Stock Incentive Plan, as Amended (“2010 Plan”), the 2017 Stock Incentive Plan ("2017 Plan") and the 2020 Stock Incentive Plan ("2020 Plan"), which were adopted as a continuing step toward aggregating our equity compensation programs to reduce the complexity of our equity compensation programs.

As of December 31, 2021, there were 1,079,434 shares reserved for issuance under the 2007 Plan, the 2010 Plan and the 2017 Plan for outstanding compensation awards. There were 1,546,609 shares available for issuance under the 2020 Plan for current and future equity awards as of December 31, 2021. The Compensation Committee of the Board of Directors determines the number of shares awarded and the grant date, subject to the terms of our equity award policy.

We recognized total share-based compensation expense of $9.5 million, $6.0 million and $11.4 million, respectively, during the years ended 2021, 2020 and 2019. The total excess tax benefit recognized for share-based compensation arrangements during the years ended 2021, 2020 and 2019 was $0.7 million, $0.3 million and $1.1 million, respectively.

Stock Option Awards

We determined the fair value of our stock option awards using the Black-Scholes valuation model that uses the assumptions noted in the table below. The expected term selected for stock options granted during the year represents the period of time that the stock options are expected to be outstanding based on historical data of stock option holder exercise and termination behavior of similar grants. The risk-free interest rate for periods within the contractual life of the stock option is based on the U.S. Treasury rate over the expected life at the time of grant. Expected volatilities are based upon historical volatility of our stock over a period equal to the expected life of each stock option grant. Dividend yield is estimated over the expected life based on our dividend policy and historical dividends paid. To determine the amount of compensation cost to be recognized in each period, we account for forfeitures as they occur.

The following table illustrates the valuation assumptions used for the 2021, 2020 and 2019 grants:

	2021			2020			2019
Expected volatility		34 - 35	%		27 - 32	%		26 - 27	%
Weighted-average expected volatility		35	%		27	%		26	%
Expected dividend yield		1.3 - 1.4	%		1.3	%		1.2 - 1.4	%
Weighted-average expected dividend yield		1.4	%		1.3	%		1.2	%
Expected term, in years		5			5			5
Risk-free interest rate		0.8 - 0.9	%		0.3 - 1.3	%		1.6 - 2.5	%

New stock option awards granted vest one-third each year over a three year period and have a ten year contractual term. Compensation expense equal to the grant date fair value is recognized for these awards on a straight-line basis over the awards' vesting period. Stock options granted to employees are subject to accelerated expensing if the option holder meets the retirement definition set forth in the 2020, 2017 and 2010 Plans.

The following table summarizes the activity during the year ended December 31, 2021 for stock option awards:

	Shares			Weighted-Average Exercise Price
Outstanding at beginning of year		990,663		$	62.90
Granted		73,274			79.14
Exercised		(147,890	)		51.88
Forfeited		(5,912	)		64.42
Expired		(863	)		73.72
Outstanding at end of year		909,272		$	65.98
Exercisable at end of year		743,371		$	64.03

The weighted-average grant date fair value of stock options granted during the years ended December 31, 2021, 2020 and 2019 was $22.01, $18.45 and $15.37, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2021, 2020 and 2019 was $3.9 million, $3.3 million and $6.8 million, respectively. The aggregate intrinsic value of options outstanding and exercisable at December 31, 2021 was $13.8 million and $12.7 million, respectively. The weighted-average remaining contractual life for options outstanding and exercisable as of December 31, 2021 was 5.4 years and 4.8 years, respectively. As of December 31, 2021, there was unrecognized compensation cost for nonvested options of $1.2 million, which is expected to be recognized over a weighted-average period of 1.4 years.

Restricted Share Awards

Restricted share awards for employees generally have a three year vesting period from the effective date of the grant. Restricted share awards to non-employee directors vest upon a change of control or upon termination of service as a director occurring at least six months after grant date of the award so long as termination is for one of the following reasons: death; disability; retirement in accordance with Tennant policy (e.g., age, term limits, etc.); resignation at request of Board (other than for gross misconduct); resignation following at least six months’ advance notice; failure to be renominated (unless due to unwillingness to serve) or reelected by shareholders; or removal by shareholders. We use the closing share price the day before the grant date to determine the fair value of our restricted share awards. Expenses on these awards are recognized over the vesting period.

The following table summarizes the activity during the year ended December 31, 2021 for nonvested restricted share awards:

	Shares			Weighted-Average Grant Date Fair Value
Nonvested at beginning of year		94,043		$	55.81
Granted		16,863			79.34
Vested		(19,332	)		59.81
Forfeited		—			—
Nonvested at end of year		91,574		$	59.30

The total fair value of restricted shares vested during the years ended December 31, 2021, 2020 and 2019 was $1.2 million, $0.7 million and $1.0 million, respectively. As of December 31, 2021, there was $1.2 million of total unrecognized compensation cost related to nonvested restricted shares which is expected to be recognized over a weighted-average period of 2.0 years.

Performance Share Awards

We grant performance share awards to key employees as a part of our long-term management compensation program. These awards are earned based upon achievement of certain financial performance targets over a three year period. The number of shares of common stock a participant receives will be increased (up to 200 percent of target levels) or reduced (down to zero) based on the level of achievement of the financial performance targets. We use the closing share price the day before the grant date to determine the fair value of our performance share awards. Expenses on these awards are recognized over a three year performance period. Performance shares are granted in restricted stock units. They are payable in stock and vest solely upon achievement of certain financial performance targets during this three year period.

The following table summarizes the activity during the year ended December 31, 2021 for nonvested performance share awards:

	Shares			Weighted-Average Grant Date Fair Value
Nonvested at beginning of year		124,219		$	69.68
Granted		57,195			78.39
Vested		(43,621	)		67.88
Forfeited		(7,441	)		72.25
Nonvested at end of year		130,352		$	73.96

During the year ended December 31, 2020, 29,595 performance shares vested. No performance shares vested during the year ended December 31, 2019. As of December 31, 2021, we expect to recognize $3.4 million of total compensation costs over a weighted-average period of 1.8 years.

Restricted Stock Units

We grant restricted stock units to employees and non-employee directors, which generally vest within three years from the date of the grant. Vested restricted stock units are paid out in stock. We use the closing share price the day before the grant date to determine the fair value of our restricted stock units. Expenses on these awards are recognized on a straight-line basis over the vesting period of the award.

The following table summarizes the activity during the year ended December 31, 2021 for nonvested restricted stock units:

	Shares			Weighted-Average Grant Date Fair Value
Nonvested at beginning of year		97,485		$	64.95
Granted		61,121			82.44
Vested		(54,752	)		59.28
Forfeited		(12,883	)		79.44
Nonvested at end of year		90,971		$	78.06

The total fair value of shares vested during the years ended  December 31, 2021, 2020 and 2019 was $3.2 million, $2.6 million, and $2.2 million, respectively. As of December 31, 2021, there was $3.6 million of total unrecognized compensation cost related to nonvested shares which is expected to be recognized over a weighted-average period of 1.5 years.

Share-Based Liabilities

As of December 31, 2021 and 2020, we had $0.3 million and $0.3 million in total share-based liabilities recorded on our consolidated balance sheets, respectively.