Stock Plans and Management Compensation
|12 Months Ended|
Dec. 31, 2018
|Share-based Compensation [Abstract]|
|Stock Plans and Management Compensation||
Stock Plans and Management Compensation
Under the Brunswick Corporation 2014 Stock Incentive Plan, the Company may grant stock appreciation rights (SARs), non-vested stock awards, and performance awards to executives, other employees and non-employee directors, with shares from treasury shares and from authorized, but unissued, shares of common stock initially available for grant, in addition to: (i) the forfeiture of past awards; (ii) shares not issued upon the net settlement of SARs; or (iii) shares delivered to or withheld by the Company to pay the withholding taxes related to awards. As of December 31, 2018, 5.2 million shares remained available for grant.
Non-Vested Stock Awards
The Company grants both stock-settled and cash-settled non-vested stock units and awards to key employees as determined by management and the Human Resources and Compensation Committee of the Board of Directors. Non-vested stock units and awards have vesting periods of three years. Non-vested stock units and awards are eligible for dividends, which are reinvested, and are non-voting. All non-vested units and awards have restrictions on the sale or transfer of such awards during the vesting period.
Generally, grants of non-vested stock units and awards are forfeited if employment is terminated prior to vesting. Non-vested stock units and awards vest pro rata over one year if (i) the grantee has attained the age of 62, or (ii) the grantee's age plus total years of service equals 70 or more.
The Company recognizes the cost of non-vested stock units and awards on a straight-line basis over the requisite service period. Additionally, cash-settled non-vested stock units and awards are recorded as a liability on the balance sheet and adjusted to fair value each reporting period through stock compensation expense. During the years ended December 31, 2018, 2017 and 2016, the Company charged $13.2 million, $11.6 million and $10.8 million, respectively, to compensation expense for non-vested stock units and awards. The related income tax benefit recognized in 2018, 2017 and 2016 was $3.3 million, $4.4 million and $4.1 million, respectively. The fair value of shares vested during 2018, 2017 and 2016 was $4.4 million, $12.1 million and $13.8 million respectively.
The weighted average price per Non-vested stock award at grant date was $59.05, $60.30 and $40.01 for awards granted in 2018, 2017 and 2016, respectively. Non-vested stock award activity for the year ended December 31, 2018 was as follows:
As of December 31, 2018, there was $11.7 million of total unrecognized compensation expense related to non-vested stock awards. The Company expects this expense to be recognized over a weighted average period of 1.4 years.
Between 2005 and 2012, the Company issued stock-settled SARs. Generally, SARs are exercisable over a period of 10 years, or as otherwise determined by management and the Human Resources and Compensation Committee of the Board of Directors, and subject to vesting periods of generally 4 years. However, with respect to SARs, all grants vest immediately: (i) in the event of a change in control; (ii) upon death or disability of the grantee; or (iii) with respect to awards granted prior to 2008, upon the sale or divestiture of the business unit to which the grantee is assigned.
In addition, grantees continue to vest in accordance with the vesting schedule even upon termination if (i) the grantee has attained the age of 62, or (ii) the grantee's age plus total years of service equals 70 or more. An additional provision applies that prorates the grant in the event of termination prior to the first anniversary of the date of grant, provided the participant had met the appropriate retirement age definition of rule of 70 or age 62.
SARs activity for all plans for the years ended December 31, 2018, 2017 and 2016, was as follows:
The following table summarizes information about SARs outstanding as of December 31, 2018:
SARs expense was immaterial for all periods presented.
In February 2018, 2017 and 2016, the Company granted performance shares to certain senior executives. Performance share awards are based on three performance measures: a cash flow return on investment (CFROI) measure, an operating margin (OM) measure and a total shareholder return (TSR) modifier. Performance shares are earned based on a three-year performance period commencing at the beginning of the calendar year of each grant. The performance shares earned are then subject to a TSR modifier based on stock returns measured against stock returns of a predefined comparator group over a three-year performance period. Additionally, in February 2018, 2017 and 2016, the Company granted 24,490, 26,300 and 37,430 performance shares, respectively, to certain officers and certain senior managers based on the respective measures and performance periods described above but excluding a TSR modifier.
The fair values of the senior executives' performance share award grants with a TSR modifier at the grant date in 2018, 2017 and 2016 were $61.59, $64.82 and $38.54, respectively, which were estimated using the Monte Carlo valuation model, and incorporated the following assumptions:
The fair value of certain officers' and certain senior managers' performance awards granted based solely on the CFROI and OM performance factors was $57.19, $58.77 and $37.76, which was equal to the stock price on the date of grant in 2018, 2017 and 2016, respectively, less the present value of dividend payments over the vesting period.
The Company recorded compensation expense related to performance awards of $5.9 million, $6.7 million and $6.1 million in 2018, 2017 and 2016, respectively. The related income tax benefit recognized in 2018, 2017 and 2016 was $1.5 million, $2.6 million and $2.3 million, respectively. The fair value of awards vested during 2018, 2017 and 2016 was $7.8 million, $5.5 million and $9.1 million, respectively.
Performance award activity for the year ended December 31, 2018 was as follows:
As of December 31, 2018, the Company had $2.8 million of total unrecognized compensation expense related to performance awards. The Company expects this expense to be recognized over a weighted average period of 1.5 years.
Excess Tax Benefits/Shortfalls
For tax purposes, share-based compensation expense is deductible in the year of exercise or release based on the intrinsic value of the award on the date of exercise or release. For financial reporting purposes, share-based compensation expense is based upon grant-date fair value, which is amortized over the vesting period. Excess or "windfall" tax benefits represent the excess tax deduction received by the Company resulting from the difference between the share-based compensation expense deductible for tax purposes and the share-based compensation expense recognized for financial reporting purposes. Conversely, the Company may recognize a tax "shortfall" in circumstances when share-based expense recognized for reporting purposes exceeds the expense deductible for tax purposes. Windfall tax benefits and shortfalls are recorded directly to Income tax provision on the Company's Consolidated Statement of Operations. Windfall tax benefits for the years ended December 31, 2018, 2017 and 2016 were $3.2 million, $8.0 million and $13.4 million, respectively.
The Company issues stock awards to non-employee directors in accordance with the terms and conditions determined by the Nominating and Corporate Governance Committee of the Board of Directors. A portion of each director’s annual fee is paid in Brunswick common stock, the receipt of which may be deferred until a director retires from the Board of Directors. Each director may elect to have the remaining portion paid in cash, in Brunswick common stock distributed at the time of the award, or in deferred Brunswick common stock units with a 20 percent premium.
The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef