Stock-Based Compensation | Note Twelve — Stock-Based Compensation The Company has two stock-based compensation plans: the Mattersight Corporation 1999 Stock Incentive Plan (the “1999 Plan”) and the Mattersight Corporation Employee Stock Purchase Plan (the “ESPP”). Under the 1999 Plan, awards of restricted stock, salary replacement, commissions, stock options, and stock appreciation rights may be granted to directors, officers, employees, consultants, independent contractors, and agents of the Company and its subsidiaries. Awards granted under the 1999 Plan are made at the discretion of the Compensation Committee of the Company’s Board of Directors (the “Compensation Committee”). If shares or options awarded under the 1999 Plan are not issued due to cancellation of unvested or unexercised options or shares, then those shares or options again become available for issuance under the 1999 Plan. Under the 1999 Plan, on the first day of each fiscal year, the aggregate number of shares available for issuance under the 1999 Plan is automatically increased by an amount equal to 5% of the total number of shares of Common Stock that are outstanding. At the 2008 Annual Meeting of Stockholders, stockholders approved the amendment and restatement of the 1999 Plan to increase the number of shares available for issuance under the 1999 Plan by 1,500,000. Stock-based compensation expense was $5.4 million, $4.2 million, and $5.6 million, for the fiscal years ended 2015, 2014, and 2013, respectively. The Company recognizes stock compensation expense on a straight-line basis over the vesting period. The Company does not recognize the windfall tax benefit related to the excess tax deduction because the Company currently does not anticipate realizing the tax savings associated with this deduction. The amount of this excess tax deduction was $0.3 million for the fiscal year ended December 31, 2015 and $0 for the fiscal year ended December 31, 2014. As of December 31, 2015, there were a total of 1,776,903 shares of Common Stock available for future grants under the 1999 Plan and from treasury stock. The Company’s Common Stock is traded on the NASDAQ Global Market under the symbol “MATR”. Restricted Stock Restricted stock awards are shares of Common Stock granted to an individual that do not immediately vest but rather, vest over a period of time. During the vesting period, the holder of granted restricted stock receives all of the benefits of ownership (right to dividends, voting rights, etc.), other than the right to sell or otherwise transfer any interest in the stock. On September 11, 2014, each non-employee director received 10,000 shares of restricted stock, of which 25% vested on November 30, 2014 and the remaining balance vested over the following three quarters. On May 15, 2015, each non-employee director received 10,000 shares of restricted stock, of which 25% vested on May 31, 2015 and the remaining balance will vest over the following three quarters. Commencing in 2015, in addition to the Annual Grant (as defined under the section titled “Stock Options” below), each non-employee director receives 10,000 shares of restricted stock annually, the day after the Company’s annual stockholders’ meeting, which will vest in equal quarterly increments over four quarters. Restricted stock award activity was as follows for the fiscal years ended December 31, 2013, December 31, 2014, and December 31, 2015: Shares Weighted Average Price Nonvested balance at December 31, 2012 821,363 $ 6.81 Granted 193,661 $ 4.52 Vested (351,137 ) $ 6.39 Forfeited (213,664 ) $ 6.62 Nonvested balance at December 31, 2013 450,223 $ 6.25 Granted 609,355 $ 5.70 Vested (458,888 ) $ 6.12 Forfeited (44,496 ) $ 6.13 Nonvested balance at December 31, 2014 556,194 $ 5.76 Granted 825,120 $ 6.78 Vested (493,270 ) $ 6.18 Forfeited (53,819 ) $ 6.15 Nonvested balance at December 31, 2015 834,225 $ 6.49 For the Fiscal Years Ended 2015 2014 2013 Total fair value of restricted stock awards vested $ 3.3 $ 2.6 $ 1.4 Compensation expense related to restricted stock awards $ 2.3 $ 1.7 $ 2.1 As of December 31, 2015, there remains $4.0 million of unrecognized compensation expense related to restricted stock awards. These costs are expected to be recognized over a weighted average period of 1.9 years. The Company estimated the forfeiture rate at 3% for fiscal years 2015, 2014, and 2013. Stock Options Stock option awards may be in the form of incentive or non-qualified options. Stock options are granted with an exercise price per share equal to the fair market value of a share of the Common Stock on the date of grant, and have a maximum term of 10 years. The stock option terms are set by the Compensation Committee and generally become exercisable over a period of four years. The vesting can begin in equal monthly or quarterly increments over the vesting period. Each non-employee director, upon commencing service, receives a non-qualified stock option to purchase 50,000 shares of Common Stock that vests ratably over a period of 48 months. Additionally, each non-employee director receives a non-qualified stock option to purchase 10,000 shares of Common Stock, granted annually the day after the Company’s annual stockholders’ meeting (the “Annual Grant”). Stock options granted to non-employee directors have an exercise price per share equal to the fair market value of a share of Common Stock on the grant date, and are exercisable for up to 10 years. During fiscal year 2015, the Company granted options to purchase a total of 222,625 shares. On February 11, 2015, the Company granted options to purchase a total of 122,625 shares of Common Stock to non-executive employees. The exercise price per share is $6.90, which was the closing price on the NASDAQ Global Market for shares of Common Stock on February 11, 2015, the grant date. Certain of the options vested 6.25% on February 28, 2015, with the balance vesting ratably over the following 15 quarters, whereas others vested 25% on February 28, 2016, with the balance vesting ratably over the following 12 quarters. The options expire on February 11, 2025. On May 15, 2015, the non-employee directors received options to purchase 70,000 shares of Common Stock. The exercise price per share is $6.13, which was the closing price on the NASDAQ Global Market for shares of Common Stock on May 15, 2015, the grant date. The options vested 25% on May 31, 2015, with the balance vesting ratably over the following three quarters. The options expire on May 15, 2025. On June 15, 2015, one non-executive employee received options to purchase 30,000 shares of Common Stock. The exercise price per share is $6.24, which was the closing price on the NASDAQ Global Market for shares of Common Stock on June 15, 2015, the grant date. The options will vest 25% on May 31, 2016, with the balance vesting ratably over the following 12 quarters. The options expire on June 15, 2025. During the fiscal year 2014, the Company granted options to purchase a total of 654,000 shares of Common Stock to certain employees. On February 12, 2014, one employee received options to purchase a total of 70,000 shares of Common Stock. The exercise price per share was $5.81, which was the closing price on the NASDAQ Global Market for shares of Common Stock on February 12, 2014, the grant date. The options vested 25% on February 28, 2015, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years. On April 21, 2014, the Company’s executive officers received options to purchase a total of 225,000 shares of Common Stock. The exercise price per share was $6.38, which was the closing price on the NASDAQ Global Market for shares of Common Stock on April 21, 2014, the grant date. The options vested 6.25% on May 31, 2014, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. On May 9, 2014, certain Company employees received options to purchase a total of 169,500 shares of Common Stock. The exercise price per share was $4.95, which was the closing price on the NASDAQ Global Market for shares of Common Stock on May 9, 2014, the grant date. Certain of the options will vest 6.25% on August 31, 2014, with the balance vesting ratably over the following 15 quarters, whereas others will vest 25% on May 31, 2015, with the balance vesting ratably over the following 12 quarters; all such options have a maximum exercise term of 10 years. On May 16, 2014, the Company’s Board of Directors received options to purchase a total of 70,000 shares of Common Stock. The exercise price per share was $4.99, which was the closing price on the NASDAQ Global Market for shares of Common Stock on May 16, 2014, the grant date. The options will vest 25% on May 31, 2015, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years. On August 14, 2014, certain Company employees received options to purchase a total of 19,500 shares of Common Stock. The exercise price per share was $4.88, which was the closing price on the NASDAQ Global Market for shares of Common Stock on August 14, 2014, the grant date. The options vested 6.25% on November 30, 2014, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. On November 5, 2014, one employee received options to purchase a total of 10,000 shares of Common Stock. The exercise price per share was $5.45, which was the closing price on the NASDAQ Global Market for shares of Common Stock on November 5, 2014, the grant date. The options vested 6.25% on November 30, 2014, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. On November 10, 2014, one employee received options to purchase a total of 90,000 shares of Common Stock. The exercise price per share was $5.58, which was the closing price on the NASDAQ Global Market for shares of Common Stock on November 10, 2014, the grant date. The options vested 25% on November 30, 2015, with the balance vesting ratably over the following 12 quarters, with a maximum exercise term of 10 years. During fiscal year 2013, options to purchase a total of 467,500 shares of Common Stock were granted. On February 13, 2013, one employee received options to purchase a total of 5,000 shares of Common Stock. The exercise price per share was $4.48, which was the closing price on the NASDAQ Global Market for shares of Common Stock on the grant date. The options vested 25% on February 28, 2014, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years. On March 15, 2013, the Company’s executive officers and other employees received options to purchase a total of 342,500 shares of Common Stock. The exercise price per share was $4.69, which was the closing price on the NASDAQ Global Market for shares of Common Stock on the grant date. The options vested 6.25% on May 31, 2013, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. On May 17, 2013, options to purchase a total of 70,000 shares of Common Stock were granted to the Company’s Board of Directors. The exercise price per share was $3.80, which was the closing price on the NASDAQ Global Market for shares of Common Stock on the grant date. The options vested 25% on May 31, 2014, and the balance will vest ratably over the following 12 quarters, with a maximum exercise term of 10 years. On November 6, 2013, options to purchase a total of 50,000 shares of Common Stock were granted to two employees. The exercise price per share was $4.10, which was the closing price on the NASDAQ Global Market for shares of Common Stock on the grant date. The options vested 6.25% on November 30, 2013, and the balance will vest ratably over the following 15 quarters, with a maximum exercise term of 10 years. Option activity was as follows for the fiscal years ended December 31, 2013, December 31, 2014, and December 31, 2015: Options Weighted Average Exercise Price Weighted Average Remaining Contractual Life (Years) Weighted Average Fair Value of Option Grants Outstanding as of December 31, 2012 1,766,236 $ 9.03 7.4 Exercisable as of December 31, 2012 1,004,232 $ 11.09 Granted 467,500 $ 4.49 $ 2.68 Exercised (4,498 ) $ 3.47 Forfeited (215,000 ) $ 9.15 Outstanding as of December 31, 2013 2,014,238 $ 7.98 7.0 Exercisable as of December 31, 2013 1,204,786 $ 9.66 Outstanding intrinsic value at December 31, 2013 $ 0.3 Exercisable intrinsic value at December 31, 2013 $ 0.1 Granted 654,000 $ 5.63 $ 3.33 Exercised (2,914 ) $ 5.15 Forfeited (28,728 ) $ 5.85 Outstanding as of December 31, 2014 2,636,596 $ 7.42 6.8 Exercisable as of December 31, 2014 1,582,165 $ 8.70 Outstanding intrinsic value at December 31, 2014 $ 2.1 Exercisable intrinsic value at December 31, 2014 $ 1.1 Granted 222,625 $ 6.57 $ 3.55 Exercised (59,638 ) $ 4.76 Forfeited (192,166 ) $ 7.47 Outstanding as of December 31, 2015 2,607,417 $ 7.41 6.0 Exercisable as of December 31, 2015 1,967,825 $ 7.97 Outstanding intrinsic value at December 31, 2015 $ 2.4 Exercisable intrinsic value at December 31, 2015 $ 1.8 For the Fiscal Years Ended 2015 2014 2013 Compensation expense related to option awards $ 1.7 $ 1.4 $ 1.1 For the Fiscal Years Ended 2015 2014 2013 Total fair value of stock options vested $ 1.7 $ 1.3 $ 1.1 Intrinsic value of stock options exercised 0.1 — — Proceeds received from option exercises 0.3 — — As of December 31, 2015, there remained $2.0 million of unrecognized compensation expense related to stock options. These costs are expected to be recognized over a weighted average period of 1.7 years. The Company forfeiture rate was not applied as The fair value for options granted during fiscal years 2015, 2014, and 2013 was estimated on the date of grant using a Black Scholes option-pricing model. The Company used the following weighted average assumptions: For the Fiscal Years Ended 2015 2014 2013 Risk-free interest rates 1.03 % 1.4 % 0.7 % Expected dividend yield — — — Expected volatility 58 % 65 % 67 % Expected lives 6.0 years 6.0 years 6.0 years Historical Company information is the primary basis for the selection of expected life, expected volatility, and expected dividend yield assumptions. The risk-free interest rate is selected based on the yields from U.S. Treasury Strips with a remaining term equal to the expected term of the options being valued. Other Stock Compensation Employee Stock Purchase Plan The ESPP is intended to qualify as an “employee stock purchase plan” under section 423 of the Internal Revenue Code. We adopted the ESPP in 1999 and amended and restated the ESPP in May 2007 and February 2016. Under the ESPP, eligible employees are permitted to purchase shares of Common Stock at below-market prices. The purchase period opens on the first day and ends on the last business day of each calendar quarter. As of December 31, 2015, there remains 174,064 shares available for issuance under ESPP. The shares of Common Stock issued in respect of employee purchases under the ESPP during the fiscal years ended 2015, 2014, and 2013, were as follows: For the Fiscal Years Ended 2015 2014 2013 Shares of common stock issued 41,026 34,351 40,959 Expense related to ESPP (in thousands) $ 61 $ 44 $ 39 The fair value for ESPP purchases during fiscal years 2015, 2014, and 2013, was estimated using a Black Scholes model. The Company used the following weighted average assumptions: For the Fiscal Years Ended 2015 2014 2013 Risk-free interest rates 0.01 % 0.04 % 0.05 % Expected dividend yield — — — Expected volatility 37 % 42 % 46 % Expected lives 0.25 years 0.25 years 0.25 years Salary Replacement Program As approved by the Compensation Committee, the Company reinstated the Salary Replacement Program (the “Program”) for the period from July 1, 2013 through October 1, 2013. Participation was mandatory for any employee whose annual base salary was equal to or greater than $125,000 (each such employee, a “Participant”). Under the Program, Participants received periodic grants of unrestricted Common Stock (subject to Compensation Committee approval of each grant to the executive officers) in exchange for a 25% reduction in the cash salaries otherwise payable to Participants. A total of 146,267 shares of Common Stock were granted to Participants during fiscal year 2013. The Company recorded $0.6 million of expense for the Program during fiscal year 2013. Commissions The Company paid commissions with shares of unrestricted Common Stock from May 2013 to July 2013. A total of 345,324 shares of unrestricted Common Stock were granted to employees in payment of earned commissions during fiscal year 2013. In connection therewith, the Company recorded $0.5 million of expense during fiscal year 2013. |