Stock-based compensation | 6 Months Ended |
Jun. 30, 2014 |
Stock-based compensation | ' |
13. Stock-based compensation |
The Company has issued options under the Genpact Global Holdings 2005 Plan (the “2005 Plan”), the Genpact Global Holdings 2006 Plan (the “2006 Plan”), the Genpact Global Holdings 2007 Plan (the “2007 Plan”) and the Genpact Limited 2007 Omnibus Incentive Compensation Plan (the “2007 Omnibus Plan”) to eligible persons who are employees, directors and certain other persons associated with the Company. |
With respect to options granted under the 2005, 2006 and 2007 Plans before the date of adoption of the 2007 Omnibus Plan, if an award granted under any of the Plans is forfeited or otherwise expires, terminates, or is cancelled without the delivery of shares, then the shares covered by the forfeited, expired, terminated, or cancelled award will be added to the number of shares otherwise available for grant under the respective Plans. |
From the date of adoption of the 2007 Omnibus Plan on July 13, 2007, the options forfeited, expired, terminated, or cancelled under any of the plans will be added to the number of shares otherwise available for grant under the 2007 Omnibus Plan. The 2007 Omnibus Plan was amended and restated on April 11, 2012 to increase the number of common shares authorized for issuance by 5,593,200 shares to 15,000,000 shares. |
On August 30, 2012, the Company’s Board of Directors declared a special cash dividend of $2.24 per share. The special cash dividend resulted in an adjustment to stock-based awards under both the 2007 Omnibus Plan and the 2005 Plan. Accordingly, effective September 24, 2012, the payment date of the special cash dividend, the number of common shares authorized for issuance under the 2007 Omnibus Plan was increased by 2,544,327 shares. The number of common shares authorized for issuance under the 2005 Plan was increased by 495,915 shares. |
Further, as of December 31, 2012, the number of common shares authorized for issuance under the 2007 Omnibus Plan had been increased by 6,314,496 shares as a result of the termination, expiration or forfeiture of options granted under the Company’s stock incentive plans other than the 2007 Omnibus Plan. In accordance with the anti-dilutive provisions of the 2005 Plan, 2006 Plan, 2007 Plan and 2007 Omnibus Plan, the Company adjusted both the exercise price and the number of stock-based awards outstanding as of the record date of the special cash dividend. The aggregate fair value, intrinsic value and the ratio of the exercise price to the market price were approximately equal immediately before and after the adjustments. Therefore, in accordance with the equity restructuring guidance under ASC 718, Compensation-Stock Compensation, no incremental compensation expense was recognized for the adjustment to the outstanding stock-based awards as a result of the special cash dividend. |
Stock-based compensation costs relating to the foregoing plans during the six months ended June 30, 2013 and 2014 were $16,503 and $11,735, respectively, and for the three months ended June 30, 2013 and 2014 were $10,022 and $6,834, respectively. These costs have been allocated to cost of revenue and selling, general, and administrative expenses. |
The following table shows the significant assumptions used in connection with the determination of the fair value of options granted in the six months ended June 30, 2013 and 2014. |
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| | Six months ended June 30, 2013 | | | Six months ended June 30, 2014 | | | | | | | | | |
Dividend Yield | | | 0 | % | | | 0 | % | | | | | | | | |
Expected life (in months) | | | 84 | | | | 84 | | | | | | | | | |
Risk free rate of interest | | | 1.55 | % | | | 2.29 | % | | | | | | | | |
Volatility | | | 39.39 | % | | | 38.34 | % | | | | | | | | |
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Stock Options |
A summary of stock option activity during the six months ended June 30, 2014 is set out below: |
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| | Six months ended June 30, 2014 | |
| | Shares arising | | | Weighted average | | | Weighted average remaining | | | Aggregate | |
out of options | exercise price | contractual life (years) | intrinsic |
| | | value |
Outstanding as of January 1, 2014 | | | 11,102,163 | | | $ | 12.4 | | | | 5.2 | | | | — | |
Granted | | | 210,000 | | | | 16.78 | | | | — | | | | — | |
Forfeited | | | (250,673 | ) | | | 19.2 | | | | — | | | | — | |
Expired | | | (27,228 | ) | | | 12.32 | | | | — | | | | — | |
Exercised* | | | (1,577,037 | ) | | | 4.54 | | | | — | | | | 20,486 | |
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Outstanding as of June 30, 2014 | | | 9,457,225 | | | $ | 13.63 | | | | 5.2 | | | $ | 43,614 | |
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Vested as of June 30, 2014 and expected to vest thereafter (Note a) | | | 9,165,987 | | | $ | 13.37 | | | | 5.2 | | | $ | 43,579 | |
Vested and Exercisable as of June 30, 2014 | | | 5,888,115 | | | $ | 10.24 | | | | 3 | | | $ | 42,896 | |
Weighted average grant date fair value of grants during the period | | $ | 16.78 | | | | | | | | | | | | | |
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(a) | Options expected to vest reflect an estimated forfeiture rate. | | | | | | | | | | | | | | | |
* | Out of this, 1,000,000 options have been net settled upon exercise by issuing 650,925 shares (net of minimum statutory withholding taxes). | | | | | | | | | | | | | | | |
As of June 30, 2014, the total remaining unrecognized stock-based compensation cost for options expected to vest amounted to $21,080, which will be recognized over the weighted average remaining requisite vesting period of 3.5 years. |
Restricted Share Units |
The Company has granted restricted share units, or RSUs, under the 2007 Omnibus Plan. Each RSU represents the right to receive one common share at a future date. The fair value of each RSU is the market price of one common share of the Company on the date of the grant. The RSUs granted to date have graded vesting schedules of six months to four years. The compensation expense is recognized on a straight-line basis over the vesting term. |
A summary of RSUs granted during the six months ended June 30, 2014 is set out below: |
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| | Six months ended June 30, 2014 | | | | | | | | | |
| | Number of Restricted Share | | | Weighted Average Grant Date | | | | | | | | | |
Units | Fair Value | | | | | | | | |
Outstanding as of January 1, 2014 | | | 871,772 | | | $ | 13.96 | | | | | | | | | |
Granted | | | 83,778 | | | | 15.12 | | | | | | | | | |
Vested* | | | (131,828 | ) | | | 13.92 | | | | | | | | | |
Forfeited | | | (44,636 | ) | | | 13.67 | | | | | | | | | |
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Outstanding as of June 30, 2014 | | | 779,086 | | | $ | 14.11 | | | | | | | | | |
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Expected to vest (Note a) | | | 718,789 | | | | | | | | | | | | | |
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(a) | RSUs expected to vest reflect an estimated forfeiture rate. | | | | | | | | | | | | | | | |
* | Vested RSUs were net settled upon vesting by issuing 81,583 shares (net of minimum statutory withholding taxes). | | | | | | | | | | | | | | | |
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44,286 RSUs vested as of December 31, 2012, the shares in respect of which became issuable on December 31, 2013. 43,605 shares were issued in January 2014 after withholding shares to the extent of the minimum statutory withholding taxes. |
61,057 RSUs vested in the year ended December 31, 2013, the shares in respect of which are issuable on December 31, 2014 after withholding shares to the extent of the minimum statutory withholding taxes. |
As of June 30, 2014, the total remaining unrecognized stock-based compensation cost related to RSUs amounted to $7,516, which will be recognized over the weighted average remaining requisite vesting period of 1.3 years. |
Performance Units |
The Company has granted stock awards in the form of Performance Units, or PUs, under the 2007 Omnibus Plan. Each PU represents the right to receive one common share at a future date based on the Company’s performance against specified targets. PUs granted to date have vesting schedules of six months to three years. The fair value of each PU is the market price of one common share of the Company on the date of grant, and assumes that performance targets will be achieved. The PUs granted under the plan are subject to cliff or graded vesting. For awards with cliff vesting, the compensation expense is recognized on a straight-line basis over the vesting terms, and for awards with graded vesting, the compensation expense is recognized over the vesting term of each separately vesting portion. Over the performance period, the number of shares to be issued is adjusted upward or downward based upon the probability of achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized as an expense will be based on a comparison of the final performance metrics to the specified targets. |
A summary of PU activity during the six months ended June 30, 2014 is set out below: |
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| | Six months ended June 30, 2014 | | | | | |
| | Number of Performance | | | Weighted Average | | | Maximum Shares Eligible to | | | | | |
Units | Grant Date Fair | Receive | | | | |
| Value | | | | | |
Outstanding as of January 1, 2014 | | | 3,913,733 | | | $ | 16.44 | | | | 6,149,018 | | | | | |
Granted | | | 1,337,750 | | | | 16.78 | | | | 2,729,125 | | | | | |
Vested* | | | (139,930 | ) | | | 12.04 | | | | (139,930 | ) | | | | |
Forfeited** | | | (2,540,124 | ) | | | 17.69 | | | | (2,540,124 | ) | | | | |
Addition due to achievement of higher than target performance goals* | | | 139,930 | | | | 12.04 | | | | | | | | | |
Reduction due to achievement of lower than maximum performance goals*** | | | | | | | | | | | (2,095,355 | ) | | | | |
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Outstanding as of June 30, 2014 | | | 2,711,359 | | | $ | 15.44 | | | | 4,102,734 | | | | | |
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Expected to vest (Note a) | | | 2,605,923 | | | | | | | | | | | | | |
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(a) | PUs expected to vest are based on the probable achievement of performance targets after considering an estimated forfeiture rate. | | | | | | | | | | | | | | | |
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* | Represents an additional award of 122,490 and 17,440 shares for the PUs granted in March 2011 and June 2011, respectively, as a result of achievement of higher than target performance as certified by the compensation committee based on the Company’s audited financial statements. | | | | | | | | | | | | | | | |
697,853 and 432 shares, including the additional awards, were issued in March 2014 and April 2014 with respect to grants made in March 2011, and 77,619 shares, including the additional awards, were issued in March 2014 with respect to grants made in June 2011, after withholding shares to the extent of the minimum statutory withholding taxes. |
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** | Includes 251,427 shares underlying PUs granted in May 2011, 1,244,507 shares underlying PUs granted in March 2013 and 630,000 shares underlying PUs granted in May 2013, all of which were forfeited due to non-fulfillment of the performance conditions as certified by the compensation committee based on the Company’s audited financial statements. | | | | | | | | | | | | | | | |
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*** | Represents a reduction of 333,002 and 39,285 of the maximum shares eligible to vest for PUs granted in March 2011 and June 2011, respectively, as a result of the compensation committee’s certification of the level of achievement of the performance conditions based on the Company’s audited financial statements. Also includes a reduction of 616,568 shares for grants made in March 2013, 985,500 shares for grants made in May 2013 and 121,000 shares for grants made in May 2011, due to non-fulfillment of the performance conditions as certified by the compensation committee based on the Company’s audited financial statements. | | | | | | | | | | | | | | | |
For the PUs granted in August 2010, vesting for the year ended December 31, 2012 took place at 122.2% of the target shares, or 231,029 shares, based on the compensation committee’s certification of achievement of the performance goals for the performance period based on the Company’s audited consolidated financial statements. 138,035 shares underlying such PUs were issued in January 2014 after withholding shares to the extent of the minimum statutory withholding taxes. |
As of June 30, 2014, the total remaining unrecognized stock-based compensation costs related to PUs amounted to $23,502, which will be recognized over the weighted average remaining requisite vesting period of 2.2 years. |
Under the 2007 Omnibus Plan, the definition of change of control includes the acquisition by any person, corporation or other entity or group other than GA, OH, GE or any of their affiliates of 25% or more of the voting securities of the Company. The purchase by Bain Capital of Company shares from GA and OH would have constituted a change of control under the 2007 Omnibus Plan resulting in (1) accelerated vesting of the PUs granted in August 2010 to the former CEO (who since assumed the role of Non-Executive Vice-Chairman) and the PUs granted to the Company’s Chief Executive Officer in June 2011 and March 2012, (2) “double-trigger” vesting of the outstanding PUs granted in March 2010 and March 2011 based on an abbreviated performance period ending with the close of the Company’s fiscal quarter coincident with or immediately preceding the effective date of the Change of Control in the event of a termination without cause in the twenty-four months following a change of control and (3) “double-trigger” vesting of the outstanding PUs granted in March 2012 based on target performance in the event of a termination without cause in the twenty-four months following a change of control. Because the Board of Directors determined that Bain Capital’s purchase of Company shares from GA and OH was not the type of transaction intended to constitute a change of control, it amended the 2007 Omnibus Plan to provide that the contemplated transaction among Bain Capital, GA and OH would not constitute a change of control thereunder. In addition, the CEO and Non-Executive Vice-Chairman waived any accelerated vesting of their PUs and the affected employees consented to the amendment of the change of control definition. As a result of the foregoing, all such PUs will continue to vest in accordance with their original terms. |
The amendment to the 2007 Omnibus Plan constituted a modification to the PUs effective as of October 25, 2012, as a result of which 123 employees were affected and an incremental compensation cost of $5,500 was determined and will be recognized over a weighted average period of 1.85 years. The incremental compensation cost due to this modification was a result of considering the original performance period in determining expected vesting as against the abbreviated performance period for 2010 and 2011 grants and vesting at target for 2012 performance grants. |
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Employee Stock Purchase Plan (ESPP) |
On May 1, 2008, the Company adopted the Genpact Limited U.S. Employee Stock Purchase Plan and the Genpact Limited International Employee Stock Purchase Plan (together, the “ESPP”). |
The ESPP allows eligible employees to purchase the Company’s common shares through payroll deduction at 90% of the fair value of a Company common share on the last business day of each purchase interval. The dollar amount of common shares purchased under the ESPP must not exceed the greater of 15% of the participating employee’s base salary or $25 per calendar year. With effect from September 1, 2009, the offering periods commence on the first business day in March, June, September and December of each year and end on the last business day in the subsequent May, August, November and February of each year. 4,200,000 common shares have been reserved for issuance in the aggregate over the term of the ESPP. |
During the six months ended June 30, 2013 and 2014, 53,671 and 77,556 common shares, respectively, were issued under the ESPP. |
The ESPP is considered compensatory under the FASB guidance on Compensation-Stock Compensation. |
The compensation expense for the employee stock purchase plan is recognized in accordance with the FASB guidance on Compensation-Stock Compensation. The compensation expense for the ESPP during the six months ended June 30, 2013 and 2014 was $116 and $144, respectively, and for the three months ended June 30, 2013 and 2014 was $71 and $72, respectively, and has been allocated to cost of revenue and selling, general, and administrative expenses. |