Stock-based compensation | 3 Months Ended |
Mar. 31, 2015 |
Stock-based compensation | 15. Stock-based compensation |
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The Company has issued options under the Genpact Global Holdings 2005 Plan (the “2005 Plan”), Genpact Global Holdings 2006 Plan (the “2006 Plan”), Genpact Global Holdings 2007 Plan (the “2007 Plan”) and Genpact Limited 2007 Omnibus Incentive Compensation Plan (the “2007 Omnibus Plan”) to eligible persons who are employees and directors and certain other persons associated with the Company. |
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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 such plan 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. |
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From the date of adoption of the 2007 Omnibus Plan on July 13, 2007, shares underlying 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. |
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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. |
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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. |
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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. |
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Stock-based compensation costs relating to the foregoing plans during the three months ended March 31, 2014 and 2015, were $4,902 and $4,579, respectively, and have been allocated to cost of revenue and selling, general, and administrative expenses. |
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Stock options |
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Options granted are subject to a vesting requirement. Options granted under the plan are exercisable into common shares of the Company, have a contractual period of ten years and vest over four to five years unless specified otherwise in the applicable award agreement. The Company recognizes compensation cost over the vesting period of the option. Compensation cost is determined at the date of grant by estimating the fair value of an option using the Black-Scholes option-pricing model. |
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The following table shows the significant assumptions used in connection with the determination of the fair value of options granted in the three months ended March 31, 2015. No options were granted in the three months ended March 31, 2014. |
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| | Three months ended March 31, 2015 | | | | | | | | | | | | | |
Dividend yield | | | — | | | | | | | | | | | | | |
Expected life (in months) | | | 84 | | | | | | | | | | | | | |
Risk free rate of interest for expected life | | | 1.99 | % | | | | | | | | | | | | |
Volatility | | | 34.97 | % | | | | | | | | | | | | |
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A summary of stock option activity during the three months ended March 31, 2015 is set out below: |
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| | Three months ended March 31, 2015 | |
| | Shares arising | | | Weighted average | | | Weighted average | | | Aggregate | |
out of options | exercise price | remaining | intrinsic |
| | contractual life | value |
| | (years) | |
Outstanding as of January 1, 2015 | | | 7,371,727 | | | $ | 15.44 | | | | 5.9 | | | $ | — | |
Granted | | | 170,000 | | | | 22.77 | | | | — | | | | — | |
Forfeited | | | — | | | | — | | | | — | | | | — | |
Expired | | | — | | | | — | | | | — | | | | — | |
Exercised | | | (659,257 | ) | | | 8.86 | | | | — | | | | 9,487 | |
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Outstanding as of March 31, 2015 | | | 6,882,470 | | | $ | 16.26 | | | | 6.1 | | | $ | 48,967 | |
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Vested as of March 31, 2015 and expected to vest thereafter (Note a) | | | 6,578,643 | | | $ | 15.99 | | | | 6.1 | | | $ | 47,743 | |
Vested and Exercisable as of March 31, 2015 | | | 2,883,564 | | | $ | 11.94 | | | | 3 | | | $ | 32,599 | |
Weighted average grant date fair value of grants made during the period | | $ | 9.15 | | | | | | | | | | | | | |
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| (a) | Options expected to vest reflect an estimated forfeiture rate. | | | | | | | | | | | | | | |
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As of March 31, 2015, the total remaining unrecognized stock-based compensation cost for options expected to vest amounted to $19,193, which will be recognized over the weighted average remaining requisite vesting period of 3.1 years. |
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Restricted Share Units |
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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 three months to four years. The compensation expense is recognized on a straight-line basis over the vesting term. |
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A summary of RSUs granted during the three months ended March 31, 2015 is set out below: |
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| | Three months ended March 31, 2015 | | | | | | | | | |
| | Number of Restricted Share | | | Weighted Average Grant Date | | | | | | | | | |
Units | Fair Value | | | | | | | | |
Outstanding as of January 1, 2015 | | | 488,418 | | | $ | 15.36 | | | | | | | | | |
Granted | | | — | | | | — | | | | | | | | | |
Vested (Note a) | | | (8,942 | ) | | | 14.32 | | | | | | | | | |
Forfeited | | | (12,422 | ) | | | 13.93 | | | | | | | | | |
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Outstanding as of March 31, 2015 | | | 467,054 | | | $ | 15.41 | | | | | | | | | |
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Expected to vest (Note b) | | | 439,485 | | | | | | | | | | | | | |
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(a) | Vested RSUs have been net settled upon vesting by issuing 5,417 shares (net of minimum statutory tax withholding). | | | | | | | | | | | | | | | |
(b) | RSUs expected to vest reflect an estimated forfeiture rate. | | | | | | | | | | | | | | | |
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61,057 RSUs vested in the year ended December 31, 2013, in respect of which 59,827 were issued in January 2015 after withholding shares to the extent of the minimum statutory withholding taxes. |
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92,692 RSUs vested in the year ended December 31, 2014, shares in respect of which will be issuable on December 31, 2015 after withholding shares to the extent of the minimum statutory withholding taxes. |
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As of March 31, 2015, the total remaining unrecognized stock-based compensation cost related to RSUs amounted to $3,490, which will be recognized over the weighted average remaining requisite vesting period of 2.0 years. |
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Performance Units |
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The Company also grants stock awards in the form of performance units, or PUs, under the 2007 Omnibus Plan. |
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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 vesting. The compensation expense for such awards is recognized on a straight-line basis over the vesting terms. 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 is based on a comparison of the final performance metrics to the specified targets. |
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A summary of PU activity during the three months ended March 31, 2015 is set out below: |
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| | Three months ended March 31, 2015 | | | | | |
| | Number of | | | Weighted | | | Maximum Shares | | | | | |
Performance Units | Average Grant | Eligible to Receive | | | | |
| Date Fair Value | | | | | |
Outstanding as of January 1, 2015 | | | 1,292,750 | | | $ | 16.78 | | | | 2,648,626 | | | | | |
Granted | | | 562,000 | | | | 22.77 | | | | 1,405,000 | | | | | |
Vested | | | — | | | | — | | | | — | | | | | |
Forfeited | | | (16,350 | ) | | | 16.78 | | | | (24,525 | ) | | | | |
Addition due to achievement of higher than target performance goals (Note a) | | | 51,595 | | | | 16.78 | | | | | | | | | |
Reduction due to achievement of lower than maximum performance goals (Note b) | | | | | | | | | | | (1,296,105 | ) | | | | |
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Outstanding as of March 31, 2015 | | | 1,889,995 | | | $ | 18.56 | | | | 2,732,996 | | | | | |
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Expected to vest (Note c) | | | 1,588,070 | | | | | | | | | | | | | |
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(a) | Represents additional shares awarded ranging from 0.8% to 6.6% of the target shares as a result of the achievement of higher-than-target performance for the PUs granted in April 2014. | | | | | | | | | | | | | | | |
(b) | Represents a 143.4% and 49.2% reduction in the maximum shares eligible to vest as a result of the certification of the level of achievement of the performance goals for the PUs granted in April 2014. | | | | | | | | | | | | | | | |
(c) | PUs expected to vest are based on the probable achievement of the performance targets after considering an estimated forfeiture rate. | | | | | | | | | | | | | | | |
(d) | 1,329,270 PUs granted in March 2012 vested as of December 31, 2014 based on the compensation committee’s certification of the achievement of the performance goals for the performance period based on the Company’s audited financial statements. Shares in respect of such PUs were issued in January 2015 (845,524 shares after withholding shares to the extent of the minimum statutory withholding taxes). | | | | | | | | | | | | | | | |
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As of March 31, 2015, the total remaining unrecognized stock-based compensation costs related to PUs amounted to $22,029, which will be recognized over the weighted average remaining requisite vesting period of 2.2 years. |
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Employee Stock Purchase Plan (ESPP) |
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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”). |
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The ESPP allows eligible employees to purchase the Company’s common shares through payroll deductions at 90% of the closing price of the Company’s common shares on the last business day of each purchase interval. The dollar amount of common shares purchased under the ESPP must not exceed 15% of the participating employee’s base salary, subject to a cap of $25 per employee 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. |
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During the three months ended March 31, 2014 and 2015, 40,534 and 34,162 common shares, respectively, were issued under ESPP. |
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The ESPP is considered compensatory under the FASB guidance on Compensation-Stock Compensation. |
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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 ESPP during the three months ended March 31, 2014 and 2015 was $71 and $81, respectively, and has been allocated to cost of revenue and selling, general, and administrative expenses. |