| Equity-Based Compensation Expenses | EQUITY-BASED COMPENSATION EXPENSES The Company grants equity-based compensation in the form of RSUs, RSAs, PSUs, Group A Units, Group E Units and Group P Units to its executive managing directors, employees and the independent members of the Board under the terms of the 2007 Equity Incentive Plan and the 2013 Incentive Plan. Equity based awards granted as compensation are measured based on the grant-date fair value of the award. Vested equity based awards that do not require future service are expensed immediately. Equity based awards that only require future service are expensed over the relevant service period. Equity based awards that are also subject to market performance conditions are expensed over the requisite service period, which is the longer of the explicit or derived service period. The following table presents information regarding the impact of equity-based compensation grants on the Company’s consolidated statements of operations: Year Ended December 31, 2021 2020 2019 (dollars in thousands) Expense recorded within compensation and benefits $ 62,989 $ 80,420 $ 127,505 Corresponding tax benefit $ 13,737 $ 9,090 $ 7,738 The following tables present activity related to the Company’s unvested equity awards for the year ended December 31, 2021: Equity-Classified RSUs Liability-Classified RSUs PSUs Unvested RSUs Weighted-Average Unvested RSUs Weighted-Average Unvested Weighted-Average December 31, 2020 3,177,548 $ 24.11 350,230 $ 48.98 1,000,000 $ 11.82 Granted 2,145,919 18.82 189,915 18.62 — — Vested (2,315,075) 23.59 (174,772) 48.93 (200,000) 14.10 Canceled or forfeited (37,516) 23.13 — — — — December 31, 2021 2,970,876 $ 20.71 365,373 $ 33.22 800,000 $ 11.25 Group E Units Group P Units RSAs Unvested Group E Units Weighted-Average Unvested Group P Units Weighted-Average Unvested Weighted-Average December 31, 2020 5,991,633 $ 8.39 3,385,000 $ 12.46 — $ — Granted 200,000 8.05 4,905,715 13.01 3,679,285 15.13 Vested (2,880,833) 8.15 — — — — Canceled or forfeited (166,666) 8.05 (2,835,000) 12.46 — — December 31, 2021 3,144,134 $ 8.14 5,455,715 $ 12.96 3,679,285 $ 15.13 Restricted Share Units (RSUs) The fair value of the RSUs granted by the Company is based on the grant-date fair value, which considers the public share price of the Company’s Class A shares. An RSU entitles the holder to receive a Class A Share, or cash equal to the fair value of a Class A Share at the election of the Board, upon completion of the requisite service period. All of the RSUs granted to date accrue dividend equivalents equal to the dividend amounts paid on the Company’s Class A Shares. To date, these dividend equivalents have been awarded in the form of additional RSUs that also accrue additional dividend equivalents. As a result, dividend equivalents declared on equity-classified RSUs are recorded similar to a stock dividend, resulting in (i) increases in the Company’s accumulated deficit and the accumulated deficit component of noncontrolling interests on the same pro rata basis as earnings of the Sculptor Operating Group are allocated and (ii) increases in the Company’s additional paid-in capital and the paid-in capital component of noncontrolling interests on the same pro rata basis. No compensation expense is recognized related to these dividend equivalents as they are forfeitable and the delivery of dividend equivalents on outstanding RSUs is contingent upon the vesting of the underlying RSUs. As a result of the Recapitalization, the Company modified certain RSUs provided to certain executive managing directors to cap the cumulative distributions that the RSUs would be entitled to receive during the Distribution Holiday. As the resulting fair value of the modified RSUs was lower than the original grant-date fair value, the Company continues to recognize the compensation expense that would have been previously recognized prior to the modification. The weighted-average grant-date fair value of equity-classified RSUs granted was $18.82, $23.11, and $15.33 for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, total unrecognized compensation expense related to equity-classified RSUs totaled $33.2 million, with a weighted-average amortization period of 1.8 years. The weighted-average grant-date fair value of liability-classified RSUs granted was $18.62, $23.15 and $15.25 for the years ended December 31, 2021, 2020 and 2019, respectively. As of December 31, 2021, total unrecognized compensation expense related to liability-classified RSUs totaled $10.4 million, with a weighted-average amortization period of 1.17 years. The estimated total grant-date fair value of the RSUs is charged to compensation expense on a straight line basis over the vesting period, which is generally annual vesting over 3 years, except grants to the Company’s Board, which vest annually. The following table presents information related to the settlement of RSUs: Year Ended December 31, 2021 2020 2019 (dollars in thousands) Fair value of RSUs settled in Class A Shares $ 50,182 $ 28,202 $ 24,131 Fair value of RSUs settled in cash $ 3,472 $ 2,107 $ 2,570 Fair value of RSUs withheld to satisfy tax withholding obligations $ 2,550 $ 1,976 $ 3,727 Number of RSUs withheld to satisfy tax withholding obligations 306,379 261,474 300,714 On January 31, 2022, the Company granted 1,570,477 liability-classified RSUs to its executive managing directors with a grant-date fair value of $18.93 which will vest over a 3 year service period. PSUs In 2018, the Company began granting PSUs. A PSU entitles the holder to receive a Class A Share or cash equal to the fair value of a Class A Share at the election of the Board of Directors, upon completion of the requisite service period, as well as satisfying certain market performance conditions based on achievement of targeted total shareholder return on Class A Shares (“PSU Market Conditions”). PSUs do not begin to accrue dividend equivalents until the requisite service period has been completed and the PSU Market Conditions have been achieved. In the year ended December 31, 2018, the Company granted 1,000,000 PSUs, with a weighted-average grant-date fair value of $11.82 per unit. The fair value was determined using the Monte-Carlo simulation valuation model, with the following assumptions: volatility of 35%, dividend rate of 10%, and risk-free discount rate of 2.6%. The requisite service period for these awards was estimated to be 3.1 years at the time of the grant. The Company used historical volatility in its estimate of the expected volatility. Compensation cost for these awards was recognized using an accelerated recognition method over the requisite service period for each tranche. As of December 31, 2021, all compensation expense related to the PSUs has been recognized due to completion of the requisite service period. However, as of December 31, 2021, only the first of the PSU Market Conditions, as defined below, was met, resulting in 20% of PSUs vesting, at which time they were converted into Class A shares. The PSUs granted to date generally vest subject to continued and uninterrupted service (“PSU Service Condition”) until the third anniversary of the grant date and the meeting of a market performance threshold of the total shareholder return on Class A Shares of the Company (“PSU Market Conditions”). The PSU Market Conditions is defined as follows: 20% of PSUs vest if a total shareholder return of 25% is achieved; an additional 40% of PSUs vest if a total shareholder return of 50% is achieved; an additional 20% of PSUs vest if a total shareholder return of 75% is achieved; and the final 20% of PSUs vest if a total shareholder return of 125% is achieved. In each case, the PSU Market Conditions must be met for each threshold by the sixth anniversary of the grant date. If the PSU grant has not satisfied both the PSU Service Condition and the PSU Market Conditions by the sixth anniversary of the grant date, it will be forfeited and canceled immediately. Group A Units The Company recognizes compensation expense for Group A Units equal to the market value of the Company’s Class A Shares at the date of grant, less a 5% discount for transfer restrictions that remain in place after vesting. The weighted-average grant-date fair value of Group A Units was $21.85 for the year ended December 31, 2017. There were no grants for the years ended December 31, 2021, 2020, and 2019. As of December 31, 2021, there were no unvested Group A Units outstanding. Group E Units As a part of the Recapitalization described in Note 3, the Company granted Group E Units. The Group E Units are not entitled to participate in distributions during the Distribution Holiday. The right of the Group E Units to participate in distributions is considered a performance condition that does not affect vesting. The Company is required to recognize compensation cost based on the grant-date fair value of Group E Units where the performance condition is probable of being met. The fair value of the Group E Units was calculated using the price of the Company’s Class A Shares at the date of grant, adjusted to reflect that Group E Units are not entitled to participate in distributions during the Distribution Holiday and for post-vesting transfer restrictions. As of December 31, 2021, total unrecognized compensation expense related to these units totaled $7.3 million with a weighted-average amortization period of 1.3 years. Expense for the Group E Units is recognized on an accelerated basis (i.e., each tranche will be recognized over its respective service period), as the value of the award is dependent at least in part on a performance condition. Group P Units In March 2017, the Company granted 7,185,000 Group P Units (“2017 Incentive Award”), with a weighted-average grant-date fair value of $12.50 per unit. The fair value was determined using the Monte-Carlo simulation valuation model, with the following assumptions: volatility of 36%, dividend rate of 10%, and risk-free discount rate of 2.2%. The Company used historical volatility in its estimate of the expected volatility. The requisite service period for these awards was estimated to be 3.7 years at the time of the grant. As of December 31, 2021, all compensation expense related to these units has been recognized due to completion of the requisite service period, however the Market Condition, as defined below, has not been met. The 2017 Incentive Award will conditionally vest upon the applicable executive managing directors satisfying a service condition (the “Service Condition”) and certain market performance-based targets, expressed as percentages (the “Market Condition”). The Market Condition’s achievement is dependent on the return provided to shareholders during a specified period, which is defined as follows: 20% of Group P Units vest if a total shareholder return of 25% is achieved; an additional 40% of Group P Units vest if a total shareholder return of 50% is achieved; an additional 20% of Group P Units vest if a total shareholder return of 75% is achieved; and the final 20% of Group P Units vest if a total shareholder return of 125% is achieved. In December 2021, the Company granted 4,905,715 Group P Units (“2021 Group P Unit Grant”) to certain current executive managing directors. That grant included 905,714 Group P Units issued in exchange for previously issued Group P Units that were forfeited, in addition to 4,000,001 newly issued Group P Units. The 905,714 Group P Units described above, along with 679,286 RSAs (discussed in the section below), were issued in exchange for the forfeiture of 2,820,000 previously issued Group P Units. This transaction was accounted for as a modification of previously issued Group P Units. The grant-date fair value of the cancelled Group P Units had previously already been fully expensed at the time of cancellation. The cancellation of the previously issued Group P Units and issuance of the new 2021 Group P Units and RSAs resulted in an incremental fair value of $17.0 million that will be recognized as compensation expense on an accelerated basis over the modified requisite service period. The Company granted the Group P Units discussed above on December 17, 2021 and December 30, 2021 with weighted-average grant date fair values of $12.75 and $13.97, respectively. The grant-date fair value of the newly issued Group P Units was determined using the Monte-Carlo simulation valuation model, with the following assumptions: volatility of 55%, dividend rate of 6.6%, and risk-free discount rate of 1.34% and 1.44% for the units granted on December 17, 2021 and December 30, 2021, respectively. The Company used historical volatility in its estimate of the expected volatility. The requisite service period for these awards was estimated to be between 3 and 5 years, depending on tranche, at the time of the grant. As of December 31, 2021, total unrecognized compensation expense related to the 4,000,001 newly issued Group P Units totaled $51.4 million with a weighted-average amortization period of 4.0 years. The Market Condition, as defined above, has not been met. The 2021 Group P Unit Grant of 4,905,715 Group P Units, inclusive of the 905,714 Group P Units exchanged for the forfeited Group P Units described above, will conditionally vest upon the applicable executive managing directors satisfying a service condition (the “Service Condition”) and certain market performance-based targets, expressed as percentages (the “Market Condition”). The Service Condition is generally satisfied as to one-third of the Group P Units vesting on each of the third, fourth and fifth anniversaries of the grant date. The Market Condition’s achievement is dependent on the return provided to shareholders during a specified period, which is defined as follows: 25% of P Units vest if a total shareholder return of 66% is achieved; an additional 25% of P Units vest if a total shareholder return of 80% is achieved; an additional 25% of P Units vest if a total shareholder return of 94% is achieved; and the final 25% of P Units vest if a total shareholder return of 108% is achieved, in each case based on a reference price of $24.00 per Class A Share. Achievement of the applicable Market Conditions earlier than estimated can materially affect the amount of equity-based compensation expense recognized by the Company in any given period. The 2021 grant of Group P Units accrue dividend equivalents equal to the dividend amounts paid on the Company’s Class A Shares. These dividend equivalents will be awarded in the form of additional Group P Units that also accrue additional dividend equivalents. No compensation expense is recognized related to these dividend equivalents. Delivery of dividend equivalents on outstanding Group P Units is contingent upon the vesting of the underlying Group P Units. Executive managing directors will be entitled to receive distributions on the 2017 Incentive Award only after satisfaction of the Service Condition and the Market Condition, from which time the executive managing director will be entitled to receive the same distributions per unit on each Group P Unit as holder. If a holder of a 2017 Incentive Award and 2021 Group P Unit Grant has not satisfied both the Service Condition and the applicable Market Condition by the six seven Upon satisfaction of the Service Condition and the Market Condition, Group P Units may be exchanged at the executive managing director’s discretion for Class A Shares (or the cash value thereof, as determined by the Board of Directors) provided that sufficient Appreciation (as defined in the Sculptor Operating Partnerships’ limited partnership agreements) has occurred for each Group P Unit to have become economically equivalent to a Group A Unit. Upon the exchange of a Group P Unit for a Class A Share (or the cash equivalent), the exchanging executive managing director will have a right to potential future payments owed to him or her under the tax receivable agreement. Restricted Class A Shares (RSAs) In 2021, the Company began granting RSAs. The RSAs granted in 2021 vest upon the applicable executive managing directors satisfying a service condition (the “RSAs Service Condition”) and certain market performance-based targets, expressed as percentages (the “RSAs Market Condition”). The RSAs Service Condition is generally satisfied as to one-third of the RSAs vesting on each of the third, fourth and fifth anniversaries of the grant date. The RSAs Market Condition’s achievement is dependent on the return provided to shareholders during a specified period, which is defined as follows: 33.3% of RSAs vest if a total shareholder return of 25% is achieved; an additional 33.3% of RSAs vest if a total shareholder return of 39% is achieved; and the final 33.4% of RSAs vest if a total shareholder return of 53% is achieved, in each case based on a reference price of $24.00 per Class A Share. If a Class A Restricted Share has not satisfied the RSAs Market Condition by the seventh anniversary of the grant date, it will be forfeited and canceled immediately. RSAs granted in December 2021 are only entitled to dividends declared by the Company on Class A Shares upon satisfaction of an RSAs Market Condition. For RSAs that have satisfied an RSAs Market Condition, but have not yet achieved an RSAs Service Condition, these RSAs shall accrue dividend equivalents equal to the dividend amounts paid by the Company to Class A Shares. Upon satisfaction of both the RSAs Market Condition and RSAs Service Condition, these RSAs are entitled to dividends declared by the Company on Class A Shares. The RSA grant in December 2021 discussed above included 3,679,285 RSAs, inclusive of the 679,286 RSAs exchanged for the forfeited Group P Units described above. The RSAs were granted on December 17, 2021 and December 30, 2021 with weighted-average grant date fair values of $14.84 and $16.19, respectively. The fair value was determined using the Monte-Carlo simulation valuation model, with the following assumptions: volatility of 55%, dividend rate of 6.6%, and risk-free discount rate of 1.34% and 1.44% for the units granted on December 17, 2021 and December 30, 2021, respectively. The Company used historical volatility in its estimate of the expected volatility. The requisite service period for these awards was estimated to be 3 to 5 years at the time of the grant. As of December 31, 2021, total unrecognized compensation expense related to the newly granted RSAs totaled $44.9 million. In January 2022, the Company granted an additional 1,570,483 RSAs. These RSAs are subject to a service condition; however, unlike the RSAs granted in 2021, they are not subject to a market condition. These RSAs had a grant-date fair value of $18.93 per unit. The fair value was based on the Company’s Class A Share price at the time of grant. The service period for these awards was 3 years at the time of the grant. |
