Compensation and Benefits | 9 Months Ended |
Sep. 30, 2014 |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ' |
Compensation and benefits | ' |
Note 10. Compensation and Benefits |
Total compensation and benefits consists of the following: |
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| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
Salaries, incentive compensation and benefits (1) | | $ | 83,834 | | | $ | 76,056 | | | $ | 246,493 | | | $ | 217,987 | |
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Restricted share compensation expense | | 6,909 | | | 3,414 | | | 15,400 | | | 3,414 | |
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Total salaries, incentive compensation and benefits | | 90,743 | | | 79,470 | | | 261,893 | | | 221,401 | |
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Pre-offering related compensation - share-based awards | | 12,431 | | | 23,441 | | | 52,234 | | | 380,523 | |
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Pre-offering related compensation - other | | — | | | — | | | — | | | 143,035 | |
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Total compensation and benefits | | $ | 103,174 | | | $ | 102,911 | | | $ | 314,127 | | | $ | 744,959 | |
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(1) Excluding restricted share compensation expense |
Incentive compensation |
Cash incentive compensation paid to members of Artisan’s portfolio management teams and members of its marketing and client service teams is based on formulas that are tied directly to revenues. These payments are made in the quarter following the quarter in which the incentive was earned with the exception of fourth quarter payments which are paid in the fourth quarter of the year. Cash incentive compensation paid to most other employees is discretionary and subjectively determined based on individual performance and Artisan’s overall results during the applicable year and has historically been paid in the fourth quarter of the year. |
Restricted shares |
Pursuant to the 2013 Omnibus Incentive Compensation Plan, Artisan has issued restricted shares of Class A common stock to its employees and employees of its subsidiaries. The shares generally vest on a pro rata basis over five years. Unvested shares are subject to forfeiture upon termination of employment. Grantees receiving the awards are entitled to dividends on unvested and vested shares. |
During the three months ended September 30, 2014, 1,402,876 restricted shares of Class A common stock were issued to employees of the Company and its subsidiaries. A portion of these shares will vest pro rata in the third fiscal quarter of each of the next five years. The remaining shares will generally vest upon a combination of both (1) pro-rata annual time vesting and (2) qualifying retirement (as defined in the award agreements). Total compensation expense associated with the July 2014 grant is expected to be approximately $72.2 million. |
Compensation expense related to the restricted shares is recognized based on the estimated grant date fair value, for only those awards expected to vest, on a straight-line basis over the requisite service period of the award. The Company estimated the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover. Forfeitures are estimated at the time of grant and revised in subsequent periods, if necessary, based on actual forfeiture activity. |
The following table summarizes the restricted share activity for the nine months ended September 30, 2014: |
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| | Weighted-Average Grant Date Fair Value | | Number of Awards | | | | | | | | | |
Unvested at January 1, 2014 | | $ | 52.36 | | | 1,575,157 | | | | | | | | | | |
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Granted | | $ | 52.85 | | | 1,444,688 | | | | | | | | | | |
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Forfeited | | — | | | — | | | | | | | | | | |
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Vested | | $ | 52.61 | | | (319,211 | ) | | | | | | | | | |
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Unvested at September 30, 2014 | | $ | 52.59 | | | 2,700,634 | | | | | | | | | | |
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Compensation expense recognized related to the restricted shares was $6.9 million and $15.4 million for the three and nine months ended September 30, 2014, respectively. The aggregate vesting date fair value of awards that vested during the nine months ended September 30, 2014 was approximately $16.4 million. The unrecognized compensation expense for the unvested restricted shares as of September 30, 2014 was $133.6 million with a weighted average recognition period of 4.4 years remaining. |
During the nine months ended September 30, 2014, the Company withheld a total of 5,880 restricted shares as a result of net share settlements to satisfy employee tax withholding obligations. The Company paid $0.3 million in employee tax withholding obligations related to employee share transactions. These net share settlements had the effect of shares repurchased and retired by the Company, as they reduced the number of shares outstanding. |
Pre-offering related compensation consists of the following: |
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| | For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| | 2014 | | 2013 | | 2014 | | 2013 |
Change in value of Class B liability awards | | $ | — | | | $ | — | | | $ | — | | | $ | 41,942 | |
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Class B award modification expense | | — | | | — | | | — | | | 287,292 | |
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Amortization expense on pre-offering Class B awards | | 12,431 | | | 23,441 | | | 52,234 | | | 51,289 | |
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Pre-offering related compensation - share-based awards | | 12,431 | | | 23,441 | | | 52,234 | | | 380,523 | |
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Pre-offering related cash incentive compensation | | — | | | — | | | — | | | 56,788 | |
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Pre-offering related bonus make-whole compensation | | — | | | — | | | — | | | 20,520 | |
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Distributions on Class B liability awards | | — | | | — | | | — | | | 65,727 | |
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Pre-offering related compensation - other | | — | | | — | | | — | | | 143,035 | |
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Total pre-offering related compensation | | $ | 12,431 | | | $ | 23,441 | | | $ | 52,234 | | | $ | 523,558 | |
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Pre-offering related compensation - share-based awards |
Historical Class B share-based awards |
Holdings historically granted Class B share-based awards to certain employees. These awards vested over a period of five years. Prior to the IPO, all vested Class B awards were subject to mandatory redemption on termination of employment for any reason and were reflected as liabilities measured at fair value; unvested Class B awards were forfeited on termination of employment. |
The vested Class B liability awards of a terminated employee were historically redeemed in cash in annual installments, generally over the five years following termination of employment. The change in value of Class B liability awards and distributions to Class B limited partners were treated as compensation expense. |
Historical redemption of Class B awards |
Holdings historically redeemed the Class B awards of partners whose employment was terminated. The redemption value of the awards was determined in accordance with the terms of the grant agreement pursuant to which the award was granted. The Class B awards of partners whose services to Holdings terminated prior to the IPO will be redeemed for payments totaling $18.0 million and $23.0 million as of September 30, 2014 and December 31, 2013, respectively. Payments of $0.8 million and $5.0 million were made for the three and nine months ended September 30, 2014, respectively. |
Modification of Class B share-based awards |
As a part of the IPO Reorganization, the Class B grant agreements were amended to eliminate the cash redemption feature. The amendment is considered a modification under ASC 718 and the Class B awards have been classified as equity awards since such modification. As a result of the modification, Artisan recognized a non-recurring expense of $287.3 million based on the elimination of the redemption feature associated with the Class B awards recorded as the difference between the fair value and carrying value of the liability associated with the vested Class B common units immediately prior to the IPO. For any unvested Class B awards, Artisan will recognize recurring non-cash compensation charges over the remaining vesting period. |
The following table summarizes the activity related to unvested Class B awards for the nine months ended September 30, 2014: |
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| Weighted-Average Grant Date Fair Value | | Number of Class B Awards | | | | | | | | | | |
Unvested Class B awards at January 1, 2014 | $ | 30 | | | 7,249,842 | | | | | | | | | | | |
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Granted | — | | | — | | | | | | | | | | | |
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Forfeited | — | | | — | | | | | | | | | | | |
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Vested | $ | 30 | | | (3,204,826 | ) | | | | | | | | | | |
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Unvested at September 30, 2014 | $ | 30 | | | 4,045,016 | | | | | | | | | | | |
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The unrecognized compensation expense for the unvested Class B awards as of September 30, 2014, was $99.6 million with a weighted average recognition period of 2.4 years remaining. |
Upon termination of employment with Artisan, an employee-partner’s vested Class B common units are automatically exchanged for Class E common units; unvested Class B common units are forfeited. The employee-partner’s shares of Class B common stock are canceled and APAM issues the former employee-partner a number of shares of Class C common stock equal to the former employee-partner’s number of Class E common units. The former employee-partner’s Class E common units are exchangeable for Class A common stock subject to the same restrictions and limitations on exchange applicable to the other common units of Holdings. |
Pre-offering related compensation - other |
During the nine months ended September 30, 2013, Artisan also incurred pre-offering related compensation charges of $56.8 million to pay cash incentive compensation to certain portfolio managers and $20.5 million representing profits after the IPO otherwise allocable and distributable, in the aggregate, to Holdings’ pre-IPO non-employee partners that instead was allocated and distributed to certain employee-partners. For the period between January 1, 2013 and the IPO, profits distributions totaling $65.7 million were made to Class B partners. |