Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v2.4.0.8
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2013
Share-based Compensation [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]
Stock-Based Compensation
 
The Company’s stock-incentive program is a long-term retention program that is intended to attract, retain and provide incentives for talented employees, officers and directors, and to align stockholder and employee interests.  The Company considers its stock-incentive program critical to its operations and productivity.  Currently, the Company is able to grant options, SARs and restricted shares from the PDI, Inc. Amended and Restated 2004 Stock Award and Incentive Plan (the Amended 2004 Plan), which is described below.
 
The Company primarily uses the Black-Scholes option pricing model to determine the fair value of stock options and SARs. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the Company’s expected stock price volatility over the term of the awards, actual and projected employee stock option exercise behaviors, risk-free interest rate and expected dividends.  Expected volatility is based on historical volatility.  As there is no trading volume for the Company’s options, implied volatility is not representative of the Company’s current volatility so the historical volatility of the Company's common stock is determined to be more indicative of the Company’s expected future stock performance.  The expected life is determined using the safe-harbor method. The Company expects to use this simplified method for valuing employee options and SARs grants until more detailed information about exercise behavior becomes available over time.  The Company bases the risk-free interest rate on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options or SARs.  The Company does not anticipate paying any cash dividends in the foreseeable future and therefore uses an expected dividend yield of zero in the option valuation model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest.  The Company recognizes compensation cost, net of estimated forfeitures, arising from the issuance of stock options and SARs on a straight-line basis over the vesting period of the grant.
 
The estimated compensation cost associated with the granting of restricted stock and restricted stock units is based on the fair value of the Company’s common stock on the date of grant. The Company recognizes the compensation cost, net of estimated forfeitures, arising from the issuance of restricted stock and restricted stock units on a straight-line basis over the shorter of the vesting period or the period from the grant date to the date when retirement eligibility is achieved.
 
The following table provides the weighted average assumptions used in determining the fair value of the non-performance based SARs granted during the years ended December 31, 2013 and 2012.

 
 
December 31, 2013
 
December 31, 2012
Risk-free interest rate
 
0.33
%
 
0.31
%
Expected life
 
3.5

 
3.5

Expected volatility
 
49.80
%
 
57.62
%


Stock Incentive Plan
 
In 2011, the Board and stockholders approved the Amended 2004 Plan.  The Amended 2004 Plan replaced the 1998 Stock Option Plan (the 1998 Plan) and the 2000 Omnibus Incentive Compensation Plan (the 2000 Plan).  The Amended 2004 Plan authorized an additional 1,100,000 shares for new awards and combined the remaining shares available under the original 2004 Plan.  Eligible participants under the Amended 2004 Plan include officers and other employees of the Company, members of the Board and outside consultants, as specified under the Amended 2004 Plan and designated by the Compensation and Management Development Committee of the Board (Compensation Committee).  Unless earlier terminated by action of the Board, the Amended 2004 Plan will remain in effect until such time as no stock remains available for delivery under the Amended 2004 Plan and the Company has no further rights or obligations under the Amended 2004 Plan with respect to outstanding awards thereunder. 
 
Historically, stock options were generally granted with an exercise price equal to the market value of the common stock on the date of grant, expired 10 years from the date they are granted, and generally vested over a two-year period for members of the Board of Directors and a three-year period for employees.  Upon exercise, new shares are issued by the Company.  The Company has not granted stock options since 2005.  SARs are generally granted with a grant price equal to the market value of the common stock on the date of grant, vest one-third each year on the anniversary of the date of grant and expire five years from the date of grant.  The restricted shares and restricted stock units granted to employees generally have a three year cliff vesting period and are subject to accelerated vesting and forfeiture under certain circumstances. Restricted shares and restricted stock units granted to board members generally have a three year graded vesting period and are subject to accelerated vesting and forfeiture under certain circumstances.

In November 2008, the Company’s chief executive officer was granted 140,000 restricted stock units and 280,000 performance contingent SARs.  The restricted stock units vested into shares of the Company’s common stock, in five equal installments, with the initial 20% of the units vesting immediately on the grant date and an additional 20% of the units vesting on each anniversary of the grant date over a four year period.  The performance contingent SARs have an exercise price of $4.28, a seven year term to expiration, and a weighted-average fair value of $0.86.  The fair value estimate of the performance contingent SARs was calculated using a Monte Carlo Simulation model.  The performance contingent SARs are subject to the same time-based vesting schedule as the restricted stock units, but will not vest unless and until certain additional, performance-based conditions are satisfied: (1) with respect to the initial 94,000 performance contingent SARs, the closing price of the Company’s common stock is at least $10.00 per share for 60 consecutive trading days anytime within five years from the grant date; (2) with respect to the next 93,000 performance contingent SARs, the closing price of the Company’s common stock is at least $15.00 per share for 60 consecutive trading days anytime within five years from the grant date; and (3) with respect to the final 93,000 performance contingent SARs, the closing price of the Company’s common stock is at least $20.00 per share for 60 consecutive trading days anytime within five years from the grant date.  Vesting of the performance contingent SARs granted to the CEO is contingent upon achievement of certain stock prices; these stock prices represent premiums in excess of 25% to the closing stock price of the Company’s common stock on the date of grant.  During the first quarter of 2011, the Company, with the approval of the Compensation Committee, modified the performance-based vesting conditions of all performance contingent SARS.  The modified terms of the grant change the “60 consecutive trading days” disclosed above to “an average of 60 consecutive trading days.” As of December 31, 2013, all of the performance contingent SARs expired. 
 
The weighted-average fair value of non-performance based SARs granted during the year ended December 31, 2013 was estimated to be $1.97. The weighted-average fair value of non-performance based SARs granted during the year ended December 31, 2012 was estimated to be $2.71.  There were 13,183 SARs exercised in 2013 with a weighted-average grant price of $5.90 and there were 38,169 SARs exercised in 2012 with a weighted-average grant price of $5.44. Historically, shares issued upon the exercise of options have been new shares and have not come from treasury shares.
 
As of December 31, 2013, there was $1.7 million of total unrecognized compensation cost, net of estimated forfeitures, related to unvested SARs and restricted stock that are expected to be recognized over a weighted-average period of approximately 1.5 years.
 
The impact of stock options, SARs, performance shares, RSUs and restricted stock on net loss for the years ended December 31, 2013 and 2012 is as follows:

 
2013
 
2012
Stock options and SARs
$
454

 
$
349

Performance awards
—

 
115

RSUs and restricted stock
1,269

 
1,327

Total stock-based compensation expense
$
1,723

 
$
1,791



A summary of stock option and SARs activity for the year ended December 31, 2013, and changes during such year, is presented below:

 
Shares
 
Average
Grant
Price
 
Remaining
Contractual
Period (in years)
 
Aggregate
Intrinsic
Value
Outstanding at January 1, 2013
880,601

 
$6.37
 
2.91
 
$
1,700

Granted
396,760

 
$5.44
 
2.02
 
$
—

Exercised
(13,183
)
 
$5.90
 
 
 
 
Forfeited or expired
(425,635
)
 
$5.22
 
 
 
 
Outstanding at December 31, 2013
838,543

 
$6.52
 
3.08
 
$
148

Exercisable at December 31, 2013
290,061

 
$7.90
 
1.57
 
$
—

Vested and expected to vest
798,816

 
$6.55
 
3.05
 
$
—


 
A summary of the status of the Company’s nonvested SARs for the year ended December 31, 2013, and changes during such year, is presented below:

 
Shares
 
Weighted- Average Grant Date Fair Value
Nonvested at January 1, 2013
677,911

 
$
1.89

Granted
396,760

 
$
1.97

Vested
(160,647
)
 
$
2.47

Forfeited
(369,451
)
 
$
0.61

Nonvested at December 31, 2013
544,573

 
$
2.20




The aggregate fair value of SARs vested during the years ended December 31, 2013 and 2012 was $0.4 million and $0.2 million, respectively. The weighted-average grant date fair value of SARs vested during the year ended December 31, 2012 was $2.04.
 
A summary of the Company’s nonvested shares of restricted stock and restricted stock units for the year ended December 31, 2013, and changes during such year, is presented below:

 
Shares
 
Weighted-
Average
Grant Date
Fair Value
 
Average
Remaining
Vesting
Period (in years)
 
Aggregate
Intrinsic
Value
Nonvested at January 1, 2013
553,097

 
$
7.60

 
1.40
 
$
4,204

Granted
248,473

 
$
5.10

 
2.73
 
$
1,195

Vested
(160,762
)
 
$
6.74

 
 
 
 
Forfeited
(59,099
)
 
$
7.41

 
 
 
 
Nonvested at December 31, 2013
581,709

 
$
4.81

 
1.44
 
$
2,660


 
The aggregate fair value of restricted stock and restricted stock units vested during each of the years ended December 31, 2013 and 2012 was $1.1 million and $0.8 million, respectively. The weighted-average grant date fair value of restricted stock and restricted stock units vested during the year ended December 31, 2012 was $5.53.