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Common Stock Incentive Plan | 12 Months Ended
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Dec. 31, 2020
Share-based Payment Arrangement [Abstract] |
Common Stock Incentive Plan | Common Stock Incentive Plan In 2012, our Board of Directors adopted and stockholders approved the Realty Income Corporation 2012 Incentive Award Plan, or the 2012 Plan, to enable us to motivate, attract and retain the services of directors and employees considered essential to our long-term success. The 2012 Plan offers our directors and employees an opportunity to own our stock or rights that will reflect our growth, development and financial success. Under the terms of the 2012 plan, the aggregate number of shares of our common stock subject to options, restricted stock, stock appreciation rights, restricted stock units, performance shares and other awards, will be no more than 3,985,734 shares. The 2012 Plan has a term of ten years from the date it was adopted by our Board of Directors. The amount of share-based compensation costs recognized in general and administrative expense on our consolidated statements of income and comprehensive income was $16.5 million during 2020, $13.7 million during 2019 and $27.3 million during 2018. Upon the departure of our former CFO in March 2020, we incurred a severance charge of $3.5 million, consisting of $1.6 million of cash, $1.8 million of share-based compensation expense and $58,000 of professional fees. Upon the departure of our former CEO in October 2018, we incurred a severance charge of $28.3 million, consisting of $9.8 million of cash, $17.9 million of share-based compensation expense and $574,000 of professional fees. The incremental severance of $18.7 million consists of the $28.3 million total severance charge reduced by $9.6 million of compensation accrued prior to separation. The net amount of accelerated equity awards expensed in 2018 related to his departure was $11.8 million. A. Restricted Stock The following table summarizes our common stock grant activity under our 2012 Plan.
|  | 2020 |  | 2019 |  | 2018
|  | Number of shares |  | Weighted average price(1) |  | Number of shares |  | Weighted average price(1) |  | Number of shares |  | Weighted average price(1)
Outstanding nonvested shares, beginning of year |  | 259,698 |  |  | $ | 58.39 |  |  | 307,821 |  |  | $ | 53.44 |  |  | 475,768 |  |  | $ | 52.32 |
Shares granted |  | 103,473 |  |  | $ | 67.84 |  |  | 87,327 |  |  | $ | 69.83 |  |  | 183,952 |  |  | $ | 52.21 |
Shares vested |  | (141,486) |  |  | $ | 56.94 |  |  | (126,363) |  |  | $ | 54.45 |  |  | (310,706) |  |  | $ | 51.05 |
Shares forfeited |  | (2,203) |  |  | $ | 66.48 |  |  | (9,087) |  |  | $ | 55.71 |  |  | (41,193) |  |  | $ | 53.06 |
Outstanding nonvested shares, end of each period |  | 219,482 |  |  | $ | 63.69 |  |  | 259,698 |  |  | $ | 58.39 |  |  | 307,821 |  |  | $ | 53.44 |
(1) Grant date fair value. The vesting schedule for shares granted to non-employee directors is as follows: •For directors with less than six years of service at the date of grant, shares vest in 33.33% annual increments upon re-election to the Board at each of the three Annual Meetings of Stockholders following the grant date; •For directors with six years of service at the date of grant, shares vest in 50% annual increments upon re-election to the Board at each of the two Annual Meetings of Stockholders following the grant date; •For directors with seven years of service at the date of grant, shares are 100% vested upon re-election to the Board in the following year; and •For directors with eight or more years of service at the date of grant, there is immediate vesting as of the date the shares of stock are granted. During May 2020, we granted 36,000 shares of restricted stock to the independent members of our Board of Directors, in connection with our annual awards, of which 24,000 shares vested immediately, and 12,000 shares vest in equal parts over a three-year service period. Our restricted stock awards granted to employees typically vest annually in equal parts over a four-year service period. During 2020, 67,473 shares were granted to our employees, and vest over a four-year service period, with the exception of 4,541 shares granted to our former CFO, which vested upon his departure from the Company. As of December 31, 2020, the remaining unamortized share-based compensation expense related to restricted stock totaled $8.6 million, which is being amortized on a straight-line basis over the service period of each applicable award. The amount of share-based compensation is based on the fair value of the stock at the grant date. We define the grant date as the date the recipient and Realty Income have a mutual understanding of the key terms and conditions of the award, and the recipient of the grant begins to benefit from, or be adversely affected by, subsequent changes in the price of the shares. B. Performance Shares During 2020, 2019 and 2018, we granted performance share awards, as well as dividend equivalent rights, to our executive officers. The number of performance shares that vest for each of the three years is based on the achievement of the following performance goals:
|  | Weighting for year granted
Performance Awards Metrics |  | 2020 |  | 2019 |  | 2018
Total shareholder return (“TSR”) ranking relative to MSCI US REIT Index |  | 70 | % |  | 45 | % |  | 45 | %
TSR ranking relative to J.P. Morgan Net Lease Peer Group |  | N/A |  | 26 | % |  | 26 | %
Dividend per share Growth Rate |  | 15 | % |  | 16 | % |  | 16 | %
Debt-to-Adjusted EBITDA re Ratio |  | N/A |  | 13 | % |  | 13 | %
Net Debt-to-Adjusted EBITDA re Ratio |  | 15 | % |  | N/A |  | N/A
The performance shares are earned based on our performance related to our metrics above, and vest 50% on the first and second January 1 after the end of the three-year performance period, subject to continued service. The performance period for the 2018 performance awards began on January 1, 2018 and ended on December 31, 2020. The performance period for the 2019 performance awards began on January 1, 2019 and will end on December 31, 2021. The performance period for the 2020 performance awards began on January 1, 2020 and will end on December 31, 2022. The fair value of the performance shares was estimated on the date of grant using a Monte Carlo Simulation model. The following table summarizes our performance share grant activity:
|  | 2020 |  | 2019 |  | 2018
|  | Number of performance shares |  | Weighted average price(1) |  | Number of performance shares |  | Weighted average price(1) |  | Number of performance shares |  | Weighted average price(1)
Outstanding nonvested shares, beginning of year |  | 304,663 |  |  | $ | 62.25 |  |  | 223,392 |  |  | $ | 58.78 |  |  | 245,309 |  |  | $ | 62.49 |
Shares granted |  | 136,729 |  |  | $ | 79.98 |  |  | 128,581 |  |  | $ | 65.34 |  |  | 269,868 |  |  | $ | 51.98 |
Shares vested |  | (139,012) |  |  | $ | 63.66 |  |  | (47,310) |  |  | $ | 54.27 |  |  | (291,785) |  |  | $ | 54.88 |
Shares forfeited |  | (10,621) |  |  | $ | 66.64 |  |  | — |  |  | $ | — |  |  | — |  |  | $ | — |
Outstanding nonvested shares, end of each period |  | 291,759 |  |  | $ | 69.73 |  |  | 304,663 |  |  | $ | 62.25 |  |  | 223,392 |  |  | $ | 58.78 |
(1) Grant date fair value. As of December 31, 2020, the remaining share-based compensation expense related to the performance shares totaled $8.9 million and is being recognized on a tranche-by-tranche basis over the service period. C. Restricted Stock Units During 2020, 2019 and 2018 we also granted restricted stock units that primarily vest over a four-year service period and have the same economic rights as shares of restricted stock:
|  | 2020 |  | 2019 |  | 2018
|  | Number of restricted stock units |  | Weighted average price(1) |  | Number of restricted stock units |  | Weighted average price(1) |  | Number of restricted stock units |  | Weighted average price(1)
Outstanding nonvested shares, beginning of year |  | 15,511 |  |  | $ | 59.82 |  |  | 14,968 |  |  | $ | 54.62 |  |  | 24,869 |  |  | $ | 55.97 |
Shares granted |  | 9,966 |  |  | $ | 78.79 |  |  | 5,482 |  |  | $ | 69.58 |  |  | 8,383 |  |  | $ | 49.96 |
Shares vested |  | (6,807) |  |  | $ | 58.63 |  |  | (4,939) |  |  | $ | 54.90 |  |  | (10,118) |  |  | $ | 55.01 |
Shares forfeited |  | — |  |  | $ | — |  |  | — |  |  | $ | — |  |  | (8,166) |  |  | $ | 53.45 |
Outstanding nonvested shares, end of each period |  | 18,670 |  |  | $ | 70.38 |  |  | 15,511 |  |  | $ | 59.82 |  |  | 14,968 |  |  | $ | 54.62 |
(1) Grant date fair value. The amount of share-based compensation for the restricted stock units is based on the fair value of our common stock at the grant date. The expense amortization period is the lesser of the four-year service period or the period over which the awardee reaches the qualifying retirement age. For employees who have already met the qualifying retirement age, restricted stock units are fully expensed at the grant date. As of December 31, 2020, the remaining share-based compensation expense related to the restricted stock units totaled $399,000 and is being recognized on a straight-line basis over the service period.

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