Stock-Based Compensation

12 Months Ended

Dec. 31, 2019

9. Stock-Based Compensation

Pursuant to the 2011 Incentive Plan, we grant stock options, SOSARs, restricted stock units (“RSUs”), or performance and/or market based restricted stock units (“PSUs”) to employees and non-employee directors. We issue shares of common stock upon the exercise of SOSARs and the vesting of RSUs and PSUs.

Under the 2011 Incentive Plan, 6,830 shares of common stock have been authorized and reserved for issuance to eligible participants, of which 2,321 shares were authorized for issuance but not issued or subject to outstanding awards as of December 31, 2019. For purposes of calculating the available shares remaining under the 2011 Incentive Plan, each share issuable pursuant to outstanding full value awards, such as RSUs and PSUs, counts as two shares, and each share underlying a stock option or SOSAR count as one share. The 2011 Incentive Plan is administered by the Compensation Committee of the Board of Directors, which has the authority to select the individuals to whom awards will be granted and to delegate its authority under the plan to make grants (subject to certain legal and regulatory restrictions), to determine the type of awards and when the awards are to be granted, the number of shares to be covered by each award, the vesting schedule and all other terms and conditions of the awards. The exercise price for stock awards granted under the 2011 Incentive Plan cannot be less than fair market value at the date of grant.

Stock-based compensation expense recognized in the consolidated financial statements was as follows:



	Year ended December 31,
	2019		2018		2017
Stock-based compensation	$	92,062	$	69,947	$	66,396
Stock-based compensation, net of income taxes	$	73,866	$	51,544	$	40,370
Total capitalized stock-based compensation included in net leasehold improvements, property and equipment on the consolidated balance sheets	$	666	$	783	$	1,141
Excess tax benefit (deficit) on stock-based compensation recognized in provision for income taxes	$	16,203	$	(6,162)	$	448

SOSARs

SOSAR activity under the 2011 Stock Incentive Plan (in thousands, except years and per share data) was as follows:



	Shares		Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, January 1, 2019		2,151	$	474.51			$	49,160
Granted		201		601.59
Exercised		(1,130)		510.35
Forfeited or cancelled		(40)		483.11
Expired		(50)		559.29
Outstanding, December 31, 2019		1,132		457.14		4.4		430,270
Exercisable, December 31, 2019		365		505.35		2.4		121,242
Vested and expected to vest, December 31, 2019		1,095		454.76		4.3		418,815

The total intrinsic value of SOSARs exercised during the years ended December 31, 2019, 2018 and 2017, was $219,984, $35,907, and $4,296, respectively. Unrecognized stock-based compensation expense for SOSARs as of December 31, 2019 was $30,338 and is expected to be recognized over a weighted average period of 1.5 years.

The weighted average assumptions utilized in the Black-Scholes option-pricing model to estimate the fair value of SOSARs granted each year were as follows:



	2019			2018			2017
Risk-free interest rate		2.4	%		2.4	%		1.6	%
Expected life (years)		3.9			3.9			3.7
Expected dividend yield		0.0	%		0.0	%		0.0	%
Volatility		34.7	%		32.2	%		29.9	%
Weighted-average Black-Scholes fair value per share at date of grant	$	176.79		$	77.61		$	105.97

The risk-free interest rate is based on U.S. Treasury rates for instruments with similar terms, and the expected life assumption is based on our historical data. We have not paid dividends to date and do not plan to pay dividends in the near future. The volatility assumption is based on our historical data and implied volatility.

Non-Vested Stock Awards (RSUs)

A summary of non-vested RSU award activity under the 2011 Stock Incentive Plan was as follows (in thousands, except per share data):



	Shares		Weighted-Average Grant Date Fair Value per Share
Outstanding, January 1, 2019		154	$	352.85
Granted		28		627.94
Vested		(46)		388.08
Forfeited or cancelled		(15)		303.84
Outstanding, December 31, 2019		121		408.56
Vested and expected to vest, December 31, 2019		113		401.74

The weighted average grant date fair value per RSU granted during the years ended December 31, 2018 and 2017, was $299.25 and $414.36, respectively. Unrecognized stock-based compensation expense for non-vested RSU stock awards we have determined are probable of vesting was $14,803 as of December 31, 2019, and is expected to be recognized over a weighted average period of 1.4 years. The fair value of shares earned as of the vesting date during the years ended December 31, 2019, 2018, and 2017, was $27,197, $4,192, and $3,524, respectively.

Non-Vested Performance Stock Awards (PSUs)

A summary of non-vested PSU award activity under the 2011 Stock Incentive Plan was as follows:



	Shares		Weighted-Average Grant Date Fair Value per Share
Outstanding, January 1, 2019		70	$	418.52
Granted		46		583.13
Vested		-		-
Expired		(13)		518.62
Outstanding, December 31, 2019		103		479.83
Vested and expected to vest, December 31, 2019		227		479.61

The weighted average fair value per PSU granted during the years ended December 31, 2018 and 2017, was $327.58 and $466.29, respectively. The Unrecognized stock-based compensation expense for non-vested PSU stock awards we have determined are probable of vesting was $60,921 as of December 31, 2019, and is expected to be recognized over a weighted average period of 2.2 years. The fair value of shares earned as of the vesting date during the years ended December 31, 2019, 2018, and 2017, was $0, $9,317, and $0, respectively.

During the year ended December 31, 2019, we awarded two types of performance share awards that are subject to service and performance vesting conditions. The quantity of shares that will vest range from 0% to 300% of the targeted number of shares for both awards. The first award, consisting of 33 shares, will vest based on our growth in comparable restaurant sales and average restaurant margin over a three-year period beginning on January 1, 2019. The second award, consisting of 13 shares, will vest based on achievement of certain targets related to digital sales, general and administrative expenses as a percentage of revenue, and successful completion of a defined number of strategic initiatives in 2019 and 2020. These awards will vest 40% on the third anniversary of the grant date and 60% on the fourth anniversary of the grant date provided required service is completed through these dates.

During the year ended December 31, 2018, we awarded performance share awards that are subject to service and performance vesting conditions. The quantity of shares that will vest range from 0% to 300% of the targeted number of shares based on performance factors related to our growth in comparable restaurant sales and average restaurant margin over a three year period beginning on January 1, 2018. If the defined minimum targets are not met, then no shares will vest.

During the year ended December 31, 2017, we awarded performance shares that are subject to service, market and performance vesting conditions. Two-thirds of the shares have vesting criteria based on the price of our common stock reaching certain targets for a consecutive number of days during the three-year period starting on the grant date, with the quantity of shares that vest ranging from 0% to 350% of the targeted number of shares. The remaining one-third of the shares have vesting criteria based on reaching certain comparable restaurant sales increases during the three-year period starting on January 1, 2017, with the quantity of shares that vest ranging from 0% to 300% of the targeted number of shares. If the defined minimum targets are not met, then no shares will vest.

No stock awards with market conditions were granted during the years ended December 31, 2019 and 2018. Measurement of the grant date fair value of stock awards with market conditions in 2017 included a Monte Carlo simulation model, which incorporates into the fair value determination the possibility that the market condition may not be satisfied, using the following assumptions:



	2017
Risk-free interest rate	1.5	%
Expected life (years)	3.0
Expected dividend yield	0.0	%
Volatility	29.9	%

The assumptions are based on the same factors as those described for SOSARs, except that the expected life is based on the contractual performance period for the stock awards.