Stock-Based Compensation

12 Months Ended

Dec. 31, 2020

8. 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 2,114 shares were authorized for issuance but not issued or subject to outstanding awards as of December 31, 2020. For purposes of calculating the available shares remaining, 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 following table sets forth total stock-based compensation expense:



	Year ended December 31,
	2020		2019		2018
Stock-based compensation	$	84,463	$	92,062	$	69,947
Stock-based compensation, net of income taxes	$	69,904	$	73,866	$	51,544
Total capitalized stock-based compensation included in net leasehold improvements, property and equipment on the consolidated balance sheets	$	1,837	$	666	$	783
Excess tax benefit (deficit) on stock-based compensation recognized in provision for income taxes	$	49,690	$	16,203	$	(6,162)

SOSARs

A summary of SOSAR activity was as follows (in thousands, except years and per share data):



	Shares		Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, January 1, 2020		1,132	$	457.14			$	430,595
Granted		116		874.14
Exercised		(470)		433.10
Forfeited or cancelled		(30)		513.19
Outstanding, December 31, 2020		748		533.71		3.9		637,905
Exercisable, December 31, 2020		235		476.68		1.6		213,697
Vested and expected to vest, December 31, 2020		728		528.03		3.9		625,050

The total intrinsic value of SOSARs exercised during the years ended December 31, 2020, 2019 and 2018, was $236,573, $219,984, and $35,907, respectively. Unrecognized stock-based compensation expense for SOSARs as of December 31, 2020 was $22,612 and is expected to be recognized over a weighted average period of 1.4 years. SOSARs expire 7 years after the day they were granted.

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:



	2020			2019			2018
Risk-free interest rate		1.3	%		2.4	%		2.4	%
Expected life (years)		3.8			3.9			3.9
Expected dividend yield		0.0	%		0.0	%		0.0	%
Volatility		32.4	%		34.7	%		32.2	%
Weighted-average Black-Scholes fair value per share at date of grant	$	231.52		$	176.79		$	77.61

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 RSU award activity was as follows (in thousands, except per share data):



	Shares		Weighted-Average Grant Date Fair Value per Share
Outstanding, January 1, 2020		121	$	408.56
Granted		42		905.96
Vested		(60)		381.71
Forfeited or cancelled		(11)		619.11
Outstanding, December 31, 2020		92		631.66
Vested and expected to vest, December 31, 2020		84		618.08

The weighted average grant date fair value per RSU granted during the years ended December 31, 2019 and 2018, was $627.94 and $299.25, respectively. Unrecognized stock-based compensation expense for non-vested RSU stock awards we have determined are probable of vesting was $21,221 as of December 31, 2020, and is expected to be recognized over a weighted average period of 1.3 years. The fair value of shares earned as of the vesting date during the years ended December 31, 2020, 2019, and 2018, was $47,649, $27,197, and $4,192, respectively.

Non-Vested Performance Stock Awards (PSUs)

A summary of PSU award activity was as follows (in thousands, except per share data):



	Shares		Weighted-Average Grant Date Fair Value per Share
Outstanding, January 1, 2020		103	$	479.83
Granted		27		853.03
Vested		(29)		466.22
Expired		(1)		605.39
Outstanding, December 31, 2020		100		583.46
Vested and expected to vest, December 31, 2020		229		765.23

The weighted average fair value per PSU granted during the years ended December 31, 2019 and 2018, was $583.13 and $327.58, respectively. The Unrecognized stock-based compensation expense for non-vested PSU stock awards we have determined are probable of vesting was $112,767 as of December 31, 2020, and is expected to be recognized over a weighted average period of 1.3 years. The fair value of shares earned as of the vesting date during the years ended December 31, 2020, 2019, and 2018, was $60,081, $0, and $9,317, respectively.

During the year ended December 31, 2020 we awarded performance share awards that are subject to service, market, and performance vesting conditions. The quantity of shares that will vest will range from 0% to 300% of the target 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, 2020. If the defined minimum targets are not met, then no shares will vest. Further, in no event may more than 100% of the target number of PSUs vest if our 3 year total shareholder return is below the 25^th percentile of the constituent companies comprising the S&P 500 on the day of the grant.

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 performance conditions 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.

On December 30, 2020, due to the impact that the COVID-19 pandemic had on the growth in comparable restaurant sales and restaurant margin relative to the trajectory of both of these performance factors prior to the pandemic, and also due to the significant shareholder value created over the performance period of the original award, the Compensation Committee of the Board of Directors modified the 2018 PSU award. This modification pertained to all seven recipients of this award, and resulted in incremental compensation expense of $71,441, of which $466 has been recognized during the year ended December 31, 2020. To receive all incremental shares generated through the modification the employees must remain employed through December 31, 2022, and the incremental shares will vest in four installments over this period. The remaining expense will be recognized over this requisite service period. The incremental compensation cost is calculated by multiplying the number of incremental shares generated though the modification by the stock price on the modification date. The stock price on the modification date of December 30, 2020 was $1,374.17.