13. Stock-Based Compensation Plans

Under the Omnibus Equity Plan, the Company is authorized to issue up to 8,841,864 new shares of Class A common stock to employees, officers and non-employee directors. Under this plan, the Company may grant awards in respect of shares of Class A common stock, including performance-based restricted share units (“PRSUs”), stock options, restricted stock units (“RSUs”) and dividend equivalent rights. The awards may have performance-based and time-based vesting conditions. Stock options have a maximum contractual term of 10 years.

PRSUs (Equity-Settled)

PRSUs are promises to issue actual shares of Class A common stock at the end of a three-year cliff vesting period. The fair value of the equity-settled PRSUs is calculated on the grant date using the stock price of the Class A common stock. The number of shares a participant will receive upon vesting is determined by a performance modifier, which is adjusted as a result of the financial performance of the Company in the grant year. The performance modifier can vary between 0% (minimum) and 200% (maximum) of the target (100%) award amount.

On December 31, 2018, certain PRSUs, which were previously cash-settled, were converted to equity-settled PRSUs. No equity-settled PRSUs were granted by the Company prior to December 31, 2018. The conversion was at fair value, using a unit price consistent with the share price of the Company, and as a result of the impact of the performance modifier on PRSUs value, 1,033.2 cash-settled PRSUs were converted into the equivalent value of 2,000,384 equity-settled PRSUs, adjusted retroactively for the recapitalization of TWM LLC described in Note 11 – Stockholders’ Equity, having vesting terms similar to the cash-settled PRSUs. As a result of the modification, which impacted 54 employees, the Company reclassified $19.1 million from employee equity compensation payable to members’ capital in the December 31, 2018 statement of financial condition.

A summary of the Company’s outstanding equity-settled PRSUs is presented below:


		Weighted
		Average
	Equity-Settled	Grant-Date
	PRSUs	Fair Value
Equity-settled PRSUs outstanding at December 31, 2018	2,000,384	$	9.53
Grants	781,026	$	21.08
Vests	—	$	—
Performance adjustment	762,326	$	21.08
Forfeitures	(53,070)	$	13.48
Equity-settled PRSUs outstanding at December 31, 2019	3,490,666	$	14.59

The following table shows a summary of equity-settled PRSU activity during the year ended December 31, 2019 (in thousands):


	Successor
	Year Ended
	December 31,
	2019
Equity-settled PRSU compensation expense	$	25,392
Income tax benefit	$	(4,781)

PRSUs (Cash-Settled)

The Company previously granted cash-settled PRSUs, some of which are still outstanding and are accounted for as liability awards. The Company measures the cost of employee services received in exchange for the award based on the fair value of the Company and the value of accumulated dividend rights associated with each award. The fair value of that award is remeasured subsequently at each reporting date through to settlement. Changes in the award's fair value during the requisite service period are recognized as compensation cost over that period.

A summary of the Company’s outstanding cash-settled PRSUs is presented below:


		Weighted
	Cash-Settled	Average
	PRSUs	Fair Value
Cash-settled PRSUs outstanding at December 31, 2018	522	$	34,221
Grants	—	$	—
Vests (1)	(507)	$	33,842
Forfeitures	—	$	—
Cash-settled PRSUs outstanding at December 31, 2019	15	$	94,997

(1) The total fair value of cash-settled PRSUs vested was $17.2 million for the year ended December 31, 2019.

Options

Prior to the IPO, the Company awarded options to management and other employees under the Option Plan. Each option award vests one half based solely on the passage of time and one half only if the Company achieves certain performance targets. The time vesting portion of the options has a four-year graded vesting schedule, with accelerated vesting for time-based options with vesting dates of January 1, 2021 and 2022 upon the completion of an initial public offering. The Company can elect to net-settle exercised options by reducing the shares of Class A common stock to be issued upon such exercise by the number of shares of Class A common stock having a fair market value on the date of exercise equal to the aggregate option price and withholding taxes payable in respect of the number of options exercised. The Company can also elect, upon exercise, to reduce the shares to be issued by the number of shares having a fair market value on the date of exercise equal to employee payroll taxes. The Company may then pay these employee payroll taxes from the Company’s cash.

In accounting for options issued under the Option Plan, or which may be issued under the Omnibus Equity Plan in the future, the Company measures and recognizes compensation expense for all awards based on their estimated fair values measured as of the grant date. Options issued under the Option Plan are exercisable following the closing of an initial public offering or during a 15‑day period following a change in control of the Company (and certain other sales of equity by the Company’s shareholders). Costs related to options are recognized as an expense in the consolidated statements of income over the requisite service period, when exercisability is considered probable, with an offsetting increase to additional paid-in capital. As a result, expense recognition commenced upon the completion of the IPO, with $18.9 million recognized as compensation expense related to options issued under the Option Plan immediately upon the completion of the IPO.

The fair value of options is calculated on the grant date using the Black-Scholes model. The significant assumptions used to estimate the fair value as of grant date of the options awarded prior to the IPO did not reflect changes that would have occurred to these assumptions as a result of the IPO.

A summary of the Company’s outstanding options is presented below:


		Weighted
		Average
		Grant-Date
	Options	Fair Value
Options outstanding at December 31, 2018	18,091,793	$	1.85
Grants	886,115	$	8.83
Exercises	(984,585)	$	1.80
Forfeitures and adjustments	(253,579)	$	2.67
Options outstanding at December 31, 2019	17,739,744	$	2.19
Vested options outstanding at December 31, 2019	8,061,312	$	1.80

The total intrinsic value of options exercised in 2019 was $21.3 million. At December 31, 2018, no options were vested or exercisable.

The following table shows a summary options activity during the year ended December 31, 2019 (in thousands):


	Successor
	Year Ended
	December 31,
	2019
Options compensation expense	$	24,432
Income tax benefit	$	(8,556)

The significant assumptions used to estimate the fair value of the options as of the grant date were as follows:


Weighted Average Expected Life (years)		5.7
Weighted Average Risk-Free Interest Rate		2.9	%
Weighted Average Expected Volatility		20.0	%
Weighted Average Expected Dividend Yield		3.9	%
Weighted Average Share Price	$	21.62
Weighted Average Exercise Price	$	21.62

Compensation Expense

The Company records stock-based compensation expense for employees and directors in the consolidated statements of income.

The total stock-based compensation expense for the year ended December 31, 2019, the 2018 Successor Period, the 2018 Predecessor Period and the year ended December 31, 2017 is $50.7 million, $9.4 million, $15.9 million and $26.1 million, respectively.

As of December 31, 2019, total unrecognized compensation expense related to unvested stock-based compensation arrangements and the expected recognition period are as follows (dollars in thousands):


	Cash-Settled		Equity-Settled
	PRSUs		PRSUs		Options
Total unrecognized compensation cost	$	383	$	31,283	$	4,068
Weighted-average recognition period		1.0 years		1.7 years		2.8 years