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Share Incentive Plans | 12 Months Ended
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Dec. 31, 2018
Share Based Compensation [Abstract] |
Share Incentive Plans |
12. | Share Incentive Plans
Any Common Shares issued pursuant to EQR’s incentive equity compensation and employee share purchase plans will result in ERPOP issuing OP Units to EQR on a one-for-one basis with ERPOP receiving the net cash proceeds of such issuances. On June 16, 2011, the shareholders of EQR approved the Company’s 2011 Share Incentive Plan, as amended (the “2011 Plan”). The 2011 Plan originally reserved 12,980,741 Common Shares for issuance, which was subsequently adjusted to 14,725,321 Common Shares in accordance with the provisions of the 2011 Plan as a result of the option adjustments required for the special dividends paid in conjunction with the Starwood Transaction. In conjunction with the approval of the 2011 Plan, no further awards may be granted under the 2002 Share Incentive Plan. The 2011 Plan expires on June 16, 2021. As of December 31, 2018, 4,835,914 shares were available for future issuance. Pursuant to the 2011 Plan and the 2002 Share Incentive Plan, as restated and amended (collectively the “Share Incentive Plans”), officers, trustees and key employees of the Company may be granted share options to acquire Common Shares (“Options”) including non-qualified share options (“NQSOs”), incentive share options (“ISOs”) and share appreciation rights (“SARs”), or may be granted restricted or non-restricted shares/units (including long-term incentive plan awards), subject to conditions and restrictions as described in the Share Incentive Plans. Options, SARs, restricted shares (including long-term incentive plan awards) and restricted units (including long-term incentive plan awards) are sometimes collectively referred to herein as “Awards”. The 2002 Share Incentive Plan, as restated and amended, will terminate at such time as all outstanding Awards have expired or have been exercised/vested. The Board of Trustees may at any time amend or terminate the Share Incentive Plans, but termination will not affect Awards previously granted. Any Options which had vested prior to such a termination would remain exercisable by the holder. The Options are granted at the fair market value of the Company’s Common Shares at the date of grant and generally vest in three equal installments over a three-year period, are exercisable upon vesting and expire ten years from the date of grant (see additional valuation discussion in Note 2). The exercise price for all Options under the Share Incentive Plans is equal to the fair market value of the underlying Common Shares at the time the Option is granted. If employment is terminated prior to vesting, the Options are generally canceled. Options exercised result in new Common Shares being issued on the open market. Restricted shares are granted at the fair market value of the Company’s Common Shares at the date of grant. Restricted shares that have been awarded through December 31, 2018 generally vest three years from the award date. In addition, the Company’s unvested restricted shareholders generally have the same voting rights as any other Common Share holder. During the three-year period of restriction, the Company’s unvested restricted shareholders receive quarterly dividend payments on their shares at the same rate and on the same date as any other Common Share holder. As a result, dividends paid on unvested restricted shares are included as a component of retained earnings (included in general partner’s capital in the Operating Partnership’s financial statements) and have not been considered in reducing net income available to Common Shares/Units in a manner similar to the Company’s preferred share/preference unit dividends for the earnings per share/Unit calculation. If employment is terminated prior to the lapsing of the restriction, the shares are generally canceled. Restricted units are a class of partnership interests that under certain conditions, including vesting, are convertible by the holder into an equal number of OP Units, which are exchangeable by the holder for Common Shares on a one-for-one basis or the cash value of such shares at the option of the Company. In connection with the grant of long-term incentive compensation for services provided during a year, officers of the Company are allowed to choose between restricted shares and restricted units. Restricted units are generally granted at varying discount rates to the fair market value of the Company’s Common Shares at the date of grant due to the book-up risk associated with restricted units (see below for more details) and the liquidity risk associated with various hold period restrictions and generally vest three years from the award date. In addition, restricted unit holders receive quarterly dividend payments on their restricted units at the same rate and on the same date as any other OP Unit holder (except as noted below). As a result, dividends paid on restricted units are included as a component of Noncontrolling Interests – Operating Partnership/Limited Partners’ capital and have not been considered in reducing net income available to Common Shares/Units in a manner similar to the Company’s preferred share/preference unit dividends for the earnings per share/Unit calculation. If employment is terminated prior to vesting, the restricted units are generally canceled. A restricted unit will automatically convert to an OP Unit when the capital account of each restricted unit increases (“books-up”) to a specified target. If the capital target is not attained within ten years following the date of issuance, the restricted unit will automatically be canceled and no compensation will be payable to the holder of such canceled restricted unit. The Company also allows eligible employees the ability to receive immediately vested Options and allows officers the ability to receive immediately vested restricted units (subject to the book-up provisions described above and a two-year hold restriction) in-lieu of any percentage of their annual cash bonus. In January 2015, the Company revised its executive compensation program for the Chairman, Chief Executive Officer and certain other Executive Officers. In the latest iteration of the program, the long-term portion of the plan will allow these individuals to earn from 0% to 200% of the target number of long-term incentive (“LTI”) awards, payable in the form of restricted shares and/or restricted units, as determined by the Company’s relative and absolute Total Shareholder Return (“TSR”) and Normalized Funds from Operations (“FFO”) results over a forward-looking three-year performance period. The Company’s TSR and Normalized FFO performance will be compared to pre-established quantitative performance metrics. In connection with the grant of LTI plan awards, the individuals are allowed to choose between restricted shares and restricted units. The grant date fair value of the awards is estimated using a Monte Carlo model for the TSR portion of the awards and the resulting expense is recorded regardless of whether the TSR performance measures are achieved, if the required service is delivered. The grant date fair value of the awards is estimated similarly to the restricted share and restricted unit discussion above for the Normalized FFO component and the resulting expense is adjusted based on the final achievement obtained. These awards generally vest three years from the award date. The grant date fair value is amortized into expense over the service period. If the executive is retirement-eligible, the grant date fair value is amortized into expense over the first year. All other awards are amortized into expense over the three year performance/vesting period. In addition, the LTI awards granted as restricted units will receive quarterly partial dividend payments equal to 10% of any common share dividend on the same date as any other OP Unit holder during the three-year performance period. As a result, dividends paid on restricted units are included as a component of Noncontrolling Interests – Operating Partnership/Limited Partners’ capital and have not been considered in reducing net income available to Common Shares/Units in a manner similar to the Company’s preferred share/preference unit dividends for the earnings per share/Unit calculation. The awards granted as restricted shares will not receive dividends during the three-year performance period. At the end of the three-year performance period, cumulative dividends will be paid for the three-year performance period for any restricted shares or restricted units actually earned, less any dividends already paid on the restricted units. If employment is terminated prior to vesting, the restricted shares and restricted units are generally canceled. Once the Company’s absolute and relative TSR and Normalized FFO performance is calculated at the end of the three-year performance period, the executive will earn a certain number of restricted shares and/or restricted units. No payout would be made for any return below 50% of the target performance metric. All Trustees, with the exception of the Company’s non-executive Chairman and employee Trustees, are granted options, restricted shares and/or restricted units that vest one-year from the grant date that corresponds to the term for which he or she has been elected to serve. Since 2016, the non-executive Chairman has only received awards under the LTI plan (see further discussion above). The Company’s Share Incentive Plans provide for certain benefits upon retirement. For employees hired prior to January 1, 2009, retirement generally means the termination of employment (other than for cause): (i) on or after age 62 upon signing a release; or (ii) prior to age 62 after meeting the requirements of the Rule of 70 (described below). For employees hired after January 1, 2009, retirement generally means the termination of employment (other than for cause) after meeting the requirements of the Rule of 70. For Trustees, retirement generally means termination of service on the Board (other than for cause) on or after age 72. The Rule of 70 is met when an employee’s years of service with the Company (which must be at least 15 years) plus his or her age (which must be at least 55 years) on the date of termination equals or exceeds 70 years. In addition, the employee must give the Company at least 6 months’ advance written notice of his or her intention to retire and sign a release upon termination of employment, releasing the Company from customary claims and agreeing to ongoing non-competition and employee non-solicitation provisions. Under the Company’s definitions of retirement, some of its executive officers and its non-executive Chairman are retirement eligible. For employees hired prior to January 1, 2009 who retire at or after age 62 (or for Trustees who retire at or after age 72), such employee’s or Trustee’s unvested restricted shares, restricted units and share options would immediately vest, and share options would continue to be exercisable for the balance of the applicable ten-year option period, as is provided under the Share Incentive Plans. For all other employees (those hired after January 1, 2009 and those hired before such date who choose to retire prior to age 62), upon such retirement under the Rule of 70 definition of retirement of employees, such employee’s unvested restricted shares, restricted units and share options would continue to vest per the original vesting schedule (subject to immediate vesting upon the occurrence of a subsequent change in control of the Company or the employee’s death), and options would continue to be exercisable for the balance of the applicable ten-year option period, subject to the employee’s compliance with the non-competition and employee non-solicitation provisions. The Rule of 70 does not apply to Trustees. For the individuals mentioned above who receive awards under the LTI plan and retire at or after age 62 (age 72 for the Chairman of the Board) or under the Rule of 70, the award would be prorated in proportion to the number of days worked in the first year of the three-year performance period. The individual would not receive any payout of shares or units until the final payout is determined at the end of the three-year performance period. If an employee violates the non-competition and employee non-solicitation provisions after such retirement, all unvested restricted shares, unvested restricted units and unvested and vested share options at the time of the violation would be void, unless otherwise determined by the Compensation Committee of the Board of Trustees. The following tables summarize compensation information regarding the restricted shares, restricted units, share options and Employee Share Purchase Plan (“ESPP”) for the three years ended December 31, 2018, 2017 and 2016 (amounts in thousands):
|  | Year Ended December 31, 2018 |
|  | Compensation Expense |  |  | Compensation Capitalized |  |  | Restricted Units/Options In-Lieu of Bonus (1) |  |  | Compensation Equity |  |  | Dividends Incurred |
Restricted shares (2) |  | $ | 7,406 |  |  | $ | 852 |  |  | $ | — |  |  | $ | 8,258 |  |  | $ | 754 |
Restricted units (2) |  |  | 12,310 |  |  |  | 36 |  |  |  | 1,663 |  |  |  | 14,009 |  |  |  | 963 |
Share options |  |  | 6,683 |  |  |  | 296 |  |  |  | 2,755 |  |  |  | 9,734 |  |  |  | — |
ESPP discount |  |  | 733 |  |  |  | 34 |  |  |  | — |  |  |  | 767 |  |  |  | — |
Total |  | $ | 27,132 |  |  | $ | 1,218 |  |  | $ | 4,418 |  |  | $ | 32,768 |  |  | $ | 1,717 |
|  | Year Ended December 31, 2017 |
|  | Compensation Expense |  |  | Compensation Capitalized |  |  | Restricted Units/Options In-Lieu of Bonus (1) |  |  | Compensation Equity |  |  | Dividends Incurred |
Restricted shares (2) |  | $ | 9,209 |  |  | $ | 568 |  |  | $ | — |  |  | $ | 9,777 |  |  | $ | 761 |
Restricted units (2) |  |  | 10,214 |  |  |  | 119 |  |  |  | 190 |  |  |  | 10,523 |  |  |  | 741 |
Share options |  |  | 4,893 |  |  |  | 323 |  |  |  | 1,619 |  |  |  | 6,835 |  |  |  | — |
ESPP discount |  |  | 681 |  |  |  | 66 |  |  |  | — |  |  |  | 747 |  |  |  | — |
Total |  | $ | 24,997 |  |  | $ | 1,076 |  |  | $ | 1,809 |  |  | $ | 27,882 |  |  | $ | 1,502 |
|  | Year Ended December 31, 2016 |
|  | Compensation Expense |  |  | Compensation Capitalized |  |  | Restricted Units In-Lieu of Bonus (1) |  |  | Compensation Equity |  |  | Dividends Incurred |
Restricted shares (2) |  | $ | 13,539 |  |  | $ | 1,477 |  |  | $ | — |  |  | $ | 15,016 |  |  | $ | 6,494 |
Restricted units (2) |  |  | 13,567 |  |  |  | 591 |  |  |  | 4,022 |  |  |  | 18,180 |  |  |  | 7,762 |
Share options |  |  | 2,839 |  |  |  | 593 |  |  |  | — |  |  |  | 3,432 |  |  |  | — |
ESPP discount |  |  | 585 |  |  |  | 65 |  |  |  | — |  |  |  | 650 |  |  |  | — |
Total |  | $ | 30,530 |  |  | $ | 2,726 |  |  | $ | 4,022 |  |  | $ | 37,278 |  |  | $ | 14,256 |
| (1) | The Company allows officers the ability to receive immediately vested restricted units (subject to the book-up provisions described above and a two-year hold restriction) in-lieu of any percentage of their annual cash bonus. Beginning in 2017, the Company allows eligible employees the ability to receive immediately vested share options in-lieu of any percentage of their annual cash bonus.
| (2) | Includes LTI plan awards granted under the executive compensation program.
Compensation expense is generally recognized for Awards as follows:
| • | Restricted shares, restricted units and share options – Straight-line method over the vesting period of the options, shares or units regardless of cliff or ratable vesting distinctions.
| • | LTI plan awards – Target amount is recognized under the straight-line method over the vesting period of the shares or units regardless of cliff or ratable vesting distinctions.
| • | ESPP discount – Immediately upon the purchase of common shares each quarter.
The Company accelerates the recognition of compensation expense for all Awards for those individuals approaching or meeting the retirement age criteria discussed above. The total compensation expense related to Awards not yet vested at December 31, 2018 is $7.5 million (excluding the accelerated expenses for individuals approaching or meeting the retirement age criteria discussed above), which is expected to be recognized over a weighted average term of 1.31 years. See Note 2 for additional information regarding the Company’s share-based compensation. The table below summarizes the Award activity of the Share Incentive Plans for the three years ended December 31, 2018, 2017 and 2016:
|  | Common Shares Subject to Options |  |  | Weighted Average Exercise Price per Option |  |  | Restricted Shares |  |  | Weighted Average Fair Value per Restricted Share |  |  | Restricted Units |  |  | Weighted Average Fair Value per Restricted Unit |
Balance at December 31, 2015 |  |  | 5,734,365 |  |  | $ | 48.04 |  |  |  | 522,150 |  |  | $ | 63.67 |  |  |  | 888,725 |  |  | $ | 63.91 |
Awards granted (1) (5) |  |  | 154,016 |  |  | $ | 64.99 |  |  |  | 154,296 |  |  | $ | 75.19 |  |  |  | 289,273 |  |  | $ | 81.05 |
Awards exercised/vested (2) (3) (4) |  |  | (815,044 | ) |  | $ | 38.01 |  |  |  | (217,805 | ) |  | $ | 57.75 |  |  |  | (374,217 | ) |  | $ | 52.73 |
Awards forfeited |  |  | (10,512 | ) |  | $ | 63.43 |  |  |  | (6,607 | ) |  | $ | 70.73 |  |  |  | (1,524 | ) |  | $ | 86.35 |
Awards expired |  |  | (710 | ) |  | $ | 68.40 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Special dividend adjustment (6) |  |  | 960,986 |  |  | N/A |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance at December 31, 2016 |  |  | 6,023,101 |  |  | $ | 42.05 |  |  |  | 452,034 |  |  | $ | 70.35 |  |  |  | 802,257 |  |  | $ | 75.26 |
Awards granted (1) (5) |  |  | 1,337,898 |  |  | $ | 60.88 |  |  |  | 93,867 |  |  | $ | 61.94 |  |  |  | 291,921 |  |  | $ | 68.57 |
Awards exercised/vested (2) (3) (4) |  |  | (846,137 | ) |  | $ | 37.26 |  |  |  | (165,744 | ) |  | $ | 58.04 |  |  |  | (192,644 | ) |  | $ | 54.16 |
Awards forfeited |  |  | (27,547 | ) |  | $ | 61.85 |  |  |  | (10,416 | ) |  | $ | 72.44 |  |  |  | (274 | ) |  | $ | 75.50 |
Awards expired |  |  | (3,483 | ) |  | $ | 65.91 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance at December 31, 2017 |  |  | 6,483,832 |  |  | $ | 46.46 |  |  |  | 369,741 |  |  | $ | 73.67 |  |  |  | 901,260 |  |  | $ | 77.61 |
Awards granted (1) (5) |  |  | 1,730,942 |  |  | $ | 60.40 |  |  |  | 129,303 |  |  | $ | 62.25 |  |  |  | 267,074 |  |  | $ | 61.60 |
Awards exercised/vested (2) (3) (4) |  |  | (1,056,388 | ) |  | $ | 29.05 |  |  |  | (194,116 | ) |  | $ | 77.32 |  |  |  | (28,486 | ) |  | $ | 55.50 |
Awards forfeited |  |  | (38,133 | ) |  | $ | 60.74 |  |  |  | (5,503 | ) |  | $ | 65.77 |  |  |  | — |  |  | $ | — |
Awards expired |  |  | (8,018 | ) |  | $ | 59.70 |  |  |  | — |  |  |  | — |  |  |  | — |  |  |  | — |
Balance at December 31, 2018 |  |  | 7,112,235 |  |  | $ | 52.35 |  |  |  | 299,425 |  |  | $ | 66.52 |  |  |  | 1,139,848 |  |  | $ | 71.07 |
| (1) | The weighted average grant date fair value for Options granted during the years ended December 31, 2018, 2017 and 2016 was $6.17 per share, $5.86 per share and $11.09 per share, respectively.
| (2) | The aggregate intrinsic value of options exercised during the years ended December 31, 2018, 2017 and 2016 was $42.9 million, $25.6 million and $26.2 million, respectively. These values were calculated as the difference between the strike price of the underlying awards and the per share price at which each respective award was exercised.
| (3) | The fair value of restricted shares vested during the years ended December 31, 2018, 2017 and 2016 was $11.5 million, $10.2 million and $15.6 million, respectively.
| (4) | The fair value of restricted units vested during the years ended December 31, 2018, 2017 and 2016 was $1.8 million, $11.7 million and $27.2 million, respectively.
| (5) | Includes LTI plan awards granted under the executive compensation program.
| (6) | In addition to the regular quarterly dividends, the Company paid two special dividends to its shareholders and holders of OP Units of $11.00 per share/unit in the aggregate in 2016. Option holders were not entitled to these special dividends, but pursuant to the terms of the Share Incentive Plans are due equitable adjustments of additional options. The special dividend adjustment’s weighted average exercise price per option is reflected in the activity for 2016 for the awards granted, awards exercised/vested, and awards forfeited and the balance at December 31, 2016.
The following table summarizes information regarding options outstanding and exercisable at December 31, 2018 (aggregate intrinsic value is in thousands):
|  | Options |  |  | Weighted Average Remaining Contractual Life in Years |  |  | Weighted Average Exercise Price |  |  | Aggregate Intrinsic Value (1) |
Options Outstanding |  |  | 7,112,235 |  |  |  | 5.58 |  |  | $ | 52.35 |  |  | $ | 97,633 |
Options Exercisable |  |  | 5,328,020 |  |  |  | 4.52 |  |  | $ | 49.57 |  |  | $ | 88,031 |
Vested and expected to vest |  |  | 7,096,243 |  |  |  | 5.57 |  |  | $ | 52.33 |  |  | $ | 97,543 |
| (1) | The aggregate intrinsic values were calculated as the excess, if any, between the Company’s closing share price of $66.01 per share on December 31, 2018 and the strike price of the underlying awards.
As of December 31, 2017 and 2016, 5,336,043 Options (with a weighted average exercise price of $43.24) and 5,610,677 Options (with a weighted average exercise price of $40.91) were exercisable, respectively.

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- Definition Tabular disclosure of components of a stock option or other award plan under which equity-based compensation is awarded to employees, typically comprised of the amount of unearned compensation (deferred compensation cost), compensation expense, and changes in the quantity and fair value of the shares (or other type of equity) granted, exercised, forfeited, and issued and outstanding pertaining to that plan. Disclosure may also include nature and general terms of such arrangements that existed during the period and potential effects of those arrangements on shareholders, effect of compensation cost arising from equity-based payment arrangements on the income statement, method of estimating the fair value of the goods or services received, or the fair value of the equity instruments granted, during the period, cash flow effects resulting from equity-based payment arrangements and, for registrants that accelerate vesting of out of the money share options, reasons for the decision to accelerate. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=109197908&loc=d3e5047-113901 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=109197908&loc=d3e5070-113901 + Details
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