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Share Incentive Plans | 12 Months Ended
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Dec. 31, 2021
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. Overview of Share Incentive Plans The 2019 Share Incentive Plan (the “2019 Plan”), as approved by the Company’s shareholders on June 27, 2019, expires on June 27, 2029 and reserves 11,331,958 Common Shares for issuance. All future awards will be granted under the 2019 Plan. As of December 31, 2021, 9,539,478 shares were available for future issuance. Pursuant to the 2019 Plan and the 2011 Share Incentive Plan (the “2011 Plan”) (collectively the “Share Incentive Plans”), officers, trustees, key employees and consultants of the Company and its subsidiaries 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. Options, SARs, restricted shares and restricted units are sometimes collectively referred to herein as “Awards.” The 2011 Plan will terminate when 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, absent immediate vesting and cash settlement. Any Options which had vested prior to such a termination would remain exercisable by the holder. Employee Long-Term Compensation Awards The following table summarizes the terms of Awards generally granted to employees:
|  | Options |  | Restricted Shares |  | Restricted Units
Overview |  | Options exercised after vesting result in issuance of new Common Shares. |  | Restricted shareholders generally have the same voting rights and receive quarterly dividend payments on their shares at the same rate and on the same date as any other Common Share holder (1). |  | When certain conditions are met, restricted units convert into an equal number of OP Units, which the holder may exchange for Common Shares on a one-for-one basis or at the option of the Company the cash value of such shares. Restricted unitholders receive quarterly distribution payments on their restricted units at the same rate and on the same date as any other OP Unit holder (1).
Grant/Exercise Price |  | Granted at the fair market value of Common Shares as of the grant date. |  | Granted at the fair market value of Common Shares as of the grant date. |  | Granted at varying discount rates to the fair market value of Common Shares as of the grant date (2).
Vesting Period |  | In three equal installments over a three-year period from the grant date. |  | Three years from the grant date. |  | Three years from the grant date.
Expiration |  | Ten years from the grant date. |  | Not applicable. |  | Ten years from the grant date (2).
Upon Employee Termination |  | Unvested options are canceled. |  | Unvested restricted shares are canceled. |  | Unvested restricted units are canceled.
(1) | Dividends/distributions paid on unvested restricted shares and units are included as a component of retained earnings and Noncontrolling Interest – Operating Partnership/Limited Partners Capital, respectively, 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.
(2) | 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. The probability of a book-up occurring within the ten-year contractual life along with the liquidity risk associated with various hold period restrictions are both reflected in the discount. 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. If the capital target is attained and the restricted unit is converted to an OP Unit, it will not expire.
Valuation Method of Share Options The fair value of the Option grants is recognized over the requisite service/vesting period of the Options. The fair value for the Company’s Options was estimated at the time the Options were granted using the Black-Scholes option pricing model with the primary grant in each year having the following weighted average assumptions:
|  | 2021 |  |  | 2020 |  |  | 2019 |
Expected volatility (1) |  |  | 21.3 | % |  |  | 15.2 | % |  |  | 16.3 | %
Expected life (2) |  | 5 years |  |  | 5 years |  |  | 5 years |
Expected dividend yield (3) |  |  | 3.23 | % |  |  | 3.04 | % |  |  | 3.10 | %
Risk-free interest rate (4) |  |  | 0.50 | % |  |  | 1.32 | % |  |  | 2.43 | %
Exercise price per share (5) |  | $ | 67.48 |  |  | $ | 83.08 |  |  | $ | 72.02 |
Option valuation per share |  | $ | 7.96 |  |  | $ | 7.23 |  |  | $ | 8.06 |
(1) | Expected volatility – Estimated based on the historical five-year volatility (the period matching the expected life) of EQR’s share price measured on a monthly basis.
(2) | Expected life – Approximates the actual weighted average life of all Options granted since the Company went public in 1993.
(3) | Expected dividend yield – Calculated by averaging the historical annual yield on EQR shares for a period matching the expected life of each grant, with the annual yield calculated by dividing actual regular dividends (excluding any special dividends) by the average price of EQR’s shares in a given year.
(4) | Risk-free interest rate – The most current U.S. Treasury rate available at the grant date for a period matching the expected life of each grant.
(5) | Exercise price per share – The closing share price of the Common Shares on the grant date.
The valuation method and assumptions are the same as those the Company used in accounting for Option expense in its consolidated financial statements. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. This model is only one method of valuing options. Because the Company’s Options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the actual value of the Options to the recipient may be significantly different. Long-Term Incentive Plan The Company’s executive compensation program allows the Chairman, Chief Executive Officer and certain other executive officers 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. No payout would be made for any return below 50% of the target performance metric. The Company’s Total Shareholder Return (“TSR”) and Normalized Funds from Operations (“FFO”) results over a forward-looking three-year performance period determine the restricted shares and/or restricted units awarded and are compared to pre-established quantitative performance metrics. 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 over the service period regardless of whether the TSR performance measures are achieved, while the Normalized FFO portion of the awards is adjusted based on the final achievement obtained. 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 and vesting period. If employment is terminated prior to vesting, the restricted shares and restricted units are generally canceled. The LTI participants receive distributions only on restricted units awarded equal to 10% of the quarterly distributions paid on OP Units during the performance period. At the end of the performance period, LTI participants receive dividends/distributions actually earned on restricted shares or restricted units awarded during the performance period, less any distributions already paid on the restricted units. The grant date fair value of the TSR portion of the LTI awards is estimated using a multifactor Monte Carlo model to determine share prices for an absolute award for which the payout of the award only depends on EQR’s TSR and a set of relative awards for which the payout of the award depends on the spread of EQR’s TSR to the TSR of two indices: (a) the FTSE Nareit Apartment Index; and (b) the FTSE Nareit Equity Index. The grant date fair value of the Normalized FFO portion of the LTI awards is estimated using the closing price of EQR Common Shares on the grant date for the restricted shares and a discounted closing price of EQR Common Shares on the grant date for the restricted units to reflect the “book-up” and liquidity risk inherent in the units. The individual prices determined above are then weighted to arrive at the final values for each restricted share/unit as follows:
|  | 2021 |  |  | 2020 |  |  | 2019 |
Weighted average fair value per restricted share |  | $ | 61.73 |  |  | $ | 75.89 |  |  | $ | 65.36 |
Weighted average fair value per restricted unit |  | $ | 59.82 |  |  | $ | 72.69 |  |  | $ | 63.12 |
The valuation method and assumptions are the same as those the Company used in accounting for restricted share/unit expense in its consolidated financial statements. The Monte Carlo valuation model is only one method of valuing awards. Because the Company’s restricted shares/units have characteristics significantly different from those of traded shares/units, and because changes in the subjective input assumptions can materially affect the fair value estimate, the actual value of the restricted shares/units to the recipient may be significantly different. Trustees All Trustees, with the exception of the Company’s 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 Chairman has only received awards under the LTI plan (see further discussion above). Retirement Benefits The Company’s Share Incentive Plans provide for certain benefits upon retirement. The following table summarizes the terms of each retirement eligibility category.
|  | Age 62 for Employees |  | Rule of 70 for Employees |  | Age 72 for Trustees
Eligibility |  | For employees hired prior to January 1, 2009 and who were age 59 or older as of February 1, 2019. |  | All employees (1). |  | All non-employee Trustees.
Effect on unvested restricted shares, restricted units and Options |  | Awards immediately vest and Options continue to be exercisable for the balance of the applicable ten-year option period. |  | Awards continue to vest per the original vesting schedule, subject to certain conditions, and Options continue to be exercisable for the balance of the applicable ten-year option period. |  | Awards immediately vest and Options continue to be exercisable for the balance of the applicable ten-year option period.
Effect on LTI Plan |  | Awards are prorated in proportion to the number of days worked in the first year of the three-year performance period and the individual does not receive any payout of shares or units until the final payout is determined at the end of the three-year performance period.
(1) | 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 six months’ advance written notice of his or her intention to retire along with agreeing to certain other conditions.
Under the Company’s definitions of retirement, some of its executive officers, including its Chief Executive Officer, and its Chairman are retirement eligible. Compensation Expense and Award Activity The following tables summarize compensation information regarding the restricted shares, restricted units, Options and Employee Share Purchase Plan (“ESPP”) for the three years ended December 31, 2021, 2020 and 2019.
|  | Year Ended December 31, 2021 |
|  | Compensation Expense |  |  | Compensation Capitalized |  |  | Restricted Units/Options In-Lieu of Bonus (1) |  |  | Compensation Equity |  |  | Dividends Incurred |
Restricted shares (2) |  | $ | 7,258 |  |  | $ | 1,131 |  |  | $ | — |  |  | $ | 8,389 |  |  | $ | 761 |
Restricted units (2) |  |  | 16,689 |  |  |  | 70 |  |  |  | 1,038 |  |  |  | 17,797 |  |  |  | 1,254 |
Options |  |  | 2,980 |  |  |  | 121 |  |  |  | — |  |  |  | 3,101 |  |  |  | — |
ESPP discount |  |  | 883 |  |  |  | 108 |  |  |  | — |  |  |  | 991 |  |  |  | — |
Total |  | $ | 27,810 |  |  | $ | 1,430 |  |  | $ | 1,038 |  |  | $ | 30,278 |  |  | $ | 2,015 |
|  | Year Ended December 31, 2020 |
|  | Compensation Expense |  |  | Compensation Capitalized |  |  | Restricted Units/Options In-Lieu of Bonus (1) |  |  | Compensation Equity |  |  | Dividends Incurred |
Restricted shares (2) |  | $ | 10,053 |  |  | $ | 1,172 |  |  | $ | — |  |  | $ | 11,225 |  |  | $ | 1,172 |
Restricted units (2) |  |  | 10,103 |  |  |  | 80 |  |  |  | 1,743 |  |  |  | 11,926 |  |  |  | 1,855 |
Options |  |  | 2,156 |  |  |  | 193 |  |  |  | — |  |  |  | 2,349 |  |  |  | — |
ESPP discount |  |  | 862 |  |  |  | 82 |  |  |  | — |  |  |  | 944 |  |  |  | — |
Total |  | $ | 23,174 |  |  | $ | 1,527 |  |  | $ | 1,743 |  |  | $ | 26,444 |  |  | $ | 3,027 |
|  | Year Ended December 31, 2019 |
|  | Compensation Expense |  |  | Compensation Capitalized |  |  | Restricted Units/Options In-Lieu of Bonus (1) |  |  | Compensation Equity |  |  | Dividends Incurred |
Restricted shares (2) |  | $ | 11,522 |  |  | $ | 916 |  |  | $ | — |  |  | $ | 12,438 |  |  | $ | 979 |
Restricted units (2) |  |  | 9,905 |  |  |  | 240 |  |  |  | 3,265 |  |  |  | 13,410 |  |  |  | 825 |
Options |  |  | 2,420 |  |  |  | 254 |  |  |  | 1 |  |  |  | 2,675 |  |  |  | — |
ESPP discount |  |  | 602 |  |  |  | 40 |  |  |  | — |  |  |  | 642 |  |  |  | — |
Total |  | $ | 24,449 |  |  | $ | 1,450 |  |  | $ | 3,266 |  |  | $ | 29,165 |  |  | $ | 1,804 |
(1) | The Company allows eligible officers the ability to receive immediately vested restricted units (subject to the book-up provisions described above and a two-year hold restriction) or immediately vested 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 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.
| • | 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, 2021 is $8.6 million (including 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 1.37 years. The table below summarizes the Award activity of the Share Incentive Plans for the three years ended December 31, 2021, 2020 and 2019:
|  | 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, 2018 |  |  | 7,112,235 |  |  | $ | 52.35 |  |  |  | 299,425 |  |  | $ | 66.52 |  |  |  | 1,139,848 |  |  | $ | 71.07 |
Awards granted (1) |  |  | 234,147 |  |  | $ | 72.10 |  |  |  | 163,799 |  |  | $ | 73.96 |  |  |  | 141,772 |  |  | $ | 67.22 |
Awards exercised/vested |  |  | (1,745,050 | ) |  | $ | 44.72 |  |  |  | (151,321 | ) |  | $ | 75.41 |  |  |  | (422,784 | ) |  | $ | 70.77 |
Awards forfeited |  |  | (30,489 | ) |  | $ | 61.92 |  |  |  | (5,197 | ) |  | $ | 65.35 |  |  |  | (552 | ) |  | $ | 69.43 |
Awards expired |  |  | (3,299 | ) |  | $ | 40.39 |  |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |
Balance at December 31, 2019 |  |  | 5,567,544 |  |  | $ | 55.52 |  |  |  | 306,706 |  |  | $ | 66.15 |  |  |  | 858,284 |  |  | $ | 64.95 |
Awards granted (1) |  |  | 317,731 |  |  | $ | 76.26 |  |  |  | 179,911 |  |  | $ | 77.44 |  |  |  | 249,263 |  |  | $ | 72.00 |
Awards exercised/vested |  |  | (239,695 | ) |  | $ | 50.31 |  |  |  | (131,792 | ) |  | $ | 66.32 |  |  |  | (227,747 | ) |  | $ | 68.47 |
Awards forfeited |  |  | (1,344 | ) |  | $ | 72.69 |  |  |  | (1,191 | ) |  | $ | 73.45 |  |  |  | — |  |  | $ | — |
Awards expired |  |  | (1,484 | ) |  | $ | 47.18 |  |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |
Balance at December 31, 2020 |  |  | 5,642,752 |  |  | $ | 56.91 |  |  |  | 353,634 |  |  | $ | 71.81 |  |  |  | 879,800 |  |  | $ | 66.78 |
Awards granted (1) |  |  | 489,853 |  |  | $ | 67.58 |  |  |  | 96,224 |  |  | $ | 70.46 |  |  |  | 190,742 |  |  | $ | 60.71 |
Awards exercised/vested |  |  | (1,710,692 | ) |  | $ | 50.09 |  |  |  | (133,351 | ) |  | $ | 62.89 |  |  |  | (181,531 | ) |  | $ | 62.01 |
Awards forfeited |  |  | (23,317 | ) |  | $ | 73.33 |  |  |  | (6,631 | ) |  | $ | 74.31 |  |  |  | (35,580 | ) |  | $ | 59.82 |
Awards expired |  |  | (10,763 | ) |  | $ | 68.00 |  |  |  | — |  |  | $ | — |  |  |  | — |  |  | $ | — |
Balance at December 31, 2021 |  |  | 4,387,833 |  |  | $ | 60.65 |  |  |  | 309,876 |  |  | $ | 75.17 |  |  |  | 853,431 |  |  | $ | 66.11 |
(1) | Includes LTI plan awards granted under the executive compensation program.
|  | Amounts in thousands except per share amounts |
|  | Year Ended December 31, |
|  | 2021 |  |  | 2020 |  |  | 2019 |
Weighted average grant date fair value per share for Options granted |  | $ | 7.98 |  |  | $ | 6.74 |  |  | $ | 8.05 |
Aggregate intrinsic value of Options exercised (1) |  | $ | 47,413 |  |  | $ | 7,569 |  |  | $ | 58,066 |
Fair value of restricted shares vested |  | $ | 9,222 |  |  | $ | 10,559 |  |  | $ | 11,133 |
Fair value of restricted units vested |  | $ | 12,468 |  |  | $ | 18,711 |  |  | $ | 29,149 |
(1) | 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.
The following table summarizes information regarding Options outstanding and exercisable at December 31, 2021 (aggregate intrinsic value is in thousands):
|  | Options |  |  | Weighted Average Remaining Contractual Life in Years |  |  | Weighted Average Exercise Price |  |  | Aggregate Intrinsic Value (1) |
Options Outstanding |  |  | 4,387,833 |  |  |  | 5.37 |  |  | $ | 60.65 |  |  | $ | 130,999 |
Options Exercisable |  |  | 3,710,888 |  |  |  | 4.76 |  |  | $ | 58.70 |  |  | $ | 118,015 |
Vested and expected to vest |  |  | 666,334 |  |  |  | 8.71 |  |  | $ | 71.33 |  |  | $ | 12,775 |
(1) | The aggregate intrinsic values were calculated as the excess, if any, between the Company’s closing share price of $90.50 per share on December 31, 2021 and the strike price of the underlying awards.
As of December 31, 2020 and 2019, 4,985,668 Options (with a weighted average exercise price of $55.12) and 4,750,481 Options (with a weighted average exercise price of $54.13) were exercisable, respectively.

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