STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2019

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

. STOCK-BASED COMPENSATION

WESCO’s stock-based employee compensation plans are comprised of stock-settled stock appreciation rights, restricted stock units and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair value of stock-settled stock appreciation rights and performance-based awards with market conditions is determined using the Black-Scholes and Monte Carlo simulation models, respectively. The fair value of restricted stock units and performance-based awards with performance conditions is determined by the grant-date closing price of WESCO’s common stock. The forfeiture assumption is based on WESCO’s historical employee behavior that is reviewed on an annual basis. No dividends are assumed. For stock-settled stock appreciation rights that are exercised and for restricted stock units and performance-based awards that vest, shares are issued out of WESCO's outstanding common stock.

Stock-settled stock appreciation rights vest ratably over a three-year period and terminate on the tenth anniversary of the grant date unless terminated sooner under certain conditions. Vesting of restricted stock units is based on a minimum time period of three years. Vesting of performance-based awards is based on a three-year performance period, and the number of shares earned, if any, depends on the attainment of certain performance levels. Outstanding awards would vest upon the consummation of a change in control transaction and performance-based awards would vest at the target level.

Performance-based awards granted in 2019 were based on two equally-weighted performance measures: the three-year average growth rate of WESCO's net income and the three-year cumulative return on net assets. Performance-based awards granted in 2018 were based on two equally-weighted performance measures: the three-year average growth rate of the Company’s fully diluted earnings per share and the three-year cumulative return on net assets. From 2015 to 2017, the two equally-weighted performance-based award metrics were the three-year average growth rate of WESCO's net income and WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period.

During the three and nine months ended September 30, 2019 and 2018, WESCO granted the following stock-settled stock appreciation rights, restricted stock units and performance-based awards at the following weighted-average fair values:



	Three Months Ended				Nine Months Ended
	September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Stock-settled stock appreciation rights granted	—		9,415		213,618		509,046
Weighted-average fair value	$	—	$	17.40	$	16.36	$	18.38

Restricted stock units granted	6,256		2,686		181,800		119,457
Weighted-average fair value	$	47.95	$	61.41	$	54.41	$	62.72

Performance-based awards granted	—		—		126,874		44,144
Weighted-average fair value	$	—	$	—	$	54.64	$	62.80

The fair value of stock-settled stock appreciation rights was estimated using the following weighted-average assumptions:



	Three Months Ended			Nine Months Ended
	September 30, 2019	September 30, 2018		September 30, 2019		September 30, 2018
Risk free interest rate	n/a	2.8	%	2.5	%	2.5	%
Expected life (in years)	n/a	5		5		5
Expected volatility	n/a	28	%	29	%	28	%

The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve as of the grant date. The expected life is based on historical exercise experience and the expected volatility is based on the volatility of the Company's daily stock prices over a five-year period preceding the grant date.

The following table sets forth a summary of stock-settled stock appreciation rights and related information for the nine months ended September 30, 2019:



	Awards		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2018	2,351,633		$	59.26
Granted	213,618		54.63
Exercised	(108,022	)	34.84
Forfeited	(87,351	)	65.96
Outstanding at September 30, 2019	2,369,878		59.71		5.8	$	4,948
Exercisable at September 30, 2019	1,749,201		$	59.00	4.9	$	4,948

The following table sets forth a summary of time-based restricted stock units and related information for the nine months ended September 30, 2019:



	Awards		Weighted- Average Fair Value
Unvested at December 31, 2018	327,798		$	57.87
Granted	181,800		54.41
Vested	(118,560	)	44.58
Forfeited	(17,736	)	59.57
Unvested at September 30, 2019	373,302		$	60.25

Performance shares are awards for which the vesting will occur based on market or performance conditions. The following table sets forth a summary of performance-based awards for the nine months ended September 30, 2019:



	Awards		Weighted- Average Fair Value
Unvested at December 31, 2018	138,896		$	59.33
Granted	126,874		54.64
Vested	(25,696	)	42.44
Forfeited	(44,769	)	52.15
Unvested at September 30, 2019	195,305		$	60.24

The unvested performance-based awards in the table above include 17,507 shares in which vesting of the ultimate number of shares is dependent upon WESCO's total stockholder return in relation to the total stockholder return of a select group of peer companies over a three-year period. These awards are accounted for as awards with market conditions; compensation cost is recognized over the service period, regardless of whether the market conditions are achieved and the awards ultimately vest.

Vesting of the remaining 177,798 shares of performance-based awards in the table above is dependent upon the achievement of certain performance targets, including 77,856 that are dependent upon the three-year average growth rate of WESCO's net income, 19,797 that are dependent upon the three-year average growth rate of the Company's fully diluted earnings per share, and 80,145 that are based upon the three-year cumulative return on net assets. These awards are accounted for as awards with performance conditions; compensation cost is recognized over the performance period based upon WESCO's determination of whether it is probable that the performance targets will be achieved.

WESCO recognized $4.4 million and $4.1 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the three months ended September 30, 2019 and 2018, respectively. WESCO recognized $14.2 million and $12.1 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019, there was $24.9 million of total unrecognized compensation cost related to non-vested stock-based compensation arrangements for all awards previously made, of which approximately $4.8 million is expected to be recognized over the remainder of 2019, $12.7 million in 2020, $6.7 million in 2021 and $0.7 million in 2022.