STOCK-BASED COMPENSATION (Notes)

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

6. 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 is determined using the Black-Scholes model. 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. Except for the special award described below, 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.

On July 2, 2020, a special award of restricted stock units was granted to certain officers of the Company. These awards vest in tranches of 30% on each of the first and second anniversaries of the grant date and 40% on the third anniversary of the grant date, subject, in each case, to continued employment through the applicable anniversary date.

Performance-based awards granted in 2020 and 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.

During the three and nine months ended September 30, 2020 and 2019, 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, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Stock-settled stock appreciation rights granted	—		—		262,091		213,618
Weighted-average fair value	$	—	$	—	$	13.86	$	16.36

Restricted stock units granted	444,375		6,256		655,825		181,800
Weighted-average fair value	$	32.18	$	47.95	$	37.38	$	54.41

Performance-based awards granted	—		—		158,756		126,874
Weighted-average fair value	$	—	$	—	$	48.67	$	54.64

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, 2020	September 30, 2019	September 30, 2020		September 30, 2019
Risk free interest rate	n/a	n/a	1.4	%	2.5	%
Expected life (in years)	n/a	n/a	5		5
Expected volatility	n/a	n/a	30	%	29	%

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, 2020:


	Awards	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2019	2,337,049	$	59.72
Granted	262,091	48.32
Exercised	(182,487)	33.57
Forfeited	(39,112)	65.57
Outstanding at September 30, 2020	2,377,541	60.37		5.7	$	679
Exercisable at September 30, 2020	1,844,929	$	62.32	5.0	$	679

The following table sets forth a summary of time-based restricted stock units and related information for the nine months ended September 30, 2020:


	Awards	Weighted- Average Fair Value
Unvested at December 31, 2019	363,729	$	60.00
Granted	655,825	37.38
Vested	(80,486)	69.68
Forfeited	(8,364)	60.03
Unvested at September 30, 2020	930,704	$	43.23

The following table sets forth a summary of performance-based awards for the nine months ended September 30, 2020:


	Awards	Weighted- Average Fair Value
Unvested at December 31, 2019	195,305	$	60.24
Granted	158,756	48.67
Vested	(25,909)	78.04
Forfeited	(20,538)	71.47
Unvested at September 30, 2020	307,614	$	52.60

Vesting of the 307,614 shares of performance-based awards in the table above is dependent upon the achievement of certain performance targets, including 134,010 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 153,807 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 $6.0 million and $4.4 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the three months ended September 30, 2020 and 2019, respectively. WESCO recognized $15.5 million and $14.2 million of non-cash stock-based compensation expense, which is included in selling, general and administrative expenses, for the nine months ended September 30, 2020 and 2019, respectively. As of September 30, 2020, there was $39.8 million of unrecognized compensation cost related to non-vested stock-based compensation arrangements for all awards previously made, of which $6.0 million is expected to be recognized over the remainder of 2020, $17.8 million in 2021, $12.4 million in 2022 and $3.6 million in 2023.