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Stock-based Compensation | 9 Months Ended
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Sep. 30, 2013
Stock-based Compensation | 11. Stock-based compensation The Company has issued options under the Genpact Global Holdings 2005 Plan (the “2005 Plan”), Genpact Global Holdings 2006 Plan (the “2006 Plan”), Genpact Global Holdings 2007 Plan (the “2007 Plan”) and Genpact Limited 2007 Omnibus Incentive Compensation Plan (the “2007 Omnibus Plan”) to eligible persons who are employees, directors and certain other persons associated with the Company. From the date of adoption of the 2007 Omnibus Plan on July 13, 2007, the options forfeited, expired, terminated, or cancelled under any of the plans will be added to the number of shares otherwise available for grant under the 2007 Omnibus Plan. The 2007 Omnibus Plan was amended and restated on April 11, 2012 to increase the number of common shares authorized for issuance by 5,593,200 shares to 15,000,000 shares. On August 30, 2012, the Company’s Board of Directors declared a special cash dividend of $2.24 per share. The special cash dividend resulted in an adjustment to stock-based awards under both the 2007 Omnibus Plan and the 2005 Plan. Accordingly, effective September 24, 2012, the payment date of the special cash dividend, the number of common shares authorized for issuance under the 2007 Omnibus Plan was increased by 2,544,327 shares. The number of common shares authorized for issuance under the 2005 Plan was increased by 495,915 shares. Further, as of December 31, 2012, the number of common shares authorized for issuance under the 2007 Omnibus Plan had been increased by 6,314,496 shares as a result of the termination, expiration or forfeiture of options granted under the Company’s stock incentive plans other than the 2007 Omnibus Plan. In accordance with the anti-dilutive provisions of the 2005 Plan, 2006 Plan, 2007 Plan and 2007 Omnibus Plan, the Company adjusted both the exercise price and the number of stock-based awards outstanding as of the record date of the special cash dividend. The aggregate fair value, intrinsic value and the ratio of the exercise price to the market price were approximately equal immediately before and after the adjustments. Therefore, in accordance with the equity restructuring guidance under ASC 718, Compensation-Stock Compensation, no incremental compensation expense was recognized for the adjustment to the outstanding stock-based awards as a result of the special cash dividend. The stock-based compensation costs relating to the foregoing plans during the nine months ended September 30, 2012 and 2013 were $22,745 and $21,761 respectively, and for the three months ended September 30, 2012 and 2013, were $5,579 and $ 5,258 respectively. Stock-based compensation costs for the nine months and three months ended September 30, 2013 have been reduced by $1,670 due to a change in the probability of achievement of the performance conditions for outstanding performance units. These costs have been allocated to cost of revenue and selling, general, and administrative expenses. The following table shows the significant assumptions used in connection with the determination of the fair value of options granted in the nine months ended September 30, 2013. No options were granted in the nine months ended September 30, 2012.
|  | Nine months ended September 30, 2013 |
Dividend Yield |  |  | 0 | %
Expected life (in months) |  |  | 84 |
Risk free rate of interest |  |  | 1.55 | %
Volatility |  |  | 39.39 | %
A summary of options activity during the nine months ended September 30, 2013 is set out below:
|  | Nine months ended September 30, 2013 |
|  | Shares arising out of options |  |  | Weighted average exercise price |  |  | Weighted average remaining contractual life (years) |  |  | Aggregate intrinsic value |
Outstanding as of January 1, 2013 |  |  | 12,413,298 |  |  | $ | 9.29 |  |  |  | 4.2 |  |  |  |  |
Granted |  |  | 3,483,000 |  |  |  | 19.35 |  |  |  |  |  |  |  |  |
Forfeited |  |  | (63,056 | ) |  |  | 10.47 |  |  |  |  |  |  |  |  |
Expired |  |  | (67,978 | ) |  |  | 13.79 |  |  |  |  |  |  |  |  |
Exercised |  |  | (3,784,851 | ) |  |  | 8.76 |  |  |  |  |  |  |  | 38,149 |
Outstanding as of September 30, 2013 |  |  | 11,980,413 |  |  | $ | 12.35 |  |  |  | 5.32 |  |  | $ | 80,652 |
Vested as of September 30, 2013 and expected to vest thereafter (a) |  |  | 11,596,240 |  |  | $ | 12.07 |  |  |  | 5.32 |  |  | $ | 80,471 |
Vested and Exercisable as of September 30, 2013 |  |  | 7,547,192 |  |  | $ | 9.27 |  |  |  | 3.24 |  |  | $ | 72,524 |
Weighted average grant date fair value of grants during the period |  | $ | 19.35 |  |  |  |  |  |  |  |  |  |  |  |  |
(a) | Options expected to vest reflect an estimated forfeiture rate.
As of September 30, 2013, the total remaining unrecognized stock-based compensation costs for options expected to vest amounted to $25,728, which will be recognized over the weighted average remaining requisite vesting period of 4.0 years. Restricted Share Units The Company has granted restricted share units, or RSUs, under the 2007 Omnibus Plan. Each RSU represents the right to receive one common share. The fair value of each RSU is the market price of one common share of the Company on the date of grant. The RSUs granted to date have vesting schedules of six months to four years. The compensation expense is recognized on a straight line basis over the vesting term. A summary of RSUs granted during the nine months ended September 30, 2013 is set out below:
|  | Nine months ended September 30, 2013 |
|  | Number of Restricted Share Units |  |  | Weighted Average Grant Date Fair Value |
Outstanding as of January 1, 2013 |  |  | 1,688,402 |  |  | $ | 13.74 |
Granted |  |  | 91,623 |  |  |  | 19.52 |
Vested* |  |  | (294,451 | ) |  |  | 14.49 |
Forfeited |  |  | (190,665 | ) |  |  | 13.62 |
Outstanding as of September 30, 2013 |  |  | 1,294,909 |  |  | $ | 14.00 |
Expected to vest (a) |  |  | 1,165,351 |  |  |  |  |
(a) | RSUs expected to vest reflect an estimated forfeiture rate.
* | Vested RSUs have been net settled upon vesting by issuing 188,966 shares (net of minimum statutory withholding taxes).
During the year ended December 31, 2011, 102,000 RSUs vested, the shares in respect of which were issued in January 2013 (100,800 shares, net of minimum statutory withholding taxes). Shares in respect of an additional 13,719 RSUs reflecting an adjustment to 102,000 vested RSUs on account of the special cash dividend were issued in January 2013 (13,557, net of minimum statutory withholding taxes). As of December 31, 2012, 4,000 RSUs vested, the shares in respect of which were issued in April 2013 (1,819, net of minimum statutory withholding taxes). Shares in respect of an additional 533 RSUs reflecting an adjustment to 4,000 vested RSUs on account of the special cash dividend were issued in April 2013 (240, net of minimum statutory withholding taxes). 44,286 RSUs vested as of December 31, 2012, the shares in respect of which will be issued on December 31, 2013, after withholding shares to the extent of the minimum statutory withholding taxes. As of September 30, 2013, the total remaining unrecognized stock-based compensation costs related to RSUs amounted to $12,427, which will be recognized over the weighted average remaining requisite vesting period of 1.9 years. Performance Units The Company also grants stock-based awards in the form of Performance Units, or PUs, under the 2007 Omnibus Plan. The Company granted PUs, each of which represents the right to receive one common share based on the Company’s performance against specified targets. PUs granted to date have vesting schedules of six months to three years. The fair value of each PU is the market price of one common share of the Company on the date of grant, and assumes that performance targets will be achieved. The PUs granted under the plan are subject to cliff or graded vesting. For awards with cliff vesting, the compensation expense is recognized on a straight-line basis over the vesting terms. For awards with graded vesting, the compensation expense is recognized over the vesting term of each separately vesting portion. Over the performance period, the number of shares that will be issued will be adjusted upward or downward based upon the probability of achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized as an expense will be based on a comparison of the final performance metrics to the specified targets. A summary of PUs activity during the nine months ended September 30, 2013 is set out below:
|  | Nine months ended September 30, 2013 |
|  | Number of Performance Units |  |  | Weighted Average Grant Date Fair Value |  |  | Maximum Shares Eligible to Receive |
Outstanding as of January 1, 2013 |  |  | 3,041,511 |  |  | $ | 13.26 |  |  |  | 4,402,597 |
Granted |  |  | 2,025,090 |  |  |  | 18.57 |  |  |  | 3,694,635 |
Vested |  |  | — |  |  |  | — |  |  |  | — |
Forfeited |  |  | (200,654 | ) |  |  | 15.13 |  |  |  | (256,064 | )
Addition due to achievement of higher than target performance goals* |  |  | 297,911 |  |  |  | 17.50 |  |  |  |  |
Reduction due to achievement of lower than maximum performance goals** |  |  |  |  |  |  |  |  |  |  | (373,702 | )
Outstanding as of September 30, 2013 |  |  | 5,163,858 |  |  | $ | 15.51 |  |  |  | 7,467,466 |
Expected to vest (a) |  |  | 2,542,867 |  |  |  |  |  |  |  |  |
(a) | PUs expected to vest are based on the probable achievement of the performance targets after considering an estimated forfeiture rate
* | Represents the additional award of 22.2% of the target shares on account of the achievement of higher than target performance for the PUs granted in March 2012.
** | Represents a 27.8% reduction in the maximum shares eligible to vest on account of the certification of the performance goals for the PUs granted in 2012.
For the PUs granted in August 2010, vesting for the year ended December 31, 2011 (including the PUs issued as an adjustment on account of the special cash dividend) has taken place at 128.9% of the target shares (243,781 vested shares) after the compensation committee’s certification of the achievement of the performance goals. Shares in respect of these PUs were issued in January 2013 (156,511, net of minimum statutory withholding taxes). The PUs granted in March 2010 (including the PUs issued as an adjustment on account of the special cash dividend) vested at 90.9% of the target shares (503,969 shares) after the compensation committee’s certification of the performance goals achieved for the performance period based on the Company’s audited consolidated financial statements. The shares in respect of these PUs were issued in March 2013 (334,922) and April 2013 (4,679), net of minimum statutory withholding taxes. For the PUs granted in August 2010 vesting for the year ended December 31, 2012 has taken place at 122.2% of the target shares (231,029 vested shares) based on the compensation committee’s certification of achievement of the performance goals for the performance period based on the Company’s audited consolidated financial statements. The shares in respect of these PUs will be issued on December 31, 2013, net of minimum statutory withholding taxes. As of September 30, 2013, the total remaining unrecognized stock-based compensation costs related to PUs amounted to $9,429, which will be recognized over the weighted average remaining requisite vesting period of 1.1 years. In the first quarter of 2011, the compensation committee of the board of directors of the Company modified the performance metrics for the performance grants made to employees in 2010 from Revenue and EBITDA growth to revenue and adjusted operating income growth.
|  | Original Performance Target |  |  | Modified Performance Target |
Performance Level |  | Revenue Growth |  |  | EBITDA Growth |  |  | Revenue Growth |  |  | Adjusted Income from Operation growth |
Outstanding |  |  | 20.0 | % |  |  | 20.0 | % |  |  | 20.0 | % |  |  | 20.0 | %
Target |  |  | 15.0 | % |  |  | 15.0 | % |  |  | 15.0 | % |  |  | 15.0 | %
Threshold |  |  | 10.0 | % |  |  | 10.0 | % |  |  | 10.0 | % |  |  | 10.0 | %
For the August 2010 performance grant to the Company’s former CEO, who assumed the role of Non-Executive Vice-Chairman as of June 17, 2011, in addition to the modification made to the performance metrics from revenue and EBITDA growth to revenue and adjusted operating income growth, because the award vests based on annual performance targets whereas the awards to other employees vest based on average performance over three years, the performance targets have been revised to make them consistent with the performance unit grants made to other employees in the first quarter of 2011.
|  | Original Performance Target |  |  | Modified Performance Target |
Performance Level |  | Revenue Growth |  |  | EBITDA Growth |  |  | Revenue Growth |  |  | Adjusted Income from Operation growth |
Outstanding |  |  | 20.0 | % |  |  | 20.0 | % |  |  | 17.0 | % |  |  | 16.0 | %
Target |  |  | 15.0 | % |  |  | 15.0 | % |  |  | 12.5 | % |  |  | 12.5 | %
Threshold |  |  | 10.0 | % |  |  | 10.0 | % |  |  | 8.0 | % |  |  | 7.0 | %
As of the date of the above modifications, an incremental compensation cost of $4,109 was determined and was to be recognized over a period of 21.5 months, starting from March 2011 to December 31, 2012. Under the 2007 Omnibus Plan, the definition of change of control includes the acquisition by any person, corporation or other entity or group other than GA, OH, GE or any of their affiliates of 25% or more of the voting securities of the Company. The purchase by Bain Capital of Company shares from GA and OH would have constituted a change of control under the 2007 Omnibus Plan resulting in (1) accelerated vesting of the PUs granted in August 2010 to the former CEO (who since assumed the role of Non-Executive Vice-Chairman) and the PUs granted to the Company’s Chief Executive Officer in June 2011 and March 2012, (2) “double-trigger” vesting of the outstanding PUs granted in March 2010 and March 2011 based on an abbreviated performance period ending with the close of the Company’s fiscal quarter coincident with or immediately preceding the effective date of the Change of Control in the event of a termination without cause in the twenty-four months following a change of control and (3) “double-trigger” vesting of the outstanding PUs granted in March 2012 based on target performance in the event of a termination without cause in the twenty-four months following a change of control. However, because the Board of Directors determined that the Bain transaction was not the type of transaction intended to constitute a change of control, the 2007 Omnibus Plan was amended to provide that the contemplated transaction among Bain Capital, GA and OH would not constitute a change of control thereunder. In addition, the CEO and Non-Executive Vice-Chairman waived any accelerated vesting of their PUs and the affected employees consented to the amendment of the change of control definition. As a result of the foregoing, all PUs will continue to vest in accordance with their original terms. The amendment to the 2007 Omnibus Plan was a modification to the PUs effective as of October 25, 2012, as a result of which 123 employees were affected and an incremental compensation cost of $5,500 was determined and will be recognized over a weighted average period of 1.85 years. The incremental compensation cost due to modification was a result of considering the original performance period for the determination of expected vesting compared to the abbreviated performance period for 2010 and 2011 grants and vesting at target for 2012 performance grants. Employee Stock Purchase Plan (ESPP) On May 1, 2008, the Company adopted the Genpact Limited U.S. Employee Stock Purchase Plan and the Genpact Limited International Employee Stock Purchase Plan (together, the “ESPP”). The ESPP allows eligible employees to purchase the Company’s common shares through payroll deduction at 90% of the fair value per share on the last business day of each purchase interval. The dollar amount of common shares purchased under the ESPP shall not exceed the greater of 15% of the participating employee’s base salary or $25 per calendar year. With effect from September 1, 2009, the offering periods commence on the first business day in March, June, September and December of each year and end on the last business day in the subsequent May, August, November and February of each year. 4,200,000 common shares have been reserved for issuance in the aggregate over the term of the ESPP. During the nine months ended September 30, 2012 and 2013, the number of common shares issued under the ESPP was 63,106 and 81,040, respectively. The ESPP is considered compensatory under the FASB guidance on Compensation-Stock Compensation. The compensation expense for the ESPP is recognized in accordance with the FASB guidance on Compensation-Stock Compensation. The compensation expense for the ESPP during the nine months ended September 30, 2012 and 2013 was, $111 and $170, respectively, and for the three months ended September 30, 2012 and 2013, was $34 and $54, respectively, and has been allocated to cost of revenue and selling, general, and administrative expenses.

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- Definition The entire disclosure for compensation-related costs for equity-based compensation, which may include disclosure of policies, compensation plan details, allocation of equity compensation, incentive distributions, equity-based arrangements to obtain goods and services, deferred compensation arrangements, employee stock ownership plan details and employee stock purchase plan details. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5047-113901 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5070-113901 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 505 -SubTopic 50 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6406099&loc=d3e25284-112666 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 40 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6418621&loc=d3e17540-113929 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 718 -SubTopic 10 -Section 50 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6415400&loc=d3e5444-113901 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Staff Accounting Bulletin (SAB) -Number Topic 14 + Details
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