4. Employee Stock Plans

Stock-Based Compensation

The following table summarizes the components of stock-based compensation expense recognized in the Company’s consolidated statements of income for the periods indicated:


	Three Months Ended July 31,
	2012			2011
	(in thousands)
Restricted stock	$	2,986		$	2,784
Stock options and SARs		210			258
ESPP		—			128

Total stock-based compensation expense, pre-tax		3,196			3,170
Tax benefit from stock-based compensation expense		(1,164	)		(1,146	)

Total stock-based compensation expense, net of tax	$	2,032		$	2,024

The Company uses the Black-Scholes option valuation model to estimate the grant date fair value of employee stock options. The expected volatility reflects consideration of the historical volatility in the Company’s publicly traded instruments during the period the option is granted. The Company believes historical volatility in these instruments is more indicative of expected future volatility than the implied volatility in the price of the Company’s common stock. The expected life of each option is estimated using historical data. The risk-free interest rate is based on the U.S. Treasury zero-coupon issue with a remaining term approximating the expected term of the option. The Company uses historical data to estimate forfeiture rates applied to the gross amount of expense determined using the option valuation model.

The weighted-average assumptions used to estimate the fair value of each employee stock option and SARs for the three months ended July 31, 2011 were 47.07% expected volatility, 1.47% risk-free interest rate, 5.0 years expected option life, and 0.00% dividend yield. There were no grants of stock options in the three months ended July 31, 2012.

The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options. The assumptions used in option valuation models are highly subjective, particularly the expected stock price volatility of the underlying stock.

Stock Incentive Plans

The Company maintains a stock incentive plan known as the Korn/Ferry International Amended and Restated 2008 Stock Incentive Plan, (the “2008 Plan”). The 2008 Plan provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, SARs, restricted stock and restricted stock units, any of which may be performance-based, and incentive bonuses, which may be paid in cash or a combination thereof. The maximum number of shares of common stock that may be issued under the 2008 Plan is 3,980,000 shares, subject to adjustment for certain changes in the Company’s capital structure and other extraordinary events. As of July 31, 2012, the maximum number of shares of common stock available for issuance under the 2008 Plan is 393,103 shares. Under the 2008 Plan, the ability to issue full-value awards (as a stock option or stock appreciation right) is limited by requiring full-value stock awards to count 1.5 times as much as stock options and stock appreciation rights.

Stock Options

Stock options transactions under the Company’s 2008 Plan were as follows:


	Three Months Ended July 31, 2012
	Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (In Years)		Aggregate Intrinsic Value
	(in thousands, except per share data)
Outstanding, April 30, 2012		1,492		$	14.00
Exercised		(24	)	$	7.95
Forfeited/expired.		(35	)	$	18.65

Outstanding, July 31, 2012		1,433		$	14.02		2.89	$	2,489

Exercisable, July 31, 2012		1,164		$	14.08		2.50	$	2,179

As of July 31, 2012, there was $1.4 million of total unrecognized compensation cost related to non-vested awards of stock options. That cost is expected to be recognized over a weighted-average period of 1.0 year. For stock option awards subject to graded vesting, the Company recognizes the total compensation cost on a straight-line basis over the service period for the entire award.

Additional information pertaining to stock options:


	Three Months Ended July 31,
	2012		2011
	(in thousands, except per share data)
Weighted-average fair value per share of stock options granted	$	—	$	9.61
Total fair value of stock options vested	$	829	$	816
Total intrinsic value of stock options exercised	$	160	$	848

Restricted Stock

The Company grants time-based restricted stock to executive officers and other senior employees generally vesting over a three to four year period. Time-based restricted stock is granted at a price equal to fair value, which is determined based on the closing price of the Company’s common stock on the grant date. The Company also grants market-based restricted stock to executive officers and other senior employees. These market-based shares vest after three years depending upon the Company’s total stockholder return over the three-year performance period relative to other companies in its selected peer group. The fair value of these market-based restricted stock awards was determined by a third-party valuation using extensive market data. Employees may receive restricted stock annually in conjunction with the Company’s performance review as well as upon commencement of employment.

Restricted stock activity during the three months ended July 31, 2012, is summarized below:


	Shares			Weighted- Average Grant Date Fair Value
	(in thousands, except per share data)
Non-vested, April 30, 2012		1,781		$	9.85
Granted		798		$	13.41
Vested		(669	)	$	4.46
Forfeited/expired		(7	)	$	16.36

Non-vested, July 31, 2012		1,903		$	13.21

As of July 31, 2012, there was $25.1 million of total unrecognized compensation cost related to non-vested awards of restricted stock, which is expected to be recognized over a weighted-average period of 2.2 years. For restricted stock awards subject to graded vesting, the Company recognizes the total compensation cost on a straight-line basis over the service period for the entire award. During the three months ended July 31, 2012 and 2011, shares of restricted stock of 177,126 and 176,658 totaling $2.5 million and $4.0 million, respectively, were repurchased by the Company, at the option of the employee, to pay for taxes related to vesting of restricted stock.

Employee Stock Purchase Plan

The Company has an ESPP that, in accordance with Section 423 of the Internal Revenue Code, allows eligible employees to authorize payroll deductions of up to 15% of their salary, or $25,000 annually, to purchase shares of the Company’s common stock at 85% of the fair market price of the common stock on the last day of the enrollment period. At the Company’s 2011 Annual Meeting of Stockholders, held on September 28, 2011, the Company’s stockholders approved an amendment and restatement of the ESPP, which among other things, increased the maximum number of shares that may be issued under the ESPP from 1.5 million shares to 3.0 million shares. During the three months ended July 31, 2011, employees purchased 76,909 shares at $18.69 per share. The ESPP was temporarily suspended during the second half of fiscal 2012. At July 31, 2012, the ESPP had approximately 1.6 million shares available for future issuance.

Common Stock

During the three months ended July 31, 2012 and 2011, the Company issued 24,281 shares and 113,686 shares of common stock, respectively, as a result of the exercise of stock options, with cash proceeds from the exercise of $0.2 million and $1.7 million, respectively.

No shares were repurchased during the three months ended July 31, 2012 and 2011, other than to satisfy minimum tax withholding requirements upon the vesting of restricted stock as described above.