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:


	Year Ended April 30,
	2014			2013			2012
	(in thousands)
Restricted stock	$	11,689		$	11,001		$	12,381
Stock options		417			905			933
ESPP		—			—			85

Total stock-based compensation expense, pre-tax		12,106			11,906			13,399
Tax benefit from stock-based compensation expense		(3,484	)		(4,142	)		(4,701	)

Total stock-based compensation expense, net of tax	$	8,622		$	7,764		$	8,698

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 stock 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 for fiscal 2012 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 fiscal 2014 and 2013.

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 Plan

At the Company’s 2012 Annual Meeting of Stockholders, held on September 27, 2012, the Company’s stockholders approved an amendment and restatement to the Korn/Ferry International Amended and Restated 2008 Stock Incentive Plan (the 2012 amendment and restatement being the “Second A&R 2008 Plan”), which among other things, increased the current maximum number of shares that may be issued under the plan to 5,700,000 shares, subject to certain changes in the Company’s capital structure and other extraordinary events. The Second A&R 2008 Plan provides for the grant of awards to eligible participants, designated as either nonqualified or incentive stock options, restricted stock and restricted stock units, any of which may be performance-based or market-based, and incentive bonuses, which may be paid in cash or a combination thereof. Under the Second A&R 2008 Plan, the ability to issue full-value awards is limited by requiring full-value stock awards to count 1.91 times as much as stock options.

Options granted to officers, non-employee directors and other key employees generally vest over a three to four year period and generally expire seven to ten years from the date of grant. Stock options are granted at a price equal to the fair market value of the common stock on the date of grant. Key employees are eligible to receive a grant of stock options annually with the number of options determined by the employee’s performance level.

Stock Options

Stock options transactions under the Company’s Second A&R 2008 Plan, as amended to date, were as follows:


	April 30,
	2014					2013					2012
	Options			Weighted- Average Exercise Price		Options			Weighted- Average Exercise Price		Options			Weighted- Average Exercise Price
	(in thousands, except per share data)
Outstanding, beginning of year		1,100		$	14.72		1,492		$	14.00		1,833		$	13.78
Granted		—		$	—		—		$	—		48		$	22.71
Exercised		(655	)	$	13.88		(238	)	$	9.32		(235	)	$	12.76
Forfeited/expired.		(49	)	$	13.42		(154	)	$	16.87		(154	)	$	15.63

Outstanding, end of year		396		$	16.23		1,100		$	14.72		1,492		$	14.00

Exercisable, end of year		337		$	16.11		864		$	15.01		1,061		$	14.33

As of April 30, 2014, the aggregate intrinsic value of options outstanding and options exercisable were $5.1 million and $4.4 million, respectively.

As of April 30, 2014, there was $0.2 million of total unrecognized compensation cost related to non-vested awards of stock options that will be recognized within the next year.

Outstanding stock options:


	April 30, 2014
	Options Outstanding						Options Exercisable
Range of Exercise Prices	Shares		Weighted- Average Remaining Contractual Life (in years)		Weighted- Average Exercise Price		Shares		Weighted- Average Remaining Contractual Life (in years)		Weighted- Average Exercise Price
	(in thousands, except per share data)
$ 9.75 — $ 13.90		159		2.9	$	12.49		122		2.8	$	12.05
$13.91 — $ 17.97		111		1.8	$	16.68		109		1.7	$	16.69
$17.98 — $ 19.37		63		0.4	$	19.24		63		0.4	$	19.24
$19.38 — $ 24.08		63		3.2	$	21.95		43		2.7	$	21.59

		396		2.2	$	16.23		337		2.0	$	16.11

Additional information pertaining to stock options:


	Year Ended April 30,
	2014		2013		2012
	(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	$	984	$	1,001	$	1,065
Total intrinsic value of stock options exercised	$	6,108	$	1,547	$	1,485

Restricted Stock

The Company grants time-based restricted stock awards to executive officers and other senior employees generally vesting over a three to four year period. In addition, certain key management members typically receive time-based restricted stock awards grants upon commencement of employment and may receive them annually in conjunction with the Company’s performance review as well as upon commencement of employment. Time-based restricted stock awards are 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 recognizes compensation expense for time-based restricted stock awards on a straight-line basis over the vesting period. .

The Company also grants market-based and performance-based restricted stock units to executive officers and other senior employees. The market-based units 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 units are determined by a third-party valuation using extensive market data that is based on historical Company and peer group information. The Company recognizes compensation expense for market-based restricted stock units on a straight-line basis over the vesting period.

Performance-based restricted stock units vest after three years depending upon the Company meeting certain objectives that are set at the time the restricted stock unit is issued. Performance-based restricted stock units are granted at a price equal to the fair value, which is determined based on the closing price of the Company’s common stock on the grant date. The Company recognizes compensation expense for performance-based restricted stock units on a straight-line basis over the vesting period. At the end of each reporting period, the Company estimates the number of restricted stock units expected to vest, based on the probability that certain performance objectives will be met, exceeded, or fall below target levels, and takes into account these estimates when calculating the expense for the period.

Restricted stock activity is summarized below:


	April 30,
	2014					2013					2012
	Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value		Shares			Weighted- Average Grant Date Fair Value
	(in thousands, except per share data)
Non-vested, beginning of year		1,810		$	16.38		1,781		$	16.76		2,007		$	15.16
Granted		809		$	21.32		889		$	13.93		687		$	21.46
Vested		(535	)	$	14.54		(780	)	$	14.99		(794	)	$	16.96
Forfeited/expired.		(204	)	$	17.19		(80	)	$	16.43		(119	)	$	18.19

Non-vested, end of year		1,880		$	18.95		1,810		$	16.38		1,781		$	16.76

As of April 30, 2014, there were 0.3 million shares and 0.2 million shares outstanding relating to market-based and performance-based restricted stock units, respectively, with total unrecognized compensation totaling $2.1 million and $4.3 million, respectively.

As of April 30, 2014, there was $22.2 million of total unrecognized compensation cost related to all non-vested awards of restricted stock, which is expected to be recognized over a weighted-average period of 2.3 years. During fiscal 2014 and fiscal 2013, 112,792 shares and 197,456 shares of restricted stock totaling $2.2 million and $2.8 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 fiscal 2012, employees purchased 76,909 shares at $18.69 per share. The ESPP was suspended during the second half of fiscal 2012 and as a result, no shares were purchased during fiscal 2014, 2013 or the second half of fiscal 2012. At April 30, 2014, the ESPP had approximately 1.6 million shares remaining available for future issuance.

Common Stock

During fiscal 2014, 2013 and 2012, the Company issued 654,458 shares, 237,856 shares and 228,835 shares of common stock, respectively, as a result of the exercise of stock options, with cash proceeds from the exercise of $8.8 million, $2.1 million and $2.9 million, respectively.

No shares were repurchased during fiscal 2014, 2013 and 2012, other than to satisfy minimum tax withholding requirements upon the vesting of restricted stock as described above.