Stock-Based Compensation

9 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

In first quarter 2023 and 2022, we granted two types of stock-based awards under our incentive plan: performance stock units (PSUs) and restricted stock units (RSUs).

PSU and RSU Awards

During the nine months ended September 30, 2023, we granted 93,282 PSUs to our officers and other employees, subject to performance and service conditions. For the officers, the number of shares actually awarded will range from 0% to 200% of the target amount, depending upon Boise Cascade's 2023 return on invested capital (ROIC), as approved by our compensation committee in accordance with the related grant agreement. We define ROIC as net operating profit after taxes (NOPAT) divided by average invested capital (based on a rolling thirteen-month average). We define NOPAT as net income plus after-tax financing expense. Invested capital is defined as total assets plus capitalized lease expense, less cash, cash equivalents, and current liabilities, excluding short-term debt. For the other employees, the number of shares actually awarded will range from 0% to 200% of the target amount, depending upon Boise Cascade’s 2023 EBITDA, defined as income before interest (interest expense and interest income), income taxes, and depreciation and amortization, as approved by executive management, determined in accordance with the related grant agreement. Because the PSUs contain a performance condition, we record compensation expense over the requisite service period based on the most probable number of shares expected to vest.

During the nine months ended September 30, 2022, we granted 66,180 PSUs to our officers and other employees, subject to performance and service conditions. During the 2022 performance period, officers and other employees earned 152% and 200%, respectively, of the target based on Boise Cascade's 2022 ROIC and EBITDA, as applicable, determined by our compensation committee and executive management, as applicable, in accordance with the related grant agreements.

The PSUs granted to officers generally vest in a single installment three years from the date of grant, while the PSUs granted to other employees vest in three equal tranches each year after the grant date.

During the nine months ended September 30, 2023 and 2022, we granted an aggregate of 116,454 and 86,869 RSUs, respectively, to our officers, other employees, and nonemployee directors with only service conditions. The RSUs granted to officers and other employees vest in three equal tranches each year after the grant date. The RSUs granted to nonemployee directors vest in a single installment after a one year period.

We based the fair value of PSU and RSU awards on the closing market price of our common stock on the grant date. During the nine months ended September 30, 2023 and 2022, the total fair value of PSUs and RSUs vested was $16.8 million and $12.0 million, respectively.

The following summarizes the activity of our PSUs and RSUs awarded under our incentive plan for the nine months ended September 30, 2023:


	PSUs			RSUs
	Number of shares	Weighted Average Grant-Date Fair Value		Number of shares	Weighted Average Grant-Date Fair Value
Outstanding, December 31, 2022	317,854	$	51.46	155,339	$	65.17
Granted	93,282	69.33		116,454	69.58
Performance condition adjustment (a)	39,873	79.80		—	—
Vested	(154,794)	40.61		(87,632)	60.64
Forfeited	(7,849)	68.70		(5,020)	69.89
Outstanding, September 30, 2023	288,366	$	66.52	179,141	$	70.12

_______________________________

(a) Represents additional PSUs granted during the nine months ended September 30, 2023, related to above-target achievement of the 2022 performance condition described above.

Compensation Expense

We record compensation expense over the awards' vesting period and account for share-based award forfeitures as they occur, rather than making estimates of future forfeitures. Any shares not vested are forfeited. We recognize compensation expense for stock awards with only service conditions on a straight-line basis over the requisite service period. Most of our stock-based compensation expense was recorded in "General and administrative expenses" in our Consolidated Statements of Operations. Total stock-based compensation recognized from PSUs and RSUs, net of forfeitures, was as follows:


	Three Months Ended September 30				Nine Months Ended September 30
	2023		2022		2023		2022
	(thousands)
PSUs	$	2,384	$	1,933	$	6,775	$	4,934
RSUs	1,616		1,354		4,743		3,756

Total	$	4,000	$	3,287	$	11,518	$	8,690

The related tax benefit for the nine months ended September 30, 2023 and 2022, was $2.9 million and $2.2 million respectively. As of September 30, 2023, total unrecognized compensation expense related to nonvested share-based compensation arrangements was $22.4 million. This expense is expected to be recognized over a weighted-average period of 1.9 years.