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Note 13 - Stock-based Compensation and Purchase Plans

12 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

13. stock-based compensation and purchase plans

Stock-Based Compensation Plans

Under incentive compensation plans, the Company is authorized to make grants of stock options, restricted stock and performance share units to provide equity incentive compensation to key employees and directors. The stock award program offers employees and directors the opportunity to earn shares of our stock over time, rather than options that give the employees and directors the right to purchase stock at a set price. The Company has stock plans for directors, officers and certain key employees.

Total compensation cost recognized in the consolidated statement of operations for equity based compensation awards was $11.2 million, $8.4 million, and $7.0 million for the years ended June 30, 2022, 2021, and 2020, respectively, primarily within Selling, General, and Administrative Expenses. The total income tax benefit recognized in the consolidated statement of operations for equity-based compensation plans was $2.7 million, $1.8 million, and $1.9 million for the years ended June 30, 2022, 2021 and 2020, respectively.

There were 508,968 shares of common stock reserved for issuance under various compensation plans at June 30, 2022.

Restricted Stock Awards

The Company may award shares of restricted stock to eligible employees and non-employee directors of the Company at no cost, giving them, in most instances, all of the rights of stockholders, except that they may not sell, assign, pledge or otherwise encumber such shares and rights during the restriction period. Such shares and rights are subject to forfeiture if certain employment conditions are not met. During the restriction period, recipients of the shares are entitled to dividend equivalents on such shares, providing that such shares are not forfeited. Dividends are accumulated and paid out at the end of the restriction period. Restrictions on non-vested stock awards generally lapse between fiscal year 2023 and fiscal year 2025. Compensation expense related to stock awards recognized was $5.0 million, $5.3 million, and $4.2 million, respectively, for fiscal years ended June 30, 2022, 2021, and 2020. Substantially all awards are expected to vest.

A summary of restricted stock awards activity is as follows:

		*Restricted Stock Awards*
						*Weighted*
		*Number*				*Average*
		of				*Grant Date*
		*Shares*				*Fair Value*
Outstanding, June 30, 2021			168,011			$	74.61
Granted			48,160				104.37
Vested			(68,601	)			87.53
Canceled			(5,916	)			50.57
Outstanding, June 30, 2022			141,654			$	78.19

Restricted stock awards granted during fiscal years 2021 and 2020 had a weighted average grant date fair value of $59.57, and $71.38, respectively. The grant date fair value of restricted stock awards is determined based on the closing price of the Company’s common stock on the date of grant. The fair value of awards vested during fiscal years 2022, 2021 and 2020 was $6.8 million, $2.8 million and $2.3 million, respectively.

As of June 30, 2022, there was $3.6 million of unrecognized compensation costs related to awards expected to be recognized over a weighted-average period of 1.2 years.

Executive Compensation Program

The Company operates a compensation program for key employees. The plan contains both an annual component as well as a long-term component. Under the annual component, participants may elect to defer up to 50% of their annual incentive compensation in restricted stock which is purchased at a discount to the market. Additionally, non-employee directors of the Company may defer a portion of their director’s fees in restricted stock units which is purchased at a discount to the market. During the restriction period, recipients of the shares are entitled to dividend equivalents on such units, providing that such shares are not forfeited.

Dividend equivalents are accumulated and paid out at the end of the restriction period. The restrictions on the units expire after three years. Restrictions on non-vested annual component awards generally lapse between fiscal year 2023 and fiscal year 2025. The compensation expense associated with this incentive program is charged to income over the restriction period. The Company recorded compensation expense related to this program of $0.2 million, $0.4 million, and $0.3 million for the years ended June 30, 2022, 2021 and 2020, respectively.

As of June 30, 2022, there was $1.0 million of unrecognized compensation costs related to awards expected to be recognized over a weighted-average period of 1.4 years.

The fair value of the awards under the annual component of this incentive program is measured using the Black-Scholes option-pricing model. Key assumptions used to apply this pricing model are as follows:

		*2022*				*2021*				*2020*
Risk-free interest rates			0.46	%			0.18	%			1.42	%
Expected life of option grants (in years)			3				3				3
Expected volatility of underlying stock			46.7	%			44.1	%			32.0	%
Expected quarterly dividends (per share)		$	0.24			$	0.22			$	0.20

Under the long-term component, grants of performance share units (“PSUs”) are made annually to key employees and the share units are earned based on the achievement of certain overall corporate financial performance targets over the performance period. At the end of the performance period, the number of shares of common stock issued will be determined by adjusting upward or downward from the target in a range between 50% and 200%. No shares will be issued if the minimum performance threshold is not achieved. The final performance percentage, on which the payout will be based considering the performance metrics established for the performance period, will be certified by the Compensation Committee of the Board of Directors.

A participant’s right to any shares that are earned will cliff vest in three years. An executive whose employment terminates prior to the vesting of any award for a reason other than death, disability, retirement, or following a change in control, will forfeit the shares represented by that award. In certain circumstances, such as death, disability, or retirement, PSUs are paid on a pro-rata basis. In the event of a change in control, vesting of the awards granted is accelerated.

A summary of the awards activity under the executive compensation program is as follows:

		*Annual Component*												*Performance Stock Units*
						*Weighted*												*Weighted*
		*Number*				*Average*				*Aggregate*				*Number*				*Average*
		of				*Exercise*				*Intrinsic*				of				*Grant Date*
		*Shares*				*Price*				*Value*				*Shares*				*Fair Value*
Non-vested, June 30, 2021			41,119			$	54.36			$	691,647				129,427			$	70.27
Granted			22,646				71.18								35,113				102.61
Exercised / vested			(10,658	)			76.65			$	241,723				(21,307	)			106.65
Forfeited			0				-								(1,063	)			86.47
Non-vested, June 30, 2022			53,107			$	57.06			$	346,496				142,170			$	72.68

Restricted stock awards granted under the annual component of this program in fiscal years 2022, 2021, and 2020 had a weighted average grant date fair value of $108.92, $43.16, and $74.37, respectively. The PSUs granted in fiscal years 2021 and 2020 had a weighted average grant date fair value of $58.81, and $70.37, respectively. The grant date fair value of the PSUs is determined based on the closing price of the Company’s common stock on the date of grant. The fair value of PSUs vested under the long-term component of this program during the fiscal years ended June 30, 2022, 2021, and 2020 was $0.4 million, $0.7 million, and $0.8 million respectively.

The Company recognized compensation expense related to the PSUs of $6.0 million, $2.6 million, and $2.9 million for the fiscal years ended June 30, 2022, 2021 and 2020 respectively based on the probability of the performance targets being met. The total unrecognized compensation costs related to non-vested performance share units was $5.6 million at June 30, 2022, which is expected to be recognized over a weighted average period of 1.0 years.

Employee Stock Purchase Plan

The Company has an Employee Stock Purchase Plan that allows employees to purchase shares of common stock of the Company at a discount from the market each quarter. The ESPP plan, which was effective as of July 1, 2005, provided employees the option to purchase Standex stock at a discount of 5%. The Plan was modified, effective as of April 1, 2017, to increase the stock purchase discount to 15% and is considered a compensatory Plan. Under this amendment, at the beginning of each calendar quarter, employees may elect to purchase shares of Company stock at a value equal to 85% of the closing price on the last trading day of the quarter. The 15% discount is recorded as a component of SG&A in the Company’s Consolidated Statements of Operations. Shares of stock reserved for the plan were 48,268 at June 30, 2022. Shares purchased under this plan aggregated to 6,707 in fiscal year 2022, 7,509 in 2021, and 11,132 in 2020, at an average price of $83.22, $66.98, and $52.57, respectively.