Share-based compensation

Under the 2010 Equity and Incentive Plan, as amended, HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights (SARs), restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The 2010 Equity and Incentive Plan (original EIP) was amended and restated effective March 1, 2014 (EIP) and an additional 1.5 million shares was added to the shares available for issuance under these programs.

As of September 30, 2016, approximately 3.4 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy minimum statutory tax liabilities relating to EIP awards, including an estimated 0.4 million shares that could be issued upon the vesting of outstanding restricted stock units and the achievement of performance goals for awards outstanding under long-term incentive plans (assuming that such performance goals are achieved at maximum levels).

Under the 2011 Nonemployee Director Stock Plan (2011 Director Plan), HEI can issue shares of common stock as compensation to nonemployee directors of HEI, Hawaiian Electric and ASB. As of September 30, 2016, there were 121,198 shares remaining available for future issuance under the 2011 Director Plan.

Share-based compensation expense and the related income tax benefit were as follows:



	Three months ended September 30				Nine months ended September 30
(in millions)	2016		2015		2016		2015
HEI consolidated
Share-based compensation expense ¹	$	1.6	$	1.0	$	3.6	$	4.8
Income tax benefit	0.5		0.3		1.2		1.7
Hawaiian Electric consolidated
Share-based compensation expense ¹	0.5		0.1		1.0		1.3
Income tax benefit	0.2		—		0.4		0.5


¹	For the three and nine months ended September 30, 2016, the Company has not capitalized any share-based compensation. $0.03 million and $0.12 million of this share-based compensation expense was capitalized in the three and nine months ended September 30, 2015.

Stock awards. No nonemployee director stock grants were awarded from January 1 to September 29, 2016. Nonemployee director awards totaling $0.2 million were paid in cash in July 2016. HEI granted HEI common stock to nonemployee directors of HEI, Hawaiian Electric and ASB under the 2011 Director Plan as follows:



	Nine months ended September 30
($ in millions)	2016		2015
Shares granted	19,846		28,246
Fair value	$	0.6	$	0.8
Income tax benefit	0.2		0.3

The number of shares issued to each nonemployee director of HEI, Hawaiian Electric and ASB is determined based on the closing price of HEI Common Stock on the grant date.

Stock appreciation rights. As of September 30, 2016 and December 31, 2015, there were no remaining SARs outstanding.

SARs activity and statistics were as follows:



	Three months ended September 30		Nine months ended September 30
(dollars in thousands, except prices)	2015		2015
Shares underlying SARs exercised	—		80,000
Weighted-average price of shares exercised	$	—	$	26.18
Intrinsic value of shares exercised ¹	—		502
Tax benefit realized for the deduction of exercises	—		82

¹ Intrinsic value is the amount by which the fair market value of the underlying stock and the related dividend equivalent rights exceeds the exercise price of the right.

Restricted stock units. Information about HEI’s grants of restricted stock units was as follows:



	Three months ended September 30										Nine months ended September 30
	2016					2015					2016					2015
	Shares			(1)		Shares			(1)		Shares			(1)		Shares			(1)
Outstanding, beginning of period	225,752			$	29.59	252,302			$	28.35	210,634			$	28.82	261,235			$	25.77
Granted	766			30.65		690			30.91		95,048			29.91		85,772			33.69
Vested	(4,419		)	27.26		(19,840		)	25.35		(83,583		)	27.88		(99,891		)	25.69
Forfeited	(2,352		)	29.69		(14,316		)	25.82		(2,352		)	29.69		(28,280		)	26.66
Outstanding, end of period	219,747			$	29.64	218,836			$	28.79	219,747			$	29.64	218,836			$	28.79
Total weighted-average grant-date fair value of shares granted ($ millions)	$	—				$	—				$	2.8				$	2.9


(1)	Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

As of September 30, 2016, there was $4.4 million of total unrecognized compensation cost related to the nonvested restricted stock units. The cost is expected to be recognized over a weighted-average period of 2.6 years.

For the first nine months of 2016 and 2015, total restricted stock units that vested and related dividends had a fair value of $2.7 million and $3.7 million, respectively, and the related tax benefits were $0.9 million and $1.1 million, respectively.

Long-term incentive plan payable in stock. The 2014-2016 long-term incentive plan (LTIP) provides for performance awards under the original EIP of shares of HEI common stock based on the satisfaction of performance goals considered to be a market condition and service conditions. The number of shares of HEI common stock that may be awarded is fixed on the date the grants are made subject to the achievement of specified performance levels. The potential payout varies from 0% to 200% of the number of target shares depending on achievement of the goals. The LTIP performance goals for the LTIP period includes awards with a market goal based on total return to shareholders (TRS) of HEI stock as a percentile to the Edison Electric Institute Index over the three-year period. In addition, the 2014-2016 LTIP has performance goals related to levels of HEI consolidated return on average common equity (ROACE), Hawaiian Electric consolidated ROACE and ASB net income — all based on the three-year averages, and ASB return on assets relative to performance peers. The 2015-2017 and the 2016-2018 LTIP provide for performance awards payable in cash, and thus, are not included in the tables below.

LTIP linked to TRS. Information about HEI’s LTIP grants linked to TRS was as follows:



	Three months ended September 30							Nine months ended September 30
	2016				2015			2016				2015
	Shares		(1)		Shares	(1)		Shares		(1)		Shares		(1)
Outstanding, beginning of period	83,947		$	22.95	163,423	$	27.63	162,500		$	27.66	257,956		$	28.45
Granted (target level)	—		—		—	—		—		—		—		—
Vested (issued or unissued and cancelled)	—		—		—	—		(78,553	)	32.69		(75,915	)	30.71
Forfeited	(175	)	22.95		—	—		(175	)	22.95		(18,618	)	26.41
Outstanding, end of period	83,772		$	22.95	163,423	$	27.63	83,772		$	22.95	163,423		$	27.63


(1)	Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model.

For the nine months ended September 30, 2016 and 2015, all vested shares in the table above were unissued and cancelled (i.e., lapsed) because the TRS goal was not met.

As of September 30, 2016, there was $0.1 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TRS. The cost is expected to be recognized over a weighted-average period of 0.3 years.

LTIP awards linked to other performance conditions. Information about HEI’s LTIP awards payable in shares linked to other performance conditions was as follows:



	Three months ended September 30								Nine months ended September 30
	2016				2015				2016				2015
	Shares		(1)		Shares		(1)		Shares		(1)		Shares		(1)
Outstanding, beginning of period	113,550		$	25.18	220,158		$	26.00	222,647		$	26.02	364,731		$	26.01
Granted (target level)	—		—		—		—		—		—		—		—
Vested (issued)	—		—		—		—		(109,097	)	26.89		(121,249	)	26.05
Cancelled	—		—		(14,050	)	26.89		—		—		(14,050	)	26.89
Forfeited	(699	)	25.19		—		—		(699	)	25.19		(23,324	)	25.85
Outstanding, end of period	112,851		$	25.18	206,108		$	25.94	112,851		$	25.18	206,108		$	25.94


(1)	Weighted-average grant-date fair value per share based on the average price of HEI common stock on the date of grant.

For the nine months ended September 30, 2016 and 2015, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $3.6 million and $4.7 million and the related tax benefits were $1.4 million and $1.8 million, respectively.

As of September 30, 2016, there was $0.2 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TRS. The cost is expected to be recognized over a weighted-average period of 0.3 years.