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Share-based compensation | 9 Months Ended
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Sep. 30, 2023
Share-Based Payment Arrangement [Abstract] |
Share-based compensation | Share-based compensation Under the 2010 Equity and Incentive Plan, as amended and restated effective March 1, 2014 (EIP), HEI can issue shares of common stock as incentive compensation to selected employees in the form of stock options, stock appreciation rights, restricted shares, restricted stock units, performance shares and other share-based and cash-based awards. The original 2010 Equity and Incentive Plan was amended and restated effective March 1, 2014 and an additional 1.5 million shares were added to the shares available for issuance under these programs. As of September 30, 2023, approximately 2.7 million shares remained available for future issuance under the terms of the EIP, assuming recycling of shares withheld to satisfy statutory tax liabilities relating to EIP awards, including an estimated 0.7 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, 2023, there were 168,177 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) |  | 2023 |  | 2022 |  | 2023 |  | 2022
HEI consolidated |  |  |  |  |  |  |  |
Share-based compensation expense 1 |  | $ | 2.4 |  |  | $ | 1.7 |  |  | $ | 8.3 |  |  | $ | 7.3 |
Income tax benefit |  | 0.5 |  |  | 0.4 |  |  | 1.6 |  |  | 1.5 |
Hawaiian Electric consolidated |  |  |  |  |  |  |  |
Share-based compensation expense 1 |  | 0.7 |  |  | 0.6 |  |  | 2.5 |  |  | 2.1 |
Income tax benefit |  | 0.1 |  |  | 0.1 |  |  | 0.5 |  |  | 0.5 |
1 For the three and nine months ended September 30, 2023 and 2022, the Company has not capitalized any share-based compensation. Stock awards. HEI granted HEI common stock to nonemployee directors under the 2011 Director Plan as follows:
|  | Three months ended September 30 |  | Nine months ended September 30
(dollars in millions) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Shares granted |  | — |  |  | 965 |  |  | 40,450 |  |  | 35,720 |
Fair value |  | $ | — |  |  | $ | — |  |  | $ | 1.5 |  |  | $ | 1.5 |
Income tax benefit |  | — |  |  | — |  |  | 0.4 |  |  | 0.4 |
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. 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
| 2023 |  | 2022 |  | 2023 |  | 2022
| Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1)
Outstanding, beginning of period | 199,130 |  |  | $ | 41.22 |  |  | 208,953 |  |  | $ | 39.71 |  |  | 182,528 |  |  | $ | 39.75 |  |  | 233,448 |  |  | $ | 38.10 |
Granted | — |  |  | — |  |  | — |  |  | — |  |  | 100,088 |  |  | 42.41 |  |  | 98,463 |  |  | 41.31 |
Vested | — |  |  | — |  |  | (4,244) |  |  | 39.49 |  |  | (81,112) |  |  | 39.37 |  |  | (95,658) |  |  | 37.73 |
Forfeited | — |  |  | — |  |  | (16,540) |  |  | 39.99 |  |  | (2,374) |  |  | 41.79 |  |  | (48,084) |  |  | 39.19 |
Outstanding, end of period | 199,130 |  |  | $ | 41.22 |  |  | 188,169 |  |  | $ | 39.69 |  |  | 199,130 |  |  | $ | 41.22 |  |  | 188,169 |  |  | $ | 39.69 |
Total weighted-average grant-date fair value of shares granted (in millions) | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | 4.2 |  |  |  |  | $ | 4.1 |  |  |
(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, 2023 and 2022, total restricted stock units and related dividends that vested had a fair value of $3.7 million and $4.2 million, respectively, and the related tax benefits were $0.8 million and $0.6 million, respectively. As of September 30, 2023, there was $5.2 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 1.9 years. Long-term incentive plan payable in stock. The 2021-23, 2022-24 and 2023-25 long-term incentive plans (LTIP) provide for performance awards under the EIP of shares of HEI common stock based on the satisfaction of performance goals, including a market condition goal. 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 and calculated dividend equivalents. The potential payout varies from 0% to 200% of the number of target shares, depending on the achievement of the goals. The market condition goal is based on HEI’s total shareholder return (TSR) compared to the Peer Group (Edison Electric Institute Index (EEI Index) for the 2021-23 and 2022-24 performance periods, and compared to the Company's compensation peer group consisting of companies in the EEI Index and approved by the Company's Compensation and Human Capital Management Committee for the 2023-25 performance period), in each case over the relevant three-year period. The other performance condition goals relate to EPS growth, cumulative EPS, return on average common equity (ROACE), renewable portfolio standards, carbon emissions reduction, Hawaiian Electric’s net income growth, ASB’s efficiency ratio and strategic initiatives and Pacific Current’s EBITDA growth and return on average invested capital. LTIP linked to TSR. Information about HEI’s LTIP grants linked to TSR was as follows:
| Three months ended September 30 |  | Nine months ended September 30
| 2023 |  | 2022 |  | 2023 |  | 2022
| Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1)
Outstanding, beginning of period | 79,284 |  |  | $ | 50.28 |  |  | 76,730 |  |  | $ | 47.74 |  |  | 71,574 |  |  | $ | 47.67 |  |  | 90,974 |  |  | $ | 42.86 |
Granted | — |  |  | — |  |  | — |  |  | — |  |  | 27,123 |  |  | 55.98 |  |  | 26,469 |  |  | 54.92 |
Vested (issued or unissued and cancelled) | — |  |  | — |  |  | — |  |  | — |  |  | (18,691) |  |  | 48.62 |  |  | (29,042) |  |  | 41.07 |
Forfeited | — |  |  | — |  |  | (4,829) |  |  | 48.52 |  |  | (722) |  |  | 48.92 |  |  | (16,500) |  |  | 44.33 |
Outstanding, end of period | 79,284 |  |  | $ | 50.28 |  |  | 71,901 |  |  | $ | 47.69 |  |  | 79,284 |  |  | $ | 50.28 |  |  | 71,901 |  |  | $ | 47.69 |
Total weighted-average grant-date fair value of shares granted (in millions) | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | 1.5 |  |  |  |  | $ | 1.5 |  |  |
(1) Weighted-average grant-date fair value per share determined using a Monte Carlo simulation model. The grant date fair values of the shares were determined using a Monte Carlo simulation model utilizing actual information for the common shares of HEI and the Peer Group for the period from the beginning of the performance period to the grant date and estimated future stock volatility of HEI and the Peer Group over the remaining three-year performance period. The expected stock volatility assumptions for HEI and the Peer Group were based on the three-year historic stock volatility. A dividend assumption is not required for the Monte Carlo simulation because the grant payout includes dividend equivalents and projected returns include the value of reinvested dividends. The following table summarizes the assumptions used to determine the fair value of the LTIP awards linked to TSR and the resulting fair value of LTIP awards granted:
|  | 2023 |  | 2022
Risk-free interest rate |  | 4.19 | % |  | 1.71 | %
Expected life in years |  | 3 |  | 3
Expected volatility |  | 33.1 | % |  | 31.0 | %
Range of expected volatility for Peer Group |  | 28.7% to 38.8% |  | 25.4% to 76.7%
Grant date fair value (per share) |  | $55.98 |  | $54.92
There were no share-based LTIP awards linked to TSR with a vesting date in 2023. For the nine months ended September 30, 2022, total vested LTIP awards linked to TSR and related dividends had a fair value of $0.8 million and the related tax benefits were $0.1 million. As of September 30, 2023, there was $1.6 million of total unrecognized compensation cost related to the nonvested performance awards payable in shares linked to TSR. The cost is expected to be recognized over a weighted-average period of 1.2 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
| 2023 |  | 2022 |  | 2023 |  | 2022
| Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1) |  | Shares |  | (1)
Outstanding, beginning of period | 357,477 |  |  | $ | 38.78 |  |  | 293,711 |  |  | $ | 39.91 |  |  | 309,589 |  |  | $ | 39.50 |  |  | 306,342 |  |  | $ | 38.42 |
Granted | — |  |  | — |  |  | — |  |  | — |  |  | 108,499 |  |  | 42.41 |  |  | 105,860 |  |  | 41.31 |
Vested | — |  |  | — |  |  | — |  |  | — |  |  | (62,778) |  |  | 48.07 |  |  | (71,807) |  |  | 37.68 |
Increase above target | 4,277 |  |  | 38.02 |  |  | — |  |  | — |  |  | 10,278 |  |  | 37.77 |  |  | — |  |  | — |
Forfeited | — |  |  | — |  |  | (19,316) |  |  | 38.60 |  |  | (3,834) |  |  | 43.53 |  |  | (66,000) |  |  | 37.31 |
Outstanding, end of period | 361,754 |  |  | $ | 39.17 |  |  | 274,395 |  |  | $ | 40.00 |  |  | 361,754 |  |  | $ | 39.17 |  |  | 274,395 |  |  | $ | 40.00 |
Total weighted-average grant-date fair value of shares granted (at target performance levels) (in millions) | $ | — |  |  |  |  | $ | — |  |  |  |  | $ | 4.6 |  |  |  |  | $ | 4.4 |  |  |
(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, 2023 and 2022, total vested LTIP awards linked to other performance conditions and related dividends had a fair value of $2.9 million and $3.2 million, respectively, and the related tax benefits were $0.6 million and $0.4 million, respectively. As of September 30, 2023, there was $5.4 million of total unrecognized compensation cost related to the nonvested shares linked to performance conditions other than TSR. The cost is expected to be recognized over a weighted-average period of 1.2 years.

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