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Stock Based Compensation

3 Months Ended

Mar. 31, 2022

Share-based Payment Arrangement [Abstract]

Equity Plans

2017 Omnibus Incentive Plan

The Company adopted the Tiptree 2017 Omnibus Incentive Plan (2017 Equity Plan) on June 6, 2017, which permits the grant of restricted stock units (RSUs), stock, and stock options up to a maximum of 6,100,000 shares of common stock. The general purpose of the 2017 Equity Plan is to attract, motivate and retain selected employees and directors for the Company and its subsidiaries, to provide them with incentives and rewards for performance and to better align their interests with the interests of the Company’s stockholders. Unless otherwise extended, the 2017 Equity Plan terminates automatically on June 6, 2027.

The table below summarizes changes to the issuances under the Company’s 2017 Equity Plan for the periods indicated, excluding awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock:


2017 Equity Plan			Number of shares (1)








Available for issuance as of December 31, 2021			2,344,814
RSU, stock and option awards granted			(211,246)
Forfeited			528


Available for issuance as of March 31, 2022			2,134,096

(1) Excludes awards granted under the Company’s subsidiary incentive plans that are exchangeable for Tiptree common stock.

Restricted Stock Units and Stock Awards

Tiptree Corporate Incentive Plans

The Company values RSUs at their grant-date fair value as measured by Tiptree’s common stock price. Generally, the Tiptree RSUs vest and become non-forfeitable with respect to one-third of Tiptree shares granted on each of the first, second and third year anniversaries of the date of the grant, and expensed using the straight-line method over the requisite service period. The RSUs granted after 2019 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date.

Stock Awards - Directors’ Compensation

The Company values the stock awards at their issuance-date fair value as measured by Tiptree’s common stock price. Upon issuance, the awards are deemed to be granted and immediately vested.

The following table presents changes to the issuances of RSUs and stock awards under the 2017 Equity Plan for the periods indicated:


	Number of shares issuable	Weighted average grant date fair value








Unvested units as of December 31, 2021	599,012	$	6.59
Granted	211,246	13.01
Vested	(308,723)	6.72
Forfeited	(528)	6.26
Unvested units as of March 31, 2022	501,007	$	9.63

The following tables present the detail of the granted and vested RSUs and stock awards for the periods indicated:


	For the Three Months Ended March 31,		For the Three Months Ended March 31,
Granted	2022	2021		Vested	2022	2021
Directors	8,418	25,381		Directors	8,418	25,381
Employees (1)	202,828	—		Employees	300,305	354,133
Total Granted	211,246	25,381		Total Vested	308,723	379,514
				Taxes	(47,274)	(34,828)

				Net Vested	261,449	344,686

(1) Includes 94,410 shares that vest ratably over three years and 108,418 shares that cliff vest in February 2025 for the three months ended March 31, 2022.

Tiptree Senior Management Incentive Plan

On August 4, 2021, a total of 3,500,000 Performance Restricted Stock Units (PRSUs) were awarded to members of the Company’s senior management. The PRSUs have a 10-year term and are subject to the recipient’s continuous service and a market requirement. A portion of the PRSUs will generally vest upon the achievement of each of five Tiptree share price target milestones ranging from $15 to $60, adjusted for dividends paid, within five pre-established determination periods (subject to a catch-up vesting mechanism) occurring on the second, fourth, sixth, eighth and tenth anniversaries of the grant date.

In November 2021, the first tranche of the PRSUs vested, resulting in a net issuance of 215,583 shares of Tiptree common stock. As of March 31, 2022, 3,266,667 PRSUs are unvested. The below table illustrates the aggregate number of PRSUs that will vest upon the achievement of each Tiptree share price target. Such price targets are adjusted down for cumulative dividends paid by the Company since grant (e.g., the next share price target is $19.88 as adjusted for cumulative dividends paid to date).


Original Tiptree Share Price Target						Number of PRSUs that Vest
$20						466,667


$30						700,000
$45						933,333
$60						1,166,667

Upon vesting, the Company will issue shares or if shares are not available under the 2017 Equity Plan, then the Company may in its sole discretion instead deliver cash equal to the fair market value of the underlying shares. As of March 31, 2022, the Company does not have sufficient shares available in the 2017 Equity Plan to settle the PRSUs awarded; as such, the PRSUs are classified as liability awards and will be remeasured at each reporting date until the date of settlement, and expensed using the straight-line method over the requisite service period.

The fair value of the PRSUs are estimated on the date of grant and at each subsequent reporting date using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. The historical volatility is computed based on historical daily returns of the Company’s stock price simulated over the performance period using a lookback period of 10 years. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the reporting date. The current quarterly dividend rates in effect as of the reporting date are used to calculate a spot dividend yield for use in the model.

The following table presents the assumptions used to remeasure the fair value of the PRSUs as of March 31, 2022, which were granted in 2021 and classified as liability awards.

Valuation Input

For the Three Months Ended

March 31, 2022

Assumption

Historical volatility

38.29%

Risk-free rate

2.40%

Dividend yield

1.21%

Cost of equity

10.64%

Expected term (years)

Subsidiary Incentive Plans

Certain of the Company’s subsidiaries have established incentive plans under which they are authorized to issue equity of those subsidiaries to certain of their employees. Such awards are accounted for as equity. These awards are subject to performance-vesting criteria based on the performance of the subsidiary (performance vesting awards) and time-vesting subject to continued employment (time vesting awards). Following the service period, such vested awards may be exchanged based on a formula which approximates fair market value, at the option of the holder, for Tiptree common stock under the 2017 Equity Plan. The service period for certain grants has been achieved and those vested subsidiary awards are currently eligible for exchange. The Company has the option, but not the obligation to settle the exchange right in cash.

The following table presents changes to the issuances of subsidiary awards under the subsidiary incentive plans for the periods indicated:


	Grant date fair value of equity shares issuable








Unvested balance as of December 31, 2021	$	2,234
Granted	160
Vested	(935)
Performance assumption adjustment	80
Unvested balance as of March 31, 2022	$	1,539

The net vested balance of subsidiary awards eligible for exchange as of March 31, 2022 translates to 1,778,134 shares of Tiptree common stock.

Stock Option Awards

Tiptree Corporate Incentive Plans

Option awards have been granted to the Executive Committee with an exercise price equal to the fair market value of our common stock on the date of grant. The option awards have a 10-year term and are subject to the recipient’s continuous service, a market requirement, and vest one third on each of the three, four, and five year anniversaries of the grant date. The market requirement is the Company's 20-day volume weighted average per share trading price plus actual cash dividends paid following issuance of the option that exceeds the book value on the option grant date. If the service condition is met, the full amount of the compensation expense will be recognized over the appropriate vesting period whether the market requirement is met or not. The options granted after 2017 include a retirement provision and are amortized over the lesser of the service condition or expected retirement date. There were no options granted during the three months ended March 31, 2022. Book value targets for grants in 2020, 2019, 2018, 2017 and 2016 are $11.52, $10.79, $9.97, $10.14 and $8.96, respectively.

During the year ended December 31, 2021, book value targets for all outstanding options were achieved.

The fair value option grants are estimated on the date of grant using a Black-Scholes-Merton option pricing formula embedded within a Monte Carlo model used to simulate the future stock prices of the Company, which assumes that the market requirement is achieved. Historical volatility was computed based on historical daily returns of the Company’s stock between the grant date and July 1, 2013, the date of the business combination through which Tiptree became a public company. The valuation is done under a risk-neutral framework using the 10-year zero-coupon risk-free interest rate derived from the Treasury Constant Maturities yield curve on the grant date. The current quarterly dividend rates in effect as of the date of the grant are used to calculate a spot dividend yield as of the date of grant for use in the model.

There were no stock option awards granted in 2022 or 2021. The following table presents the assumptions used to estimate the fair values of the stock options granted in 2020.

Valuation Input (1)

For the Year Ended
December 31, 2020

Assumption

Average

Historical volatility

27.60%

N/A

Risk-free rate

1.51%

N/A

Dividend yield

2.20%

N/A

Expected term (years)

7.0

(1) Not applicable for the three months ended March 31, 2022 as there were no new grants during the period.

The following table presents the Company's stock option activity for the current period:


	Options outstanding	Weighted average exercise price (in dollars per stock option)		Weighted average grant date value (in dollars per stock option)		Options exercisable






Balance, December 31, 2021	1,715,619	$	6.49	$	2.29	712,542

Balance, March 31, 2022	1,715,619	$	6.49	$	2.29	712,542

Weighted average remaining contractual term at March 31, 2022 (in years)	5.9

Stock Based Compensation Expense

The following table presents total stock based compensation expense and the related income tax benefit recognized on the condensed consolidated statements of operations:


	Three Months Ended March 31,
	2022		2021
Employee compensation and benefits (1)	$	6,041	$	955
Director compensation	119		110
Income tax benefit	(1,294)		(224)
Net stock based compensation expense	$	4,866	$	841

(1) Includes $2,303 related to liability awards recorded in other liabilities as of March 31, 2022.

Additional information on total non-vested stock based compensation is as follows:


	As of March 31, 2022
	Stock options		Restricted stock awards and RSUs		Performance Restricted Stock Units
Unrecognized compensation cost related to non-vested awards	$	64	$	1,141	$	14,859
Weighted - average recognition period (in years)	0.62		0.92		1.2