Note 10. Stock Compensation Plans

12 Months Ended

Jun. 30, 2021

Disclosure of Compensation Related Costs, Share-based Payments

Stock Compensation Plans

A stock compensation plan was created and adopted by the Company’s Board of Directors (the “Board”) on October 3, 2014. The Kimball Electronics, Inc. 2014 Stock Option and Incentive Plan (the “Plan”) allows for the issuance of up to 4.5 million shares and may be awarded in the form of incentive stock options, stock appreciation rights, restricted shares, unrestricted shares, restricted share units, or performance shares and performance units. The Plan is a ten-year plan with no further awards allowed to be made under the Plan after October 1, 2024.

On October 20, 2016, the Board approved a nonqualified deferred stock compensation plan, the Kimball Electronics, Inc. Non-Employee Directors Stock Compensation Deferral Plan (the “Deferral Plan”), which allows Non-Employee Directors to elect to defer all, or a portion of, their retainer fees in stock until retirement or termination from the Board or death. The Deferral Plan allows for issuance of up to 1.0 million shares of the Company’s common stock.

Pre-tax stock compensation charged against income in fiscal years 2021, 2020, and 2019 was $3.9 million, $4.0 million, and $5.7 million, respectively. These costs are included in Selling and Administrative Expenses.

Performance Shares:

The Company awards performance shares to officers and other key employees. The annual performance share awards are approved by the Compensation and Governance Committee of the Board. Under these awards, shares will be issued to each participant based upon a combination of the bonus percentage attainment component, calculated as a three-year average bonus percentage under the Company’s profit sharing incentive bonus plan, and a growth attainment component, which is the Company’s growth in sales revenue based on comparison of its three-year compounded annual growth rate (“CAGR”) with the Electronics Manufacturing Services Industry’s three-year CAGR.

Performance shares are vested when shares of the Company’s Common Stock are issued shortly after the end of the fiscal year in which the performance measurement period is complete. Certain outstanding performance shares are applicable to performance measurement periods in future fiscal years and will be measured at fair value when the performance targets are established in future fiscal years. The contractual life of performance shares is three years. If a participant is not employed on the date shares are issued, the performance share award is forfeited, except in the case of death, retirement at age 62 or older, total permanent disability, or certain other circumstances described in the Plan.

A summary of the Company’s performance share activity during fiscal year 2021 is presented below:


	Number of Shares	Weighted Average Grant Date Fair Value
Performance shares outstanding at July 1, 2020	443,536	$	16.58

Granted	250,837	$	13.67
Vested	(239,194)	$	16.99
Forfeited	(20,280)	$	15.98
Performance shares outstanding at June 30, 2021	434,899	$	14.71

As of June 30, 2021, there was approximately $3.8 million of unrecognized compensation cost related to performance shares, based on the latest estimated attainment of performance goals. That cost is expected to be recognized over annual performance periods ending August 2021 through August 2023, with a weighted average vesting period of eleven months. The fair value of performance shares is based on the stock price at the date of grant. During fiscal years 2021, 2020, and 2019, respectively, 239,194, 253,483, and 292,175 performance shares vested at a fair value of $4.1 million, $3.9 million, and $3.9 million. The performance shares vested represent the total number of shares vested prior to the reduction of shares withheld to satisfy tax withholding obligations. The number of outstanding shares presented in the above table, the amounts of unrecognized compensation, and the weighted average period include performance shares awarded that are applicable to future performance measurement periods and will be measured at fair value when the performance targets are established in future fiscal years.

Unrestricted Share Grants:

Unrestricted shares may be granted to employees and members of the Board as consideration for services rendered. Unrestricted share grants do not have vesting periods, holding periods, restrictions on sale, or other restrictions. The fair value of unrestricted shares is based on the stock price at the date of the award. During fiscal years 2021, 2020, and 2019, respectively, the Company granted a total of 4,235, 4,258, and 4,236 unrestricted shares at an average grant date fair value of $15.35, $16.99, and $17.69 for a total fair value of $0.1 million for each of these fiscal years. Unrestricted shares were awarded to non-employee members of the Board as compensation for director’s fees, including directors’ elections to receive unrestricted shares in lieu of cash payment. Director’s fees are expensed over the period that directors earn the compensation. Unrestricted shares were also awarded to a key employee which were expensed immediately.

Restricted Share Units:

Restricted share units (“RSUs”) may be granted to employees as consideration for services rendered. RSUs are participating securities and upon vesting, the outstanding number of RSUs are converted to shares of common stock. RSUs are expensed over the contractual vesting period as earned. If the employment of a holder of an RSU terminates before the RSU has vested for any reason other than death, retirement, or total permanent disability, the RSU will be forfeited. During fiscal year 2021, the Company granted 3,322 RSUs to new key employees at an average grant date fair value of $19.63 for a total fair value of $0.1 million. No RSUs were granted during fiscal years 2020 and 2019. The contractual life of the RSUs is one year or less.

Deferred Share Units:

Deferred share units may be granted to non-employee members of the Board under the Deferral Plan as compensation for the portion of their annual retainer fees resulting from their election to receive deferred share units in lieu of cash payment or unrestricted shares. Director’s fees are expensed over the period that directors earn the compensation. Deferred share units are participating securities and are payable in common stock in a lump sum or installments in accordance with deferral elections upon a director’s retirement or termination from the Board or death. During fiscal years 2021, 2020, and 2019, respectively, 37,132, 32,950, and 32,758 deferred share units were granted to non-employee members of the Board at an average grant date fair value of $15.35, $17.30, and $17.40 for a total fair value of $0.6 million for each of these fiscal years. During fiscal year 2021, 2,754 shares of common stock were issued under the Deferral Plan to a former non-employee member of the Board in accordance with their deferral election at an average fair value of $17.51.