Stock-Based Compensation Plans

12 Months Ended

May 28, 2022

Stock-Based Compensation Plans [Abstract]

15. Stock-Based Compensation Plans

General

The Company’s stockholders approved the 2020 Performance Incentive Plan (the “2020 Plan”) on October 22, 2020, which replaced and succeeded in its entirety the 2014 Performance Incentive Plan (the “2014 Plan”). Executive officers and certain employees, as well as non-employee directors of the Company and certain consultants and advisors are eligible to participate in the 2020 Plan. The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2020 Plan equals: (1) 1,797,440 (which represents the number of shares that were available for additional award grant purposes under the 2014 Plan immediately prior to the termination of the authority to grant new awards under the 2014 Plan as of October 22, 2020), plus (2) the number of any shares subject to stock options granted under the 2014 Plan or the Resources Connection, Inc. 2004 Performance Incentive Plan (together with the 2014 Plan, the “Prior Plans”) and outstanding as of October 22, 2020 which expire, or for any reason are cancelled or terminated, after that date without being exercised, plus (3) the number of any shares subject to restricted stock and restricted stock unit awards granted under the Prior Plans that are outstanding and unvested as of October 22, 2020 which are forfeited, terminated, cancelled, or otherwise reacquired after that date without having become vested.

Awards under the 2020 Plan may include, but are not limited to, stock options, stock appreciation rights, restricted stock, performance stock, stock units, stock bonuses and other forms of awards granted or denominated in shares of common stock or units of common stock, as well as certain cash bonus awards. Historically, the Company has granted restricted stock units and stock option awards that typically vest in equal annual installments, and restricted stock awards vest based on an individual grant basis as described in the award agreement. Stock option grants typically terminate ten years from the date of grant. During fiscal 2022, the Company issued stock unit awards under the 2020 Plan that will vest upon the achievement of certain Company-wide performance targets at the end of a defined three-year performance period. Vesting periods for restricted stock, restricted stock units and stock option awards range from three to four years. As of May 28, 2022, there were 1,715,208 shares available for further award grants under the 2020 Plan.

Stock-Based Compensation Expense

Stock-based compensation expense included in selling, general and administrative expenses was $8.2 million, $6.6 million and $6.1 million for the years ended May 28, 2022, May 29, 2021 and May 30, 2020, respectively. These amounts consisted of stock-based compensation expense related to employee stock options, employee stock purchases made via the ESPP, restricted stock awards, restricted stock units, performance stock units and stock units credited under the Directors Deferred Compensation Plan. The Company recognizes stock-based compensation expense on time-vesting equity awards ratably over the applicable vesting period based on the grant date fair value, net of estimated forfeitures. Expense related to the liability-classified awards reflects the change in fair value during the reporting period. The number of performance stock units earned at the end of the performance period may equal, exceed or be less than the targeted number of shares depending on whether the performance criteria are met, surpassed or not met. During each reporting period, the Company uses the latest forecasted results to estimate the number of shares to be issued at the end of the performance period. Any resulting changes to stock compensation expense are adjusted in the period in which the change in estimates occur.

Stock Options

The following table summarizes the stock option activity for the year ended May 28, 2022 (amounts in thousands, except weighted average exercise price):


	Number of		Weighted	Weighted Average
	Shares		Average	Remaining		Aggregate
	Under		Exercise	Contractual Life		Intrinsic
	Option		Price	(in years)		Value
Awards outstanding at May 29, 2021	4,556	$	15.78	5.71
Exercised	(834)		14.34
Forfeited	(102)		17.66
Expired	(270)		15.80
Awards outstanding at May 28, 2022	3,350	$	16.08	4.98	$	7,887
Exercisable at May 28, 2022	2,704	$	15.67	4.52	$	7,209
Vested and expected to vest at May 28, 2022 (1)	3,304	$	16.06	4.95	$	7,556

(1) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to options not yet vested of 645,449 and 1,321,496 as of May 28, 2022 and May 29, 2021, respectively.

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $18.18 as of May 27, 2022 (the last trading day of fiscal 2022), which would have been received by the option holders had all option holders exercised their options as of that date.

The total pre-tax intrinsic value related to stock options exercised during the years ended May 28, 2022, May 29, 2021 and May 30, 2020 was $15.1 million, $0.2 million and $1.2 million, respectively. The total estimated fair value of stock options that vested during the years ended May 28, 2022, May 29, 2021 and May 30, 2020 was $2.2 million, $3.2 million and $3.5 million, respectively.

As of May 28, 2022, there was $1.4 million of total unrecognized compensation cost related to unvested and outstanding employee stock options. That cost is expected to be recognized over a weighted-average period of 0.91 years.

Valuation and Expense Information for Stock Based Compensation Plans

There were no employee stock options granted during the years ended May 28, 2022 and May 29, 2021. The weighted average estimated fair value per share of employee stock options granted during the year ended May 30, 2020 was $3.88, using the Black-Scholes model with the following assumptions:


	For the Year Ended
	May 30, 2020
Expected volatility	30.9% - 32.9%
Risk-free interest rate	1.5% - 1.8%
Expected dividends	3.4% - 3.7%
Expected life	5.6 - 8.1 years

Employee Stock Purchase Plan

On October 15, 2019, the Company’s stockholders approved the ESPP which superseded the 2014 Employee Stock Purchase Plan. The maximum number of shares of the Company’s common stock authorized for issuance under the ESPP is 1,825,000.

The Company’s ESPP allows qualified employees (as defined in the ESPP) to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of common stock at the beginning or end of each semi-annual stock purchase period. The Company issued 462,000, 506,000 and 400,000 shares of common stock pursuant to the ESPP for the years ended May 28, 2022, May 29, 2021 and May 30, 2020, respectively. There were 672,000 shares of common stock available for issuance under the ESPP as of May 28, 2022.

Restricted Stock Awards

The following table summarizes the activities for the unvested restricted stock awards for the year ended May 28, 2022 (amounts in thousands, except weighted average grant-date fair value):


	Shares	Weighted Average Grant-Date Fair Value
Outstanding at May 29, 2021	127	$	13.12
Granted	97		18.28
Vested	(41)		13.36
Forfeited	-		-
Unvested as of May 28, 2022	183	$	15.88
Expected to vest as of May 28, 2022	162	$	15.83

As of May 28, 2022, there was $2.0 million of total unrecognized compensation cost related to unvested restricted stock awards. The cost is expected to be recognized over a weighted-average period of 1.60 years. The weighted average estimated fair value per share of restricted stock awards granted during the years ended May 28, 2022, May 29, 2021 and May 30, 2020 was $18.28, $12.47 and $15.98, respectively.

Restricted Stock Units

In 2018, the Company adopted the amended and restated Directors Deferred Compensation Plan, which provides the non-employee members of the Company’s board of directors with the opportunity to defer certain cash compensation and equity awards earned or granted for their service in the form of stock units (“Stock Units”). The Stock Units are used solely as a device for determining the amount of cash eventually paid to the director. Each Stock Unit has the same value as one share of Resources Connection, Inc. common stock. Stock Units are not paid out until the director leaves the board of directors, at which time the cash value of the Stock Units is paid out in accordance with terms of the plan and the director’s election. Additional Stock Units are credited to reflect dividends paid on shares of Resources Connection, Inc. common stock. Stock Units credited to a director pursuant to an election to defer cash compensation (and any dividend equivalents credited thereon) are fully vested at all times. Stock Units credited to a director pursuant to an election to defer an equity award are subject to the vesting conditions applicable to the equity award, except that dividend equivalents credited to a director with respect to such Stock Units are vested at all times. These liability-classified awards are re-measured at each reporting date and on settlement using the closing price of the Company’s common stock on that date. Any change in fair value is recorded as stock-based compensation expense in the period. The Company recognizes stock-based compensation expense on these Stock Units using the straight-line method over the requisite service period.

The Company also grants restricted stock units to its employees under the 2020 Plan, which are classified as equity awards. The following table summarizes the activities for the unvested restricted stock units, including both equity- and liability-classified restricted stock units, for the year ended May 28, 2022 (amounts in thousands, except weighted average grant-date fair value):


	Equity-Classified Restricted Stock Units			Liability-Classified Stock Units			Total Restricted Stock Units
	Shares	Weighted Average Grant-Date Fair Value		Shares	Weighted Average Grant-Date Fair Value		Shares	Weighted Average Grant-Date Fair Value
Outstanding at May 29, 2021	513	$	11.40	89	$	14.58	602	$	11.87
Granted	217		18.41	27		16.91	244		18.25
Vested	(125)		11.64	(50)		14.74	(175)		12.53
Forfeited	(26)		13.58	-		-	(26)		13.58
Unvested as of May 28, 2022	579	$	14.03	66	$	14.89	645	$	14.12
Expected to vest as of May 28, 2022	519	$	13.98	66	$	14.89	585	$	14.08

As of May 28, 2022, there was $5.8 million of total unrecognized compensation cost related to unvested restricted stock units (which are the restricted stock units granted under the 2020 Plan that settle in shares of the Company’s common stock). The cost is expected to be recognized over a weighted-average period of 1.87 years.

As of May 28, 2022, there was $0.8 million of total unrecognized compensation cost related to unvested liability-classified restricted stock units (which are the stock units credited under the Directors Deferred Compensation Plan that settle in cash). That cost is expected to be recognized over a weighted average period of 1.78 years.

The weighted average estimated fair value per share of restricted stock units granted during the years ended May 28, 2022, May 29, 2021 and May 30, 2020 was $18.25, $11.51 and $14.98, respectively.

Performance Stock Units

During the second quarter of fiscal 2022, the Company issued performance stock units to certain members of management and other select employees. The total number of shares that would vest under the performance stock units will be determined at the end of the three-year performance period based on the Company’s achievement of certain revenue and Adjusted EBITDA percentage targets over the performance period. The total number of shares that may be earned for these awards based on performance over the performance period ranges from zero to 150% of the target number of shares. The following table summarizes the activities for the unvested performance stock units for the year ended May 28, 2022 (amounts in thousands, except weighted average grant-date fair value):


	Shares	Weighted Average Grant-Date Fair Value
Outstanding at May 29, 2021	-	$	-
Granted (1)	203		18.41
Forfeited	(7)		18.44
Unvested as of May 28, 2022	196	$	18.41
Expected to vest as of May 28, 2022	168	$	18.42

(1) Shares granted during the year ended May 28, 2022 are presented at the stated target, which represents the base number of shares that would vest. Actual shares that vest may be 0-150% of the target based on the achievement of the specific company-wide performance targets.

As of May 28, 2022, there was $3.2 million of total unrecognized compensation cost related to unvested performance stock units. That cost is expected to be recognized over a weighted-average period of 1.99 years.