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Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2020
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] |
Stock-Based Compensation |
11. | Stock-Based Compensation
Effective October 1, 2008, the Company adopted a Stock Incentive Plan (the “Plan”) which, as amended, provides that up to 4,900,000 shares of the Company’s common stock shall be allocated for issuance to directors, executive management and key personnel. Grants under the Plan can be made in the form of stock options, stock appreciation rights, performance shares or stock awards. As of December 31, 2020, the Company had 3,773,000 outstanding and/or exercised stock options, 260,000 vested performance shares and 254,000 outstanding and/or released restricted stock units that were issued under the Plan. Thus, as of December 31, 2020, the Company has 613,000 shares available for future grants under the Plan. The Plan is administered by the Compensation Committee of the Board of Directors. All grants awarded under the Plan are recommended by the Committee to the Board of Directors for approval. The exercise price of stock options is set on the grant date and is not to be less than the fair market value per share of our closing stock price on that date. Grants of stock options and restricted stock awards generally vest over a three to five-year period and options expire after ten years from the grant date. Performance shares vest upon the achievement of the performance criteria and approval by the Compensation Committee of the Board of Directors. Following is a summary of the Company’s stock option activity for the three years ended December 31, 2020:
|  | Number of Options |  |  | Weighted Average Exercise Price |
Outstanding at December 31, 2017 |  |  | 674,000 |  |  | $ | 3.43 |
Granted |  |  | 495,000 |  |  |  | 6.72 |
Exercised |  |  | (52,000 | ) |  |  | 2.08 |
Cancelled / forfeited |  |  | (6,000 | ) |  |  | 3.20 |
Outstanding at December 31, 2018 |  |  | 1,111,000 |  |  |  | 4.95 |
Granted |  |  | 683,000 |  |  |  | 6.48 |
Exercised |  |  | (6,000 | ) |  |  | 1.18 |
Cancelled / forfeited |  |  | (67,000 | ) |  |  | 6.35 |
Outstanding at December 31, 2019 |  |  | 1,721,000 |  |  |  | 5.52 |
Granted |  |  | 800,000 |  |  |  | 15.49 |
Exercised |  |  | (305,000 | ) |  |  | 4.36 |
Cancelled / forfeited |  |  | (207,000 | ) |  |  | 8.04 |
Outstanding at December 31, 2020 |  |  | 2,009,000 |  |  | $ | 9.40 |
December 31, 2020, the Company’s outstanding “in the money” stock options using the year-end share price of $15.90 had an aggregate intrinsic value of $13.1 million. As of December 31, 2020, the intrinsic value of vested stock options totaled $4.2 million. The total intrinsic value of options exercised during 2020, 2019 and 2018 totaled $4.3 million, $44,000 and $373,000, respectively. The measurement date fair value of stock options vested during 2020, 2019 and 2018 totaled $655,000, $529,000 and $228,000, respectively. The table below summarizes information regarding the Company’s outstanding and exercisable stock options as of December 31, 2020:
Range of Exercise Prices: |  | Options Outstanding |  |  | Weighted Average Remaining Contractual Life (in years) |  |  | Weighted Average Exercise Price |
$0.01 to $4.00 |  |  | 355,000 |  |  |  | 5.2 |  |  | $ | 3.56 |
$4.01 to $8.00 |  |  | 904,000 |  |  |  | 8.0 |  |  |  | 6.65 |
$8.01 to $12.00 |  |  | — |  |  |  | — |  |  |  | — |
$12.01 to $16.00 |  |  | 750,000 |  |  |  | 9.1 |  |  |  | 15.49 |
|  |  | 2,009,000 |  |  |  | 7.9 |  |  | $ | 9.40 |
Range of Exercise Prices: |  | Options Exercisable |  |  | Weighted Average Remaining Contractual Life (in years) |  |  | Weighted Average Exercise Price |
$0.01 to $4.00 |  |  | 222,000 |  |  |  | 5.2 |  |  | $ | 3.59 |
$4.01 to $8.00 |  |  | 164,000 |  |  |  | 7.8 |  |  |  | 6.74 |
$8.01 to $12.00 |  |  | — |  |  |  | — |  |  |  | — |
$12.01 to $16.00 |  |  | — |  |  |  | — |  |  |  | — |
|  |  | 386,000 |  |  |  | 6.3 |  |  | $ | 4.93 |
Stock options of 800,000 units were issued during the year ended December 31, 2020, of which 750,000 vest over a four-year period and 50,000 vest over a one-year period. Stock options of 683,000 units were issued during the year ended December 31, 2019 and vest over a five-year period. Stock options of 495,000 units were issued during the year ended December 31, 2018 and vest over a five-year period. The Company used the following average assumptions with respect to the Black-Scholes option pricing model for Mastech Digital stock options issued during 2020, 2019 and 2018.
|  | Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Stock option grants: |  |  |  |  |  |  |  |  |
Weighted-average risk-free interest rate |  |  | 1.4 | % |  |  | 2.4 | % |  |  | 2.8 | %
Weighted-average dividend yield |  |  | 0.0 | % |  |  | 0.0 | % |  |  | 0.0 | %
Expected volatility |  |  | 52.7 | % |  |  | 49.7 | % |  |  | 50.6 | %
Expected term (in years) |  |  | 3.9 |  |  |  | 5.0 |  |  |  | 5.0 |
Weighted-average fair value |  | $ | 6.36 |  |  | $ | 2.95 |  |  | $ | 3.15 |
Risk-free interest rate – The risk-free rate for stock options granted during the period was determined by using a U.S. Treasury rate for the period that coincided with the expected term of the options. Expected dividend yield – The Company did not contemplate a recurring dividend program. Accordingly, the dividend yield assumption used was 0.0%. Expected volatility –Expected volatility was determined based on the historical volatility of Mastech Digital’s common stock. Expected term – Mastech Digital’s expected term was based on the exercise history of our employees and the vesting term of our stock options. Following is a summary of Mastech’s restricted stock activity for the three years ended December 31, 2020:
|  | Years Ended December 31, |
|  | 2020 |  |  | 2019 |  |  | 2018 |
Beginning outstanding balance |  |  | 33,285 |  |  |  | 34,380 |  |  |  | 30,500 |
Awarded |  |  | 11,475 |  |  |  | 16,365 |  |  |  | 25,380 |
Released |  |  | (13,917 | ) |  |  | (17,460 | ) |  |  | (21,500 | )
Forfeited |  |  | — |  |  |  | — |  |  |  | — |
Ending outstanding balance |  |  | 30,843 |  |  |  | 33,285 |  |  |  | 34,380 |
The aggregate intrinsic value of restricted stock units outstanding at December 31, 2020 was $490,000. The total intrinsic value of restricted shares released during 2020 totaled $153,000. In October 2018, the Board of Directors of the Company approved the Mast e ch Digital, Inc. 2019 Employee Stock Purchase Plan (the “Stock Purchase Plan”). The Stock Purchase Plan is intended to meet the requirements of Section 423 of the Code and had to be approved by the Company’s shareholders to be qualified. On May 15, 2019, the Company’s shareholders approved the Stock Purchase Plan. Under the Stock Purchase Plan, 600,000 shares of Common Stock (subject to adjustment upon certain changes in the Company’s capitalization) are available for purchase by eligible employees who become participants in the Stock Purchase Plan. The purchase price per share is 85% of the lesser of (i) the fair market value per share of Common Stock on the first day of the offering period, or (ii) the fair market value per share of Common Stock on the last day of the offering period. During the year ended December 31, 2020 and December 31, 2019, the Company issued 20,459 and 40,500 shares under the Stock Purchase Plan at an average share of $10.91 and $4.11, respectively. At December 31, 2020, there were 539,041 shares available for purchases under the Plan. The Company’s eligible full-time employees are able to contribute up to 15% of their base compensation into the employee stock purchase plan, subject to an annual limit of $25,000 per person. Employees are able to purchase Company common stock at a 15% discount to the lower of the fair market value of the Company’s common stock on the initial or final trading dates of each six-month offering period. Offering periods begin on January 1 and July 1 of each year. The Company uses the Black-Scholes option pricing model to determine the fair value of employee stock purchase plan share-based payments. The fair value of the six-month “look-back” option in the Company’s employee stock purchase plans is estimated by adding the fair value of 15% of one share of stock to the fair value of 85% of an option on one share of stock. The Company utilized U.S. Treasury yields as of the grant date for its risk-free interest rate assumption, matching the Treasury yield terms to the six-month offering period. The Company utilized historical company data to develop its dividend yield and expected volatility assumptions. Stock-based compensation expense of $2.0 million, $936,000 and $470,000 was recognized in the Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018, respectively. The Company has recognized related tax benefits associated with its share-based compensation arrangements for the years ended December 31, 2020, 2019, and 2018 of $590,000, $252,000, and $128,000, respectively. As of December 31, 2020, the total remaining unrecognized compensation expense related to non-vested stock options totaled $5.7 million and the total remaining unrecognized compensation expense related to restricted stock units amounted to $136,000 which will be amortized over the weighted-average remaining requisite service period of 3.0 years.

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