Pandora 2016 Annual Report Download - page 111

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• One-third of the target MSUs are eligible to be earned for a performance period that is the first two calendar years of
the MSU grant (the “Two-Year Performance Period”); and
• Any remaining portion of the target MSUs are eligible to be earned for a performance period that is the entire three
calendar years of the MSU grant (the “Three-Year Performance Period”).
For each performance period, a “performance multiplier” is calculated by comparing Pandora’s TSR for the period to the
Russell 2000 Index TSR for the same period, using the average adjusted closing stock price of Pandora stock, and the Russell
2000 Index, for ninety calendar days prior to the beginning of the performance period and the last ninety calendar days of the
performance period. In each period, the target number of shares will vest if the Pandora TSR is equal to the Russell 2000 Index
TSR. For each percentage point that the Pandora TSR falls below the Russell 2000 Index TSR for the period, the performance
multiplier is decreased by three percentage points. The performance multiplier is capped at 100% for the One-Year and Two-
Year Performance Periods. However, the full award is eligible for a payout up to 200% of target, less any shares earned in prior
periods, in the Three-Year Performance Period. Specifically, for each percentage point that the Pandora TSR exceeds the
Russell 2000 Index TSR for the Three-Year Performance Period, the performance multiplier is increased by 2%. As such, the
ability to exceed the target number of shares is determined exclusively with respect to Pandora's three-year TSR during the term
of the award.
We have determined the grant-date fair value of the MSUs using a Monte Carlo simulation performed by a third-party
valuation firm. We recognize stock-based compensation for the MSUs over the requisite service period, which is approximately
three years, using the accelerated attribution method. During the twelve months ended December€31, 2015, we granted 776,000
MSUs at a total grant-date fair value of $4.3 million. During the twelve months ended December€31, 2015, we recorded stock-
based compensation expense from MSUs of approximately $1.5 million. As of December€31, 2015, total compensation cost not
yet recognized of approximately $2.8 million related to non-vested MSUs, is expected to be recognized over a weighted
average period of 2.13 years. There was no stock-based compensation expense related to MSUs or shares of common stock
issued under the MSU plan in the eleven months ended December 31, 2013 and the twelve months ended December 31, 2014.
The following table summarizes the activities for our MSUs for the twelve months ended December€31, 2015:
Number of MSUs
Weighted-Average Grant
Date Fair Value
Unvested as of December€31, 2014 — $—
Granted 776,000 5.60
Vested — —
Forfeited — —
Unvested as of December€31, 2015 776,000 5.60
Expected to vest as of December 31, 2015 (1) 710,882 $5.60
(1) MSUs expected to vest reflect an estimated forfeiture rate.
Stock-based Compensation Expense
Stock-based compensation expense includes expense related to Ticketfly employees for the two months ended
December€31, 2015. Stock-based compensation expense related to all employee and non-employee stock-based awards was as
follows:
€
Table of Contents
Pandora Media,€Inc.
Notes to Consolidated Financial Statements - Continued
100