Tecumseh Products 2012 Annual Report Download - page 53

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NOTE 10. Share-Based Compensation Arrangements
We may grant stock appreciation rights ("SARs") and phantom shares under our Long-Term Incentive Cash Award Plan. As
both the SARs and the phantom shares are settled in cash rather than by issuing equity instruments, we record an expense with
a corresponding liability on our balance sheet. The expense is based on the fair value of the awards on the last day of the
reporting period and represents an amortization of that fair value over the vesting period of the awards.
The SARs and phantom shares do not entitle recipients to receive any of our common shares, nor do they provide recipients
with any voting or other shareholder rights. Similarly, since the awards are not paid out in the form of equity, they do not
change the number of shares we have available for any future equity compensation we may elect to grant, and they do not
dilute existing shareholders' ownership of the Company. However, because the value of the awards is based on the value of our
Class A common stock, we believe they align employee and shareholder interests, and provide retention benefits in much the
same way as would stock options and restricted stock awards.
Prior to March 7, 2011, two types of incentives were awarded, SARs and non-performance based phantom shares. SARs and
non-performance phantom shares were generally granted to key employees in the first quarter of each year and vested one-third
each year over a three year period. SARs were granted with an exercise price equal to the closing price of our common stock
on the date of the grant, as reported by the NASDAQ Stock Market and expire seven years after their grant date.
In 2011, we granted performance phantom shares to make our annual equity incentives reflect our performance during the year.
The threshold level of performance necessary for any performance based phantom shares to be issued was not achieved for the
twelve months ended December 31, 2011, therefore we did not record any expense in 2011 for these performance based
phantom shares.
On March 2, 2012, we granted performance phantom shares to make our annual equity incentives reflect our performance
during the year. The actual phantom share award amounts for 2012 were determined based on a specified performance target by
location with respect to performance in 2012 and 25% of the potential awards were determined at the discretion of our Board of
Directors. For the year ended December 31, 2012, we achieved our target performance specified in some of our awards
(including to our executives), but were below our target performance specified in other awards and the Board of Directors
granted the full discretionary awards to some of the participants (including our executives), but less or zero to others.
Total compensation expense (income) related to this plan for the years ended December 31, 2012, 2011 and 2010 was $2.6
million, $(1.6) million and $1.5 million, respectively. The balance of the fair value that has not yet been recorded as expense is
considered an unrecognized liability. The total unrecognized compensation liability as calculated at December 31, 2012 and
2011 was $0.8 million and $0.1 million, respectively. Total cash paid under this plan for the years ended December 31, 2012
and 2011 was $0.1 million and $0.9 million, respectively.
A summary of activity under the plans during 2012 is as follows:
SARs: Number of awards
Weighted average exercise
price per share
Outstanding at January 1, 2012 .................................................................. 108,794 $ 10.89
Granted .................................................................................................. — $ —
Exercised................................................................................................ — $ —
Forfeited................................................................................................. (8,255) $ 15.42
Outstanding at December 31, 2012 ............................................................ 100,539 $ 11.14
Phantom Shares: * Number of awards
Weighted average grant date
value per share
Outstanding at January 1, 2012 .................................................................. 79,101 $ 9.31
Granted ................................................................................................ 435,866 $ 4.73
Vested .................................................................................................. (24,864) $ 9.88
Forfeited .............................................................................................. (2,433) $ 12.86
Outstanding at December 31, 2012 ............................................................ 487,670 $ 5.67
* Includes both non-performance and performance based shares.
The initial value of the phantom shares is based on the closing price of our Class A common stock as of the grant date. The
initial value of the SARs, which are the economic equivalent of options, is based on a Black-Scholes model as of the grant date.