8. Share-Based Compensation and Cash-Based Incentive Compensation

In 2010, the W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan, ("the Plan") was approved. As allowed by the Plan, in August 2010, the Company granted restricted stock units ("RSUs") to certain of its employees and in January 2011, the Company granted restricted stock to one of its employees. RSUs are a long-term compensation component of the Plan, are granted to only certain employees, and are subject to adjustment based on the Company achieving certain predetermined performance criteria and vest at the end of a specified deferral period. Prior to 2010, the Company granted only restricted stock to its employees. In 2011 and in prior years, restricted stock was granted to the Company's non-employee directors under the Director Compensation Plan. In addition to share-based compensation, the Company may grant its employees cash-based incentive awards, which are a short-term component of the Plan, and are based on the Company and the employee achieving certain predetermined performance criteria.

We recognize compensation cost for share-based payments to employees and non-employee directors over the period during which the recipient is required to provide service in exchange for the award, based on the fair value of the equity instrument on the date of grant. We are also required to estimate forfeitures, resulting in the recognition of compensation cost only for those awards that actually vest.

At June 30, 2011, there were 2,152,377 shares of common stock available for award under the Plan and 568,783 shares of common stock available for award under the Directors Compensation Plan.

Restricted Stock: The Company currently has unvested restricted shares outstanding issued to employees and non-employee directors. Restricted shares are subject to forfeiture until vested and cannot be sold, transferred or disposed of during the restricted period. The holders of restricted shares generally have the same rights as a shareholder of the Company with respect to such shares, including the right to vote and receive dividends or other distributions paid with respect to the shares.

A summary of share activity related to restricted stock for the six months ended June 30, 2011 is as follows:

 

		Restricted Stock
		Shares				Weighted Average Grant Date Fair Value Per Share
Outstanding restricted shares, December 31, 2010			470,392			$	7.42
Granted			20,433				25.45
Vested			(24,633	)			13.26
Forfeited			(25,879	)			6.83
Outstanding restricted shares, June 30, 2011			440,313				7.97

At June 30, 2011, the composition of our restricted stock awards outstanding, by year granted, was as follows:

 

		Shares
Employees – granted in:
2011			5,325	(1)
2009			385,780	(2)
Non-employee directors – granted in:
2011			15,108	(3)
2010			23,330	(4)
2009			10,770	(5)
Total			440,313

Vesting is expected to occur, less any forfeitures, as follows:

 

(1)	Equal installments in December 2011 and December 2012.

(2)	December 2011.

(3)	Equal installments in May 2012, 2013 and 2014.

(4)	Equal installments in May 2012 and 2013.

(5)

May 2012.

 

The grant date fair value of restricted stock granted during the six months ended June 30, 2011 and 2010 was $0.5 million and $0.4 million, respectively. The fair value of the shares that vested during the six months ended June 30, 2011 and 2010 was $0.6 million and $0.1 million, respectively.

Restricted Stock Units: During 2010, the Company awarded to certain employees RSUs that were 100% contingent upon meeting a specified performance requirement, which was achieved in 2010. RSUs are subject to forfeiture until vested and cannot be sold, transferred or disposed of during the restricted period. Effective January 2011, RSUs awarded in 2010 earn dividend equivalents at the same rate as dividends paid on our common stock.

A summary of share activity related to RSUs for the six months ended June 30, 2011 is as follows:

 

		Restricted Stock Units
		Units (1)				Weighted Average Grant Date Fair Value Per Unit
Outstanding RSUs, December 31, 2010			1,266,617			$	9.36
Granted			—				—
Vested			—				—
Forfeited			(33,096	)			9.36
Outstanding RSUs, June 30, 2011			1,233,521				9.36

 

(1)	All of the RSUs granted in 2010 will vest in December 2012 subject to employment conditions.

During the six months ended June 30, 2011 and 2010, there were no grants or vesting of RSUs.

Share-Based Compensation: A summary of incentive compensation expense under share-based payment arrangements and the related tax benefit for the three and six months ended June 30, 2011 and 2010 is as follows (in thousands):

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Share-based compensation expense from:
Restricted stock		$	603			$	747			$	1,191			$	1,943
Restricted stock units			1,232				—				2,471				—
Total		$	1,835			$	747			$	3,662			$	1,943
Share-based compensation tax benefit:
Tax benefit computed at the statutory rate		$	642			$	261			$	1,282			$	680

Cash-based Incentive Compensation: As defined by the Plan, performance and annual incentive awards may be granted to eligible employees. These awards are performance-based awards consisting of one or more business criteria and individual performance criteria and a targeted level or levels of performance with respect to each of such criteria. Generally, the performance period is the calendar year and determination and payment is made in cash in the first quarter of the following year.

 

Incentive Compensation: A summary of incentive compensation expense for the three and six months ended June 30, 2011 and 2010 is as follows (in thousands):

 

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
Share-based compensation expense included in:
Lease operating expense		$	116			$	159			$	233			$	428
General and administrative			1,719				588				3,429				1,515
Total charged to operating income			1,835				747				3,662				1,943
Cash-based incentive compensation included in:
Lease operating expense			1,119				651				2,199				777
General and administrative			3,288				2,377				6,052				2,911
Total charged to operating income			4,407				3,028				8,251				3,688
Total incentive compensation charged to operating income		$	6,242			$	3,775			$	11,913			$	5,631

As of June 30, 2011, unrecognized share-based compensation expense related to our outstanding restricted shares and RSUs was $1.7 million and $6.9 million, respectively. Unrecognized compensation expense will be recognized through April 2014 for restricted shares and November 2012 for RSUs.