7.  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 by our shareholders, and amendments to the Plan were approved by our shareholders in May 2013.  As allowed by the Plan, during 2015 and in 2014, the Company granted restricted stock units (“RSUs”) to certain of its employees. During the three months ended March 31, 2016, no RSUs were granted.  RSUs are a long-term compensation component of the Plan, which are granted to only certain employees, and are subject to typical adjustments at the end of the applicable performance period based on the achievement of certain predetermined criteria.  In addition to share-based compensation, the Company may grant to its employees cash-based incentive awards, which are a short-term component of the Plan and are typically based on the Company and the employee achieving certain pre-defined performance criteria.

During 2015, RSUs granted were subject to adjustments based on achievement of multiple performance criteria, which was comprised of: (i) net income before income tax expense, net interest expense, depreciation, depletion, amortization, accretion and certain other items (“Adjusted EBITDA”) for 2015 and (ii) Adjusted EBITDA as a percent of total revenues (“Adjusted EBITDA Margin”) for 2015.  For 2015, the Company was below target for Adjusted EBITDA and achieved the target for Adjusted EBITDA Margin.

During 2014, RSUs granted were subject to adjustments based on achievement of a combination of performance criteria, which was comprised of: (i)  Adjusted EBITDA for 2014 and (ii) Adjusted EBITDA Margin for 2014.  For 2014, the Company achieved the target for Adjusted EBITDA and was slightly below target for Adjusted EBITDA Margin.    

All RSUs  that are currently outstanding under the Plan are subject to employment-based criteria and vesting occurs in December of the second year after the grant.  For example, the RSUs granted during 2014, adjusted for 2014 performance described above, will vest in December 2016 to eligible employees assuming employment-based criteria are also satisfied.  

Under the Director Compensation Plan, shares of restricted stock (“Restricted Shares”) have been granted to the Company’s non-employee directors.  Grants to non-employee directors were made during 2015, 2014 and 2013.  The Restricted Shares are subject to service conditions and vesting occurs at the end of specified service periods unless approved by the Board.  

At March 31, 2016, there were 4,239,548 shares of common stock available for issuance in satisfaction of awards under the Plan and 444,024 shares of common stock available for issuance in satisfaction of awards under the Director Compensation Plan.  The shares available for both plans are reduced when Restricted Shares or shares of common stock are granted.  RSUs reduce the shares available in the Plan when the RSUs are settled in shares of common stock, net of withholding tax.  Although the Company has the option to settle RSUs in stock or cash at vesting, only common stock has been used to settle vested RSUs to date.

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 are expected to actually vest.

Awards Based on Restricted Stock to Non-Employee Directors.  As of March 31, 2016, all of the unvested shares of Restricted Shares outstanding were issued to the non-employee directors.  Restricted Shares 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 Restricted Shares, including the right to vote and receive dividends or other distributions paid with respect to the Restricted Shares.  The fair value of Restricted Shares was estimated by using the Company’s closing price on the grant date.

For the outstanding Restricted Shares issued to the non-employee directors as of March 31, 2016, vesting is expected to occur as follows:

There were no grants, forfeitures or vesting of Restricted Shares during the first quarter of 2016 or the first quarter of 2015.  

Awards Based on Restricted Stock Units.  As of March 31, 2016, the Company had outstanding RSUs issued to certain employees.  As described above, the RSUs granted during 2015 and 2014 were 100% performance based and were subject to pre-defined performance measures and employment-based criteria.  The fair values for the RSUs granted during 2015 and 2014 were determined using the Company’s closing price on the grant date.  

All RSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period.  Dividend equivalents are earned at the same rate as dividends are paid on our common stock after achieving the specified performance requirement for that component of the RSUs.

A summary of activity in 2016 related to RSUs is as follows:

For the outstanding RSUs issued to the eligible employees as of March 31, 2016, vesting is expected to occur as follows:  

  Share-Based Compensation.  A summary of incentive compensation expense under share-based payment arrangements and the related tax benefit is as follows (in thousands):

Unrecognized Share-Based Compensation.  As of March 31, 2016, unrecognized share-based compensation expense related to our awards of Restricted Shares and RSUs was $0.4 million and $10.3 million, respectively.  Unrecognized share-based compensation expense will be recognized through April 2018 for Restricted Shares and November 2017 for RSUs.

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

During 2015, the Company issued cash-based incentive awards for 2015 that, in addition to being performance-based awards related to 2015 criteria, the payment of such awards is contingent on the Company achieving the following financial condition on or before December 31, 2017:  Adjusted EBITDA less Interest Expense, as reported by the Company in its announced Earnings Release with respect to the end of any fiscal quarter plus three preceding quarters, exceeds $300.0 million.  As the Company did not achieve this financial condition up through March 31, 2016, no amounts have been recognized to date related to the 2015 cash-based incentive awards.  Amounts recorded during the three months ended March 31, 2015 relate to the 2014 cash-based awards, for which costs were recognized from the award date through February 2015 (the service period), and adjustments were recorded to true up previous estimates to actual payments.    

Share-Based Compensation and Cash-Based Incentive Compensation Expense.  A summary of incentive compensation expense is as follows (in thousands):