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

Awards to Employees.  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, May 2016 and May 2017.  The May 2017 amendment increased the number of shares available in the Plan by 7,700,000 shares.  As allowed by the Plan, during the nine months ended September 30, 2017 and the years 2016 and 2015, the Company granted restricted stock units (“RSUs”) to certain of its employees.  RSUs are a long-term compensation component of the Plan, which are granted to certain employees, and are subject to adjustments at the end of the applicable performance period based on the results 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.

As of September 30, 2017, there were 14,633,337 shares of common stock available for issuance in satisfaction of awards under the Plan.  The shares available for issuance are reduced when RSUs are settled in shares of common stock, net of withholding tax.  The Company has the option at vesting to settle RSUs in stock or cash, or a combination of stock and cash.  Prior to 2017, only shares of common stock were used to settle vested RSUs.  For the nine months ended September 30, 2017, cash was used to settle vested RSUs related to the retirement of an executive officer.  The Company plans to settle RSUs that vest in the future using shares of common stock.  

RSUs currently outstanding related to the 2016 and 2015 grants have been adjusted for performance achieved against predetermined criteria for the applicable performance year.  These RSUs continue to be subject to employment-based criteria and vesting occurs in December of the second year after the grant.  The RSUs related to the 2017 grants are subject to performance-based criteria and employment-based criteria.  See the second table below for potential vesting by year.

We recognize compensation cost for share-based payments to employees over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the RSUs granted during 2017, 2016 and 2015 were determined using the Company’s closing price on the grant date.  We are also required to estimate forfeitures, resulting in the recognition of compensation cost only for those awards that are expected to actually vest.

All RSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period.  

A summary of activity related to RSUs during the nine months ended September 30, 2017 is as follows:

For the outstanding RSUs issued to the eligible employees as of September 30, 2017, vesting is expected to occur as follows:  

The fair value of RSUs granted during the nine months ended September 30, 2017 was $5.8 million based on the closing price of the Company’s common stock on the date of grant.

Awards to Non-Employee Directors.  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 the nine months ended September 30, 2017, and the years 2016 and 2015.  As of September 30, 2017, there were 170,524 shares of common stock available for issuance in satisfaction of awards under the Director Compensation Plan.  The shares available are reduced when Restricted Shares are granted.  

We recognize compensation cost for share-based payments to non-employee directors over the period during which the recipient is required to provide service in exchange for the award.  Compensation cost is based on the fair value of the equity instrument on the date of grant.  The fair values for the Restricted Shares granted were determined using the Company’s closing price on the grant date.   No forfeitures were estimated for the non-employee directors’ awards.

The Restricted Shares are subject to service conditions and vesting occurs at the end of specified service periods unless approved by the Board of 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.

A summary of activity related to Restricted Shares during the nine months ended September 30, 2017 is as follows:

For the outstanding Restricted Shares issued to the non-employee directors as of September 30, 2017, vesting is expected to occur as follows:

The fair value of Restricted Shares granted during the nine months ended September 30, 2017 was $0.3 million based on the closing price of the Company’s common stock on the date of grant.

  Share-Based Compensation.  Share-based compensation expense is recorded in the line General and administrative expenses in the Condensed Consolidated Statements of Operations.  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 September 30, 2017, unrecognized share-based compensation expense related to our awards of RSUs and Restricted Shares was $7.8 million and $0.4 million, respectively.  Unrecognized share-based compensation expense will be recognized through November 2019 for RSUs and April 2019 for Restricted Shares.

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 the nine months ended September 30, 2017, and the years 2016 and 2015, the Company issued cash-based incentive awards.  In addition to being performance-based awards related to respective 2017, 2016 and 2015 criteria, the payment of such awards is contingent on the Company achieving the following financial condition on or before December 31, 2019, December 31, 2018 and December 31, 2017, respectively:  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 $200.0 million for the 2017 awards and exceeds $300.0 million for the 2016 and 2015 awards.  As the Company did not achieve the financial condition for the 2016 and 2015 awards up through September 30, 2017, and we do not estimate the Company will achieve the financial condition within the respective measurement period, no amounts have been recognized to date related to the 2015 and 2016 awards.  For the 2017 awards, amounts were recognized as reported in the table below as it is estimated that the Company will achieve some of the performance-based criteria and will achieve the financial condition within the respective measurement period.     

A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):