Stock-based Compensation Plans and Awards |
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| Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Stock-based Compensation Plans and Awards |
Stock-based Compensation Plans and Awards
ESPP
The ESPP allows eligible employees to purchase shares of our common stock through payroll deductions of up to 15% of their eligible compensation. The ESPP provides for six-month offering periods, commencing in February and August of each year.
The per-share fair value of shares to be granted under the ESPP is determined on the first day of the offering period using the Black-Scholes option pricing model using the following assumptions:
During the three months ended June 30, 2014 and 2015, we withheld $1.6 million and $1.7 million in contributions from employees and recognized $0.6 million and $0.6 million of stock-based compensation expense related to the ESPP, respectively. During the six months ended June 30, 2014 and 2015, we withheld $2.5 million and $3.3 million in contributions from employees and recognized $0.9 million and $1.2 million of stock-based compensation expense related to the ESPP, respectively. In the three and six months ended June 30, 2015, 282,966 shares of common stock were issued under the ESPP. There were no shares of common stock issued under the ESPP in the three and six months ended June 30, 2014.
Employee Stock-Based Awards
Our 2011 Equity Incentive Plan (the “2011 Plan”) provides for the issuance of stock options, restricted stock units and other stock-based awards to our employees. The 2011 Plan is administered by the compensation committee of our board of directors.
Stock options
We measure stock-based compensation expenses for stock options at the grant date fair value of the award and recognize expenses on a straight-line basis over the requisite service period, which is generally the vesting period. We estimate the fair value of stock options using the Black-Scholes option-pricing model. During the three months ended June 30, 2014 and 2015, we recorded stock-based compensation expense from stock options of approximately $3.7 million and $2.4 million. During the six months ended June 30, 2014 and 2015, we recorded stock-based compensation expense from stock options of approximately $7.2 million and $5.2 million.
There were no options granted in the three months ended June 30, 2014 or during the three and six months ended June 30, 2015.
Restricted stock units ("RSUs")
The fair value of the restricted stock units is expensed ratably over the vesting period. RSUs typically have an initial annual cliff vest and then vest quarterly thereafter over the service period, which is generally four years. During the three months ended June 30, 2014 and 2015, we recorded stock-based compensation expense from RSUs of approximately $16.3 million and $24.1 million. During the six months ended June 30, 2014 and 2015, we recorded stock-based compensation expense from RSUs of approximately $29.9 million and $43.7 million.
Market stock units
We implemented a market stock unit program in March 2015 for certain key executives. Specifically, MSUs measure Pandora’s TSR performance against that of the Russell 2000 Index across three performance periods. Pandora’s relative TSR is calculated using the average adjusted closing stock price of Pandora stock, and the Russell 2000 Index, for ninety calendar days prior to the beginning of each performance period and the last ninety calendar days of the performance period. The target MSUs are divided across three performance periods as follows:
For each performance period, a “performance multiplier” is calculated by comparing Pandora’s relative TSR for the period to the Russell 2000 Index TSR for the same period. The target number of shares will vest if the Pandora TSR is equal to the Russell 2000 Index TSR for the period. 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 with all upside tied to the Three-Year Performance Period. 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%.
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 three and six months ended June 30, 2015, we granted 776,000 MSUs at a total grant-date fair value of $4.3 million. During the three and six months ended June 30, 2015, we recorded stock-based compensation expense from MSUs of approximately $0.5 million and $0.6 million.
Stock-based Compensation Expense
Stock-based compensation expense related to all employee and non-employee stock-based awards was as follows:
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