NOTE H. Incentive Plans
Retirement Plans
Deferred compensation retirement plan. In August 1997, the Compensation Committee of the Company's board of directors (the "Board") approved a deferred compensation retirement plan for the officers and certain key employees of the Company. Each officer and key employee is allowed to contribute up to 25 percent of their base salary and 100 percent of their annual bonus. The Company will provide a matching contribution of 100 percent of the officer's and key employee's contribution limited to the first ten percent of the officer's base salary and eight percent of the key employee's base salary. The Company's matching contribution vests immediately. A trust fund has been established by the Company to accumulate the contributions made under this retirement plan. The Company's matching contributions were $2.7 million, $2.4 million and $2.2 million for the years ended December 31, 2013, 2012 and 2011, respectively.
401(k) plan. The Pioneer Natural Resources USA, Inc. ("Pioneer USA," a wholly-owned subsidiary of the Company) 401(k) and Matching Plan (the "401(k) Plan") is a defined contribution plan established under the Internal Revenue Code Section 401. All regular full-time and part-time employees of Pioneer USA are eligible to participate in the 401(k) Plan on the first day of the month following their date of hire. Participants may contribute an amount up to 80 percent of their annual salary into the 401(k) Plan. Matching contributions are made to the 401(k) Plan in cash by Pioneer USA in amounts equal to 200 percent of a participant's contributions to the 401(k) Plan that are not in excess of five percent of the participant's base compensation (the "Matching Contribution"). Each participant's account is credited with the participant's contributions, Matching Contributions and allocations of the 401(k) Plan's earnings. Participants are fully vested in their account balances except for Matching Contributions and their proportionate share of 401(k) Plan earnings attributable to Matching Contributions, which proportionately vest over a four-year period that begins with the participant's date of hire. During the years ended December 31, 2013, 2012 and 2011, the Company recognized compensation expense of $29.7 million, $24.7 million and $18.3 million, respectively, as a result of Matching Contributions.
Stock-based compensation costs. In accordance with GAAP, the Company records stock-based compensation expense, equal to the fair value of share-based payments, ratably over the vesting periods of the Long-Term Incentive Plan ("LTIP") awards, the Pioneer Southwest Long-Term Incentive Plan ("Pioneer Southwest LTIP") awards, the Series B unit awards issued by Sendero and for payments associated with the Company's Employee Stock Purchase Plan ("ESPP").
The following table reflects stock-based compensation expense recorded for each type of incentive award and the associated income tax benefit for the years ended December 31, 2013, 2012 and 2011:
|
| | | | | | | | | | | |
| Year Ended December 31, |
| 2013 | | 2012 | | 2011 |
| (in thousands) |
Restricted stock-equity awards | $ | 56,165 |
| | $ | 48,876 |
| | $ | 32,861 |
|
Restricted stock-Liability Awards | 40,404 |
| | 22,419 |
| | 10,882 |
|
Stock options (a) | 2,952 |
| | 4,110 |
| | 2,936 |
|
Performance unit awards | 9,131 |
| | 6,162 |
| | 4,500 |
|
Pioneer Southwest LTIP | 1,029 |
| | 1,098 |
| | 761 |
|
Sendero Series B units | 1,020 |
| | 982 |
| | 1,020 |
|
ESPP | 1,731 |
| | 2,437 |
| | 125 |
|
Total | $ | 112,432 |
| | $ | 86,084 |
| | $ | 53,085 |
|
Income tax benefit | $ | 36,298 |
| | $ | 27,901 |
| | $ | 22,084 |
|
_____________________
| |
(a) | Cash proceeds received from stock option exercises during 2013, 2012 and 2011 amounted to $5.0 million, $3.1 million and $619 thousand, respectively. |
As of December 31, 2013, there was $146.3 million of unrecognized stock-based compensation expense related to unvested share-based compensation plans, including $44.8 million attributable to Liability Awards. The stock-based compensation expense will be recognized on a straight-line basis over the remaining vesting periods of the awards, which is a period of less than three years on a weighted average basis.
Pioneer Long-Term Incentive Plan
In May 2006, the Company's stockholders approved the LTIP, which provides for the granting of various forms of awards, including stock options, stock appreciation rights, performance units, restricted stock and restricted stock units to directors, officers and employees of the Company. The LTIP provides for the issuance of 9.1 million shares pursuant to awards under the plan. The shares to be delivered under the LTIP shall be made available from (i) authorized but unissued shares, (ii) shares held as treasury stock or (iii) previously issued shares reacquired by the Company, including shares purchased on the open market.
The following table shows the number of shares available for issuance pursuant to awards under the Company's LTIP at December 31, 2013:
|
| | |
Approved and authorized awards | 9,100,000 |
|
Awards issued after May 3, 2006 | (6,506,571 | ) |
Awards available for future grant | 2,593,429 |
|
Restricted stock awards. During 2013, the Company awarded 683,952 restricted shares or units of the Company's common stock as compensation to directors, officers and employees of the Company (including 250,641 shares or units representing Liability Awards). The Company's issued shares, as reflected in the consolidated balance sheets as of December 31, 2013, do not include 197,340 of issued, but unvested shares awarded under stock-based compensation plans that have voting rights.
The following table reflects the restricted stock award activity for the year ended December 31, 2013:
|
| | | | | | | | | |
| Equity Awards | | Liability Awards |
| Number of Shares | | Weighted Average Grant- Date Fair Value | | Number of Shares |
Outstanding at beginning of year | 1,512,762 |
| | $ | 96.22 |
| | 405,916 |
|
Shares granted | 433,311 |
| | $ | 134.58 |
| | 250,641 |
|
Shares forfeited | (80,150 | ) | | $ | 116.50 |
| | (35,813 | ) |
Shares vested | (517,908 | ) | | $ | 70.22 |
| | (198,362 | ) |
Outstanding at end of year | 1,348,015 |
| | $ | 117.09 |
| | 422,382 |
|
The weighted average grant-date fair value of restricted stock equity awards awarded during 2013, 2012 and 2011 was $134.58, $113.02 and $97.52, respectively. The fair value of shares for which restrictions lapsed during 2013, 2012 and 2011 was $67.7 million, $137.2 million and $98.6 million, respectively, based on the market price on the vesting date.
As of December 31, 2013 and 2012, accounts payable – due to affiliates in the accompanying consolidated balance sheet includes $33.0 million and $18.8 million of liabilities attributable to the Liability Awards, representing the earned portion of the fair value of the outstanding awards as of that date. The fair value of shares for which restrictions lapsed during 2013, 2012 and 2011 was $26.1 million, $14.2 million and $6.7 million respectively, based on the market price on the vesting date.
Stock option awards. Certain employees may be granted options to purchase shares of the Company's common stock with an exercise price equal to the fair market value of Pioneer common stock on the date of grant. The fair value of stock option awards is determined using the Black-Scholes option-pricing model. Option awards have a ten-year contract life. The expected life of an option is estimated based on historical and expected exercise behavior. The volatility assumption was estimated based upon expectations of volatility over the life of the option as measured by historical volatility. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the option. The dividend yield was based upon a seven-year average dividend yield.
The Company did not grant any stock options during the year ended December 31, 2013. The Company used the following weighted-average assumptions to estimate the fair value of stock options granted during the years ended December 31, 2012 and 2011:
|
| | | | | |
| 2012 | | 2011 |
Expected option life - years | 7.0 |
| | 7.0 |
|
Volatility | 49.4 | % | | 47.6 | % |
Risk-free interest rate | 1.5 | % | | 2.9 | % |
Dividend yield | 0.4 | % | | 0.4 | % |
A summary of the Company's nonstatutory stock option awards activity for the year ended December 31, 2013 is presented below:
|
| | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| | | | | (in years) | | (in thousands) |
Outstanding at beginning of year | 467,486 |
| | $ | 59.63 |
| | | | |
Options expired and forfeited | (11,085 | ) | | $ | 106.90 |
| | | | |
Options exercised | (166,474 | ) | | $ | 29.88 |
| | | | |
Outstanding and expected to vest, at end of year | 289,927 |
| | $ | 74.90 |
| | 6.80 | | $ | 31,651 |
|
Exercisable at end of year | 115,290 |
| | $ | 26.74 |
| | 5.48 | | $ | 18,139 |
|
The weighted average grant-date fair value of options awarded during 2012 and 2011 was $56.29 and $49.61, respectively, using the Black-Scholes option-pricing model. The intrinsic value of options exercised during 2013, 2012 and 2011 was $20.5 million, $17.2 million and $1.5 million, respectively, based on the difference between the market price at the exercise date and the option exercise price.
Performance unit awards. During 2013, 2012 and 2011, the Company awarded performance units to certain of the Company's officers under the LTIP. The number of shares of common stock to be issued is determined by comparing the Company's total shareholder return to the total shareholder return of a predetermined group of peer companies over the performance period. The performance unit awards vest over a 34-month service period. The grant-date fair values per unit of the 2013, 2012 and 2011 performance unit awards are $189.23, $172.57 and $134.68, respectively, which amounts were determined using the Monte Carlo simulation method and are being recognized as stock-based compensation expense ratably over the performance period. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award grant and calculates the fair value of the award. Expected volatilities utilized in the model were estimated using a historical period consistent with the remaining performance period of approximately three years. The risk-free interest rate was based on the United States Treasury rate for a term commensurate with the expected life of the grant. The Company used the following assumptions to estimate the fair value of performance unit awards granted during 2013, 2012 and 2011:
|
| | | | | | | | | | | | | | |
| 2013 | | 2012 | | 2011 |
Risk-free interest rate | 0.40% | | 0.40% | | 1.32% |
Range of volatilities | 30.4 | % | - | 42.9% | | 33.6 | % | - | 49.0% | | 50.2 | % | - | 84.1% |
The following table summarizes the performance unit activity for the year ended December 31, 2013:
|
| | | | | | |
| Number of Units (a) | | Weighted Average Grant-Date Fair Value |
Beginning performance unit awards | 91,370 |
| | $ | 154.53 |
|
Units granted | 94,917 |
| | $ | 189.23 |
|
Units forfeited | (10,842 | ) | | $ | 172.02 |
|
Units vested (b) | (40,969 | ) | | $ | 134.68 |
|
Ending performance unit awards | 134,476 |
| | $ | 183.66 |
|
_____________________
| |
(a) | These amounts reflect the number of performance units granted. The actual payout of shares may be between zero percent and 250 percent of the performance units granted depending upon the total shareholder return ranking of the Company compared to peer companies at the vesting date. |
| |
(b) | On December 31, 2013, the service period lapsed on 40,969 of these performance unit awards. The lapsed units earned 2.5 shares for each vested award representing 102,424 aggregate shares of common stock issued on January 2, 2014. |
The fair value of shares for which restrictions lapsed during 2013, 2012 and 2011 was $18.9 million, $18.8 million and $44.7 million, respectively, based on the market price on the vesting date.
Pioneer 2008 PSE Employee Long-Term Incentive Plan
In May 2008, the board of directors of the general partner (the "General Partner") of Pioneer Southwest adopted the Pioneer Southwest 2008 Long-Term Incentive Plan ("Pioneer Southwest LTIP"), which provides for the granting of various forms of unit-based awards. In connection with the Pioneer Southwest merger the Company has, effective as of December 17, 2013, assumed, adopted and amended the Pioneer Southwest LTIP, and has changed the name of such plan to the Pioneer 2008 PSE Employee Long-Term Incentive Plan ("PSE LTIP"), and has assumed all Pioneer Southwest obligations associated with the Pioneer Southwest LTIP existing prior to its assumption and adoption by the Company. The Pioneer Southwest LTIP limits the number of awards granted under the plan to 3.0 million common units of Pioneer Southwest. As of the date of the Pioneer Southwest merger, 2.9 million common units under the Pioneer Southwest LTIP were available to be awarded or remained outstanding (678,034 common shares of Pioneer based upon the Conversion Ratio) and are carried forward to the PSE LTIP. The only outstanding awards under the PSE LTIP at the time of the Pioneer Southwest merger and immediately prior to the assumption and adoption of the PSE LTIP by the Company were phantom units of Pioneer Southwest. All such outstanding phantom units were converted at the effective time of the Pioneer Southwest merger based on the Conversion Ratio into restricted stock units of the Company, subject to the vesting schedule determined by the grant under the Pioneer Southwest LTIP which is a three-year vesting period from the date of grant. The common shares of Pioneer to be delivered under the PSE LTIP shall be made available from (i) authorized but unissued shares, (ii) shares held as treasury stock or (iii) previously issued shares reacquired by the Company, including shares purchased on the open market.
The following table shows the number of Pioneer common shares available for issuance pursuant to awards under the PSE LTIP at December 31, 2013:
|
| | |
Awards approved and outstanding | 678,034 |
|
Awards issued under the PSE LTIP (a) | (23,192 | ) |
Awards available for future grant (b) | 654,842 |
|
_____________________
| |
(a) | Shares that represent outstanding awards originally granted under the Pioneer Southwest LTIP that have been assumed and adopted by the Company in connection with, and that continue to be outstanding after, the Pioneer Southwest merger. |
| |
(b) | Shares that have not been issued and are not subject to outstanding awards granted under the Pioneer Southwest LTIP. |
The board of directors of the General Partner awarded 7,496 restricted common Pioneer Southwest units (1,743 shares of Pioneer common stock based on the Conversion Ratio) in 2012, which vested in May 2013, and 6,812 units (1,584 shares of Pioneer common stock based on the Conversion Ratio) in 2011, which vested in May 2012, as compensation to non-employee directors of the General Partner under the Pioneer Southwest LTIP. There were no restricted common units awarded under the Pioneer Southwest LTIP during 2013 and no awards outstanding at December 31, 2013.
The following table summarizes the activity of phantom unit awards issued under the Pioneer Southwest LTIP during 2013, which were converted to restricted stock units of the Company under the PSE LTIP based upon the Conversion Ratio:
|
| | | | | | |
| Phantom Unit Awards |
| Number of Awards (a) | | Weighted Average Grant-Date Fair Value |
Outstanding awards at beginning of year | 23,865 |
| | $ | 117.94 |
|
Units granted | 7,492 |
| | $ | 110.32 |
|
Lapse of restrictions | (8,165 | ) | | $ | 97.81 |
|
Outstanding awards at end of year | 23,192 |
| | $ | 122.55 |
|
_____________________
| |
(a) | Reflects the number of awards in Pioneer common stock after the Pioneer Southwest merger based upon the Conversion Ratio. |
The weighted average grant-date fair value of Pioneer Southwest restricted common units awarded during 2012 and 2011 was $114.75 and $126.24, respectively, based upon the Conversion Ratio. The fair value of common units for which restrictions lapsed on the restricted common units during 2013, 2012 and 2011 was $200 thousand, $200 thousand and $342 thousand, respectively, based on the market price at the vesting date.
The weighted average grant-date fair value of Pioneer Southwest phantom units awarded during 2013, 2012 and 2011 was $110.32, $120.43 and $138.32, respectively, based upon the Conversion Ratio. The fair value of phantom units for which restrictions lapsed during 2013 was $799 thousand.
Subsidiary Issuances of Unit-Based Compensation
During 2010, Sendero entered into restricted unit agreements with two key employees, granting 1,000 Series B units in Sendero. The Series B unit awards had a grant date fair value of $5.1 million, vest ratably over a five year service period and do not earn equity rights unless certain defined performance conditions are achieved by Sendero.
Employee Stock Purchase Plan
The Company has an ESPP that allows eligible employees to annually purchase the Company's common stock at a discounted price. Officers of the Company are not eligible to participate in the ESPP. Contributions to the ESPP are limited to 15 percent of an employee's pay (subject to certain ESPP limits) during the eight-month offering period (January 1 to August 31). Participants in the ESPP purchase the Company's common stock at a price that is 15 percent below the closing sales price of the Company's common stock on either the first day or the last day of each offering period, whichever closing sales price is lower.
The following table shows the number of shares available for issuance under the ESPP at December 31, 2013:
|
| | |
Approved and authorized shares | 1,250,000 |
|
Shares issued | (734,972 | ) |
Shares available for future issuance | 515,028 |
|
Postretirement Benefit Obligations
At December 31, 2013 and 2012, the Company had $7.6 million and $9.7 million, respectively, of unfunded accumulated postretirement benefit obligations. These obligations are comprised of five unfunded plans, of which four relate to predecessor entities that the Company acquired in prior years, and two funded plans that the Company assumed sponsorship of in conjunction with the acquisition of Premier Silica. Other than the Company's retirement plan and the two legacy-Premier Silica plans, the participants of these plans are not current employees of the Company. The unfunded plans had no assets as of December 31, 2013 or 2012.
