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SHARE-BASED COMPENSATION
 12 Months Ended
Dec. 31, 2023
Share-Based Payment Arrangement, Noncash Expense [Abstract]  
SHARE-BASED COMPENSATION

NOTE 15: SHARE-BASED COMPENSATION

This note provides details about:

 

our Long-Term Incentive Compensation Plan (2022 Plan),

how we account for share-based awards,

tax benefits of share-based awards,

types of share-based compensation,

unrecognized share-based compensation and

deferred compensation stock equivalent units.

 

Share-based compensation expense was:

 

$36 million in 2023,

$33 million in 2022 and

$30 million in 2021.

 

OUR LONG-TERM INCENTIVE COMPENSATION PLAN

Our long-term incentive plan provides for share-based awards that include:

 

restricted stock,

restricted stock units (RSUs),

performance shares and

performance share units (PSUs).

 

We may issue future grants of up to 21 million shares under the 2022 Plan. We also have the right to reissue forfeited and expired grants. The Compensation Committee of our board of directors annually establishes an overall pool of stock awards available for grants based on performance.

For stock-settled awards, we issue new stock into the marketplace and generally do not repurchase shares in connection with issuance of new awards.

Our common shares would increase by approximately 25 million shares if all share-based awards were exercised or vested. These include:

 

all outstanding share-based awards at December 31, 2023 and

all remaining RSUs and PSUs that could be granted under the 2022 Plan.

HOW WE ACCOUNT FOR SHARE-BASED AWARDS

We recognize the cost of share-based awards using a fair-value-based measurement in our Consolidated Statement of Operations over the required service period — generally the period from the date of the grant to the date when it is fully vested. Special situations include:

 

Awards that vest upon retirement — the required service period ends on the date an employee is eligible for retirement, including early retirement.

Awards that continue to vest following job elimination or the sale of a business — the required service period ends on the date the employment from the company is terminated.

 

In these special situations, compensation expense from share-based awards is recognized over a period that is shorter than the stated vesting period. Forfeitures are recognized in compensation expense as they occur.

TAX BENEFITS OF SHARE-BASED AWARDS

Our total income tax benefit from share-based awards recognized in our Consolidated Statement of Operations for the last three years was:

 

$5 million in 2023,

$5 million in 2022 and

$4 million in 2021.

 

Tax benefits from share-based awards are accrued as stock compensation expense and realized when restricted shares, performance shares, RSUs and PSUs vest.

TYPES OF SHARE-BASED COMPENSATION

Our share-based compensation is in the form of RSUs and PSUs.

RESTRICTED STOCK UNITS

Through the 2022 Plan, we award RSUs — grants that entitle the holder to shares of our stock as the award vests.

The Details

Our RSUs granted in 2023, 2022 and 2021 generally:

 

vest ratably over four years;

immediately vest in the event of death or disability while employed;

continue to vest upon retirement at an age of at least 62, in accordance with the vesting terms of the awards, but a portion of the award is forfeited if retirement occurs before the one-year anniversary of the grant;

continue vesting for one year in the event of involuntary termination due to job elimination;

immediately vest in the case of a change of control, if the successor company does not assume the award or, if assumed, within two years of the effective date of the change in control the recipient is terminated other than for cause or leaves for good reason (as defined in the award terms and conditions) and

will be forfeited upon termination of employment in all other situations including early retirement prior to age 62.

Our Accounting

The fair value of our RSUs is the market price of our stock on the grant date of the awards.

We generally record share-based compensation expense for RSUs over the four-year vesting period. Generally, for RSUs that continue to vest following the termination of employment, we record the share-based compensation expense over a required service period that is less than the stated vesting period.

Activity

The following table shows our RSU activity for 2023:

 

 

 

RESTRICTED

 

 

WEIGHTED
AVERAGE

 

 

 

STOCK UNITS

 

 

GRANT-DATE

 

 

 

(IN THOUSANDS)

 

 

FAIR VALUE

 

Nonvested at December 31, 2022

 

 

1,573

 

 

$

34.93

 

Granted

 

 

844

 

 

$

33.81

 

Vested

 

 

(679

)

 

$

32.46

 

Forfeited

 

 

(37

)

 

$

35.67

 

Nonvested at December 31, 2023(1)

 

 

1,701

 

 

$

35.34

 

 

(1)
As of December 31, 2023, there were approximately 136 thousand RSUs that had met the requisite service period and will be released as identified in the grant terms.

The weighted average grant-date fair value for RSUs was:

 

$33.81 in 2023,

$42.02 in 2022 and

$33.62 in 2021.

 

The total grant-date fair value of RSUs vested was:

 

$22 million in 2023,

$22 million in 2022 and

$25 million in 2021.

 

Nonvested RSUs accrue dividends that are paid out when RSUs vest. Any RSUs forfeited will not receive dividends.

As RSUs vest, a portion of the shares awarded is withheld to cover employee taxes. As a result, the number of stock units vested and the number of common shares issued will differ.

PERFORMANCE SHARE UNITS

Through the 2022 Plan, we award PSUs — grants that entitle the holder to shares of our stock as the award vests.

The Details

The final number of shares granted in 2023, 2022 and 2021 will vest between a range of 0 percent to 150 percent of each grant’s target, depending upon actual company total shareholder return (TSR) compared against the TSR of an industry peer group. TSR assumes full reinvestment of dividends.

The vesting provisions for PSUs granted in 2023, 2022 and 2021 were generally as follows:

 

awards granted in 2021 vest 100 percent on the third anniversary of the grant date, and awards granted in 2022 and in 2023 vest on March 1st following the end of the performance period, in each case as long as the individual remains employed by the company;

in the event of death or disability while employed, awards continue to be earned and settled based on actual company performance;

upon retirement at an age of at least 62, awards continue to vest in accordance with the vesting terms of the award, but a portion of the award is forfeited if retirement occurs before the one-year anniversary of the grant;

awards continue vesting for one year in the event of involuntary termination due to job elimination and the second anniversary of the grant date has passed;

in the case of a change of control during the performance period, awards are deemed earned at target performance and (i) vest as of the change of control date if the successor company does not assume the award or (ii) if assumed, vest upon termination of employment if, within two years of the effective date of the change in control, the recipient is involuntarily terminated other than for cause or leaves for good reason (as defined in the award terms and conditions);

awards will be forfeited upon termination of employment in all other situations including early retirement prior to age 62 and

awards vest at a maximum of 100 percent of target value in the event of negative absolute company TSR.

 

Our Accounting

Since the awards contain a market condition, the effect of the market condition is reflected in the grant-date fair value which is estimated using a Monte Carlo simulation model. This model estimates the TSR ranking of the company over the performance period. Compensation expense is based on the estimated probable number of earned awards and recognized over the vesting period on an accelerated basis. Generally, compensation expense would not be reversed if the market condition is not achieved, provided the requisite service period has been completed.

Weighted Average Assumptions Used in Estimating the Value of PSUs

 

 

 

2023
 GRANTS

 

 

2022
 GRANTS

 

 

2021
 GRANTS

 

Performance period

 

2/09/2023 - 12/31/2025

 

 

2/10/2022 - 12/31/2024

 

 

2/11/2021 - 12/31/2023

 

Risk-free rate

 

4.21% - 4.66%

 

 

0.34% - 1.84%

 

 

0.02% - 0.20%

 

Volatility

 

29.26% - 40.19%

 

 

26.27% - 41.01%

 

 

32.87% - 52.82%

 

Weighted average grant-date fair value

 

$

37.58

 

 

$

49.77

 

 

$

38.50

 

 

Activity

The following table shows our PSU activity for 2023:

 

 

 

PERFORMANCE SHARE UNITS

 

 

WEIGHTED
AVERAGE
GRANT-DATE

 

 

 

(IN THOUSANDS)

 

 

FAIR VALUE

 

Nonvested at December 31, 2022

 

 

962

 

 

$

39.77

 

Granted at target

 

 

392

 

 

$

37.58

 

Vested

 

 

(243

)

 

$

33.16

 

Forfeited

 

 

(4

)

 

$

39.86

 

Performance adjustment

 

 

(123

)

 

$

33.16

 

Nonvested at December 31, 2023(1)

 

 

984

 

 

$

41.35

 

 

(1)
As of December 31, 2023, there were approximately 33 thousand PSUs that had met the requisite service period and will be released as identified in the grant terms.

The total grant-date fair value of PSUs vested was:

 

$8 million in 2023,

$12 million in 2022 and

$8 million in 2021.

Nonvested PSUs accrue dividends that are paid out when PSUs vest. Any PSUs forfeited will not receive dividends.

As PSUs vest, a portion of the shares awarded is withheld to cover participant taxes. As a result, the number of share units vested and the number of common shares issued will differ.

UNRECOGNIZED SHARE-BASED COMPENSATION

As of December 31, 2023, our unrecognized share-based compensation cost for all types of share-based awards included $53 million related to non-vested equity-classified share-based compensation arrangements. These are expected to be recognized over a weighted average period of approximately 2.1 years.

DEFERRED COMPENSATION STOCK EQUIVALENT UNITS

Certain employees and our board of directors may defer compensation into stock equivalent units.

The Details

Eligible employees:

 

may choose to defer all or part of their bonus into stock equivalent units;

may choose to defer part of their salary, except for executive officers and

receive a 15 percent premium if the deferral is for at least five years.

 

Our directors:

 

receive a portion of their annual retainer fee in the form of RSUs, which vest over one year and may be deferred into stock equivalent units;

may choose to defer some or all of the remainder of their annual retainer fee into stock equivalent units and

do not receive a premium for their deferrals.

 

Employees and directors also choose when the deferrals will be paid out, although no deferrals may be paid until after the separation from service of the employee or director.

Our Accounting

We settle all deferred compensation accounts in cash for our employees. Our directors receive shares of common stock as payment for stock equivalent units, except that any directors who are subject to federal or provincial taxation in Canada have the choice to receive a cash amount equal to the fair market value of the company’s common stock on the date of payment. In addition, we credit all stock equivalent accounts with dividend equivalents. The number of common shares to be issued in the future to directors is 514 thousand as of December 31, 2023.

Stock equivalent units are liability-classified awards and remeasured to fair value at every reporting date.

The fair value of a stock equivalent unit is equal to the market price of our stock.

Activity

The number of stock equivalent units outstanding in our deferred compensation accounts was:

530 thousand as of December 31, 2023,

595 thousand as of December 31, 2022 and

712 thousand as of December 31, 2021.