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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2021
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
(shares in thousands)
We have a long-term incentive plan whereby eligible employees may be granted restricted stock units (RSUs), performance share units (PSUs) and stock options (SOs). We grant stock-based compensation awards in order to continue to attract and retain qualified employees and to better align employees' interests with those of our shareholders. Each of these awards is subject to settlement with newly issued shares of Xerox Holdings Corporation's common stock. At December 31, 2021 and 2020, 8 million and 11 million shares, respectively, were available for grant of awards.
Stock-based compensation expense was as follows:
Year Ended December 31,
202120202019
Stock-based compensation expense, pre-tax$54 $42 $50 
Income tax benefit recognized in earnings13 11 13 
In 2019, the timing of our annual grant of awards was changed from April to January to more closely align the grant date with the underlying performance period related to PSUs. Stock options were last awarded under the 2018 grant.
Restricted Stock Units
Compensation expense for RSUs is based upon the grant-date market price and is recognized on a straight-line basis over the vesting period, based on management's estimate of the number of shares expected to vest. Beginning with the 2018 grant, RSU's vest on a graded schedule as follows: 25% after one year of service, 25% after two years of service and 50% after three years of service from the date of grant. Prior to the 2018 grant, RSUs vested on a three-year cliff basis from the date of grant. Beginning with the 2021 grant, RSUs vest on a graded schedule as follows: 33% after one year of service, 33% after two years of service and 34% after three years of service from the date of grant.
Performance Share Units
PSU awards granted in 2021, 2020 and 2019 were comprised of a performance-based component that included a Revenue and Free Cash Flow metric and a market-based component that included an Absolute Share Price metric. The metrics are weighted as follows: 25% Revenue, 25% Free Cash Flow and 50% Absolute Share Price. Accordingly, each PSU grant was one-half performance-based (Revenue and Free Cash Flow) and one-half market-based (Absolute Share Price). The measures are independent of each other and depending on the achievement of these metrics, a recipient of a PSU award is entitled to receive a number of shares equal to a percentage, ranging from 0% to 200% of the PSU award granted. PSUs have a three-year cliff vesting from the date of grant.
In November 2020, the Xerox Holdings Corporation Board approved grants of RSUs to employees who had received grants of PSUs in 2019 and/or 2020 that included performance and market metrics that have been permanently adversely impacted by the COVID-19 pandemic. These grants of RSUs were made in December 2020. The grant-date value of the new RSUs for each recipient was approximately 50% of the grant-date value of the recipient’s 2020 and/or 2019 PSUs. These RSU grants were not intended to take the place of the Company’s 2021 regular annual equity incentive programs.
Performance-Based Component: PSUs vest contingent upon meeting pre-determined cumulative performance metrics. The fair value of our PSUs is based upon the grant-date market price. Compensation expense is recognized on a straight-line basis over the vesting period, based on management's estimate of the number of shares expected to vest and based on meeting the performance metrics. If the cumulative three-year actual results exceed the stated targets, all plan participants have the potential to earn additional shares of common stock up to a maximum over-achievement of 100% of the original grant. If the stated targets are not met, any recognized compensation cost would be reversed.
Market-Based Component: The Absolute Share Price metric, included as the market-based component of the 2021, 2020 and 2019 PSU grant, is based on Xerox Holdings Corporation's average closing price for the last 20 trading days of the three-year performance period, inclusive of dividends during that period. Payout for this portion of the PSU will be determined based on total return targets. Since the Absolute Share Price metric of the PSU award represents a market condition, a Monte Carlo simulation was used to determine the grant-date fair value.
The TSR metric included as the market-based component of the 2018 PSU grant was based on the percentage change in Xerox Corporation stock price plus dividends paid over the three-year measurement period. Payout for this portion of the PSU was to be determined based on Xerox Corporation percentage change compared to the shareholder returns of the peer group of companies approved by the compensation committee of the Board (as disclosed in the 2018 annual proxy statement). Since the TSR metric of the PSU award represented a market condition, a Monte Carlo simulation was used to determine the grant-date fair value.
A summary of Xerox Holdings key valuation input assumptions used in the Monte Carlo simulation relative to awards granted were as follows:
2021 Award2020 Award2019 Award2018 Award
Term3 years3 years3 years3 years
Risk-free interest rate(1)
0.20 %1.60 %2.51 %2.39 %
Dividend yield(2)
4.66 %2.80 %3.97 %3.24 %
Volatility(3)
44.76 %29.49 %32.95 %29.12 %
Weighted average fair value(4)
$25.80 $41.28 $16.27 $32.01 
____________
(1)The risk-free interest rate was based on the zero-coupon U.S. Treasury yield curve on the valuation date, with a maturity matched to the performance period.
(2)The dividend yield was calculated as the expected quarterly dividend divided by our three-month average stock price as of the valuation date, annualized and continuously compounded.
(3)Volatility is derived from historical stock prices as well as implied volatility when appropriate and available.
(4)The weighted average of fair values used to record compensation expense as determined by the Monte Carlo simulation.
Our Absolute Share Price metric is compared against total return targets to determine the payout as follows:
Payout as a Percent of Target
2021 Total Return Targets(1)
2020 Total Return Targets(1)
2019 Total Return Targets(1)
200%
$33.00 and above
$45.00 and above
$40.00 and above
100%$30.00 $40.00 $35.00 
50%$27.00 $37.00 $30.00 
0%
Below $27.00
Below $37.00
Below $30.00

Our 2018 TSR metric compared to the peer group TSR will determine the payout as follows:
Payout as a Percent of Target
Percentile(1)
200%80th and above
100%50th
35%25th
0%Below 25th
____________
(1)For performance between the levels described above, the degree of vesting is interpolated on a linear basis.
Compensation expense for the market-based component of the PSU awards is recognized on a straight-line basis over the vesting period based on the fair value determined by the Monte Carlo simulation and, except in cases of employee forfeiture, cannot be reversed regardless of performance. There was no impact to compensation expense as a result of the Xerox Corporation Board’s approval to modify the 2018 TSR metric to a one-year performance period (2018) and a two-year time-based requirement (2019 and 2020).
Stock Options
The Xerox Corporation Board approved the granting of SOs as part of the 2018 plan design. Compensation expense associated with SOs is based upon the grant date fair value determined by utilizing the Black-Scholes (BS) option-pricing model and is recognized on a straight-line basis over the vesting period, based on management's estimate of the number of SOs expected to vest. The 2018 SOs have a contractual term of 10 years from the date of grant and vest as follows: 25% after one year of service, 25% after two years of service, and 50% after three years of service from the date of grant.
Xerox Holdings weighted average assumptions used in the BS option-pricing model relative to SO awards were as follows:
2018 Award
Expected term(1)
6.13 years
Expected volatility(2)
27.25 %
Expected dividend yield(3)
3.25 %
Risk-free interest rate(4)
2.63 %
Weighted average fair value(5)
$5.71
____________
(1)Since these SO grants were effectively part of a new program, the expected term was calculated using the "Simplified Method” under the SEC guidance based on the SOs vesting schedule and contractual term. We did not have sufficient historical exercise data to provide a reasonable basis to estimate an expected term.
(2)The expected volatility was calculated based on a combination of term-matched historical volatility and implied volatility from traded options.
(3)The dividend yield was calculated as the expected quarterly dividend divided by our three-month average stock price as of the grant date.
(4)The risk-free interest rate was based on the zero-coupon U.S. Treasury yield curve with a maturity matched to the expected term of the SOs.
(5)The weighted average of fair values used to record compensation expense as determined by the BS option-pricing model.
Note: Management’s estimate of the number of shares expected to vest at the time of grant reflects an estimate for forfeitures based on our historical forfeiture rate to date. Should actual forfeitures differ from management’s estimate, the activity will be reflected in a subsequent period. In addition, RSUs, PSUs and SOs awarded to employees who are retirement-eligible at the date of grant, become retirement-eligible during the vesting period, or are terminated not-for-cause (e.g. as part of a restructuring initiative), vest based on service provided from the date of grant to the date of separation.
Summary of Stock-based Compensation Activity
 202120202019
SharesWeighted Average Grant Date Fair ValueShares
Weighted Average Grant Date Fair Value(1)
Shares
Weighted Average Grant Date Fair Value(1)
Restricted Stock Units (2)
Outstanding at January 13,187 $26.48 2,845 $26.87 3,559 $29.51 
Granted1,513 23.37 2,028 27.85 1,366 23.22 
Vested(1,327)26.07 (1,473)28.85 (1,666)29.28 
Forfeited(212)25.06 (213)28.39 (414)27.85 
Outstanding at December 313,161 25.26 3,187 26.48 2,845 26.87 
Performance Shares
Outstanding at January 12,425 $26.67 2,830 $24.99 2,462 $29.83 
Granted(3)
1,195 24.67 901 37.59 1,433 19.46 
Vested(672)28.08 (993)31.94 (633)29.56 
Forfeited/Expired(130)26.92 (313)26.22 (432)27.50 
Outstanding at December 312,818 25.47 2,425 26.67 2,830 24.99 
Stock Options
Outstanding at January 1799 $27.81 861 $27.83 1,022 $27.84 
Granted— — — — — — 
Forfeited/Expired(187)27.97 (60)27.98 (92)27.92 
Exercised— — (2)27.98 (69)27.98 
Outstanding at December 31612 27.77 799 27.81 861 27.83 
Exercisable at December 31612 27.77 470 27.84 233 27.83 
____________
(1)Weighted average exercise price for stock options.
(2)Includes a 2018 Restricted Stock Award (RSA) grant of 351 shares with a corresponding grant date fair value of $28.51, which vested in 2019.
(3)Includes 60 shares associated with the over-performance of our 2018 PSU grant.
Unrecognized compensation cost related to non-vested stock-based awards at December 31, 2021 was as follows:
AwardsUnrecognized CompensationRemaining Weighted-Average Vesting Period (Years)
Restricted Stock Units$40 1.47
Performance Shares13 1.7
Total$53 

The aggregate intrinsic value of outstanding stock-based awards was as follows:
AwardsDecember 31, 2021
Restricted Stock Units$72 
Performance Shares64 
Stock Options(1)
— 
____________
(1)Strike price greater than Xerox Holdings Corporation Stock price at December 31, 2021, therefore, intrinsic value is considered to be $0.
The intrinsic value and actual tax benefit realized for all vested and exercised stock-based awards was as follows:
 December 31, 2021December 31, 2020December 31, 2019
AwardsTotal Intrinsic ValueCash ReceivedTax BenefitTotal Intrinsic ValueCash ReceivedTax Benefit
Total Intrinsic Value(1)
Cash ReceivedTax Benefit
Restricted Stock Units$30 $— $5 $33 $— $5 $55 $— $11 
Performance Share Units17 — 2 18 — 4 23 — 6 
Stock Options— — — — — — 1 2 — 
____________
(1)RSUs include a RSA grant of 351 shares, which vested in 2019.