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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
(shares in thousands, unless otherwise noted)
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, 2022 and 2021, 9 million and 8 million shares, respectively, were available for grant of awards.
Stock-based compensation expense was as follows:
Year Ended December 31,
202220212020
Stock-based compensation expense, pre-tax(1)
$75 $54 $42 
Income tax benefit recognized in earnings11 13 11 
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(1)2022 includes $21 associated with the accelerated vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO.
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. RSUs vest on a graded schedule from the date of grant as follows:
Award Year
Years of Service(1)
20222021202020192018
Prior to 2018
Year 133 %33 %25 %25 %25 %— %
Year 233 %33 %25 %25 %25 %— %
Year 334 %34 %50 %50 %50 %100 %
100 %100 %100 %100 %100 %100 %
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(1)RSUs vest on a graded schedule over a three-year service period from the date of grant.
Performance Share Units
PSU awards are comprised of performance-based components (Earnings per share, Revenue and Free cash flow) as well as a market-based component (Absolute Share Price). Accordingly, each PSU grant is one-half performance-based and one-half market-based. The metrics and weightings are as follows:
Award Year (Metric Weighting)
Performance Metric202220212020
Earnings per share50 %— %— %
Revenue— %25 %25 %
Free cash flow— %25 %25 %
Absolute share price50 %50 %50 %
100 %100 %100 %
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. All PSUs granted 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 were adversely affected permanently by the impacts from 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: This PSU component vests contingent upon meeting pre-determined cumulative performance metrics. The fair value of this PSU component is based upon the grant-date market price for the underlying stock. 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 2022, 2021 and 2020 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.
A summary of Xerox Holdings key valuation input assumptions used in the Monte Carlo simulation relative to awards granted were as follows:
2022 Award2021 Award2020 Award2019 Award
Term3 years3 years3 years3 years
Risk-free interest rate(1)
1.09 %0.20 %1.60 %2.51 %
Dividend yield(2)
4.87 %4.66 %2.80 %3.97 %
Volatility(3)
42.07 %44.76 %29.49 %32.95 %
Weighted average fair value(4)
$27.89 $25.80 $41.28 $16.27 
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(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
2022 Total Return Targets(1)
2021 Total Return Targets(1)
2020 Total Return Targets(1)
2019 Total Return Targets(1)
200%
$30.00 and above
$33.00 and above
$45.00 and above
$40.00 and above
100%$25.00 $30.00 $40.00 $35.00 
50%$20.00 $27.00 $37.00 $30.00 
0%
Below $20.00
Below $27.00
Below $37.00
Below $30.00
____________
(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.
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 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 compensation expense associated with our 2018 SO grants was fully recognized by April 2021 when these options fully vested. The 2018 SOs have a contractual term of 10 years from the April 2018 date of grant.
Stock Options – CareAR Holdings, LLC
In September 2021, Xerox Holdings Corporation announced the formation of CareAR Holdings, which consolidates CareAR, Inc., DocuShare® and XMPie under a single holding company named CareAR Holdings (CareAR).
In March 2022, the CareAR Holdings, LLC Board approved the CareAR 2022 Equity Compensation Plan (the Plan) and authorized the issuance of 105 SOs to certain executives and employees of Xerox and CareAR. Compensation expense of $30 associated with 90 SOs currently awarded under the Plan is based upon the grant-date fair value, as determined by utilizing a Black-Scholes option-pricing model and is expected to be recorded on a straight-line basis over 4.7 years, based on the vesting period and management’s estimate of the number of SOs expected to vest. SOs vest on an annual, graduated schedule beginning January 2023 through January 2027 as follows: 10% in January 2023 and 2024, respectively, 20% in January 2025 and 2026, respectively, and 40% in January 2027 based upon continued service. Options granted under the Plan are subject to terms and conditions as determined by the CareAR Board and become vested and exercisable at any time subsequent to the scheduled vesting dates and may expire 90 days or one year from employee termination, depending on cause, but in no event later than 10 years from the May 2022 grant date. The terms of the awards also include certain provisions that allow for the immediate vesting in the event of a sale of the entity.
Note: With respect to all stock-based compensation programs, 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
 202220212020
SharesWeighted Average Grant Date Fair ValueSharesWeighted Average Grant Date Fair ValueShares
Weighted Average Grant Date Fair Value(1)
Restricted Stock Units
Outstanding at January 13,161 $25.26 3,187 $26.48 2,845 $26.87 
Granted2,444 21.75 1,513 23.37 2,028 27.85 
Vested(2)
(1,975)24.56 (1,327)26.07 (1,473)28.85 
Forfeited(409)24.20 (212)25.06 (213)28.39 
Outstanding at December 313,221 23.16 3,161 25.26 3,187 26.48 
Performance Shares
Outstanding at January 12,818 $25.47 2,425 $26.67 2,830 $24.99 
Granted(3)
977 25.72 1,195 24.67 901 37.59 
Vested (2)
(644)27.95 (672)28.08 (993)31.94 
Forfeited/Expired (4)
(1,422)20.98 (130)26.92 (313)26.22 
Outstanding at December 311,729 28.38 2,818 25.47 2,425 26.67 
Stock Options(5)
Outstanding at January 1612 $27.77 799 $27.81 861 $27.83 
Granted— — — — — — 
Forfeited/Expired(116)27.95 (187)27.97 (60)27.98 
Exercised— — — — (2)27.98 
Outstanding at December 31496 27.72 612 27.77 799 27.81 
Exercisable at December 31496 27.72 612 27.77 470 27.84 
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(1)Weighted average exercise price for stock options.
(2)2022 includes approximately 469 RSUs and 644 PSUs associated with the accelerated vesting of all outstanding equity awards, according to the terms of the award agreement, in connection with the passing of Xerox Holding's former CEO. No other PSUs vested in 2022.
(3)2021 includes 60 shares associated with the over-performance of our 2018 PSU grant.
(4)2022 includes approximately 1,125 PSUs granted in 2019 that were adversely affected permanently by the impacts from the COVID-19 pandemic, and therefore no shares were earned.
(5)Activity excludes the CareAR SO program, for which the number of options outstanding have not changed since the May 2022 grant date.
Unrecognized compensation cost related to non-vested stock-based awards at December 31, 2022 was as follows:
AwardsUnrecognized CompensationRemaining Weighted-Average Vesting Period (Years)
Restricted Stock Units$36 1.8
Performance Shares12 1.8
Stock Options(1)
24 4.3
Total$72 
____________
(1)Reflects CareAR SOs granted in May 2022.
The aggregate intrinsic value of outstanding stock-based awards was as follows:
AwardsDecember 31, 2022
Restricted Stock Units$47 
Performance Shares25 
Stock Options(1)
— 
____________
(1)Strike price greater than Xerox Holdings Corporation Stock price at December 31, 2022, 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, 2022December 31, 2021December 31, 2020
AwardsTotal Intrinsic ValueCash ReceivedTax BenefitTotal Intrinsic ValueCash ReceivedTax BenefitTotal Intrinsic ValueCash ReceivedTax Benefit
Restricted Stock Units$39 $— $6 $30 $— $5 $33 $— $5 
Performance Share Units10 — — 17 — 2 18 — 4 
Stock Options— — — — — — — — —