Share-based Compensation

12 Months Ended

Dec. 31, 2019

Share-based Payment Arrangement [Abstract]

Share-based compensation expense consisted of the following:


	Year Ended December 31,
	2019		2018		2017
Restricted shares and restricted share units	$	32	$	21	$	30
Options	—		—		—
T-Bucks Employee Participation Plan	—		—		1
Total share-based compensation expense (continuing operations)⁽¹⁾	$	32	$	21	$	31

_________________

(1)2017 excludes $2 million relating to discontinued operations. See Note 6.

Tronox Holdings plc Amended and Restated Management Equity Incentive Plan

On March 27, 2019, in connection with the Re-domicile Transaction, Tronox Holdings plc assumed the management equity incentive plan previously adopted by Tronox Limited, which plan was renamed the Tronox Holdings plc Amended and Restated Management Equity Incentive Plan. The amendments to the plan were made to provide, among other things, for the appropriate substitution of Tronox Holdings in place of Tronox Limited and to ensure the compliance with the laws of England and Wales law in place of Australian law. The MEIP permits the grant of awards that are comprised of incentive options, nonqualified options, share appreciation rights, restricted shares, restricted share units, performance awards, and other share-based awards, cash payments, and other forms as the compensation committee of the Board of Directors (the “Board”) in its discretion deems appropriate, including any combination of the above. Subject to further adjustment, as of December 31, 2019, the maximum number of shares which may be the subject of awards (inclusive of incentive options) is 20,781,225 ordinary shares.

Restricted Shares

We did not grant any restricted shares during 2019. Restricted shares issued under the MEIP contain non-forfeitable dividend rights. The following table presents a summary of activity for 2019:


	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding, Outstanding, January 1, 2019	81,456	$	3.57
Vested	(81,456)	3.57
Outstanding, December 31, 2019	—	$	—
Expected to vest, December 31, 2019	—	$	—

At December 31, 2019, the restricted shares were fully vested. The total fair value of restricted shares that vested during both 2019 and 2018 was less than $1 million and $1 million for 2017.

Restricted Share Units (“RSUs”)

During 2017, a total of 1,397,471 RSUs were granted, pursuant to an Integration Incentive Award program (“Integration Incentive Award”) established in connection with the Cristal Transaction, to certain executive officers and managers with significant integration accountability. In addition, during the second quarter of 2018, an additional 139,225 RSUs were granted under the Integration Incentive Award. These RSUs would have vested two years from the date of the close of the Cristal Transaction and the number of shares that would have been issued to grantees would have been based upon the achievement of established performance conditions. Under the original terms of the Integration Incentive Award, if the Cristal Transaction did not close by July 1, 2018, all unvested awards pursuant to the Integration Incentive Award would immediately be canceled and forfeited.

During the second quarter of 2018, terms of the Integration Incentive Award were modified to eliminate the requirement that the Cristal Transaction must close by July 1, 2018. We accounted for this modification as a Type III modification since, at the modification date, the expectation of the award vesting changed from improbable to probable. As a result, we reversed approximately $6 million of previously recorded expense related to the Integration Incentive Award. The issued and unvested RSUs under the Integration Incentive Award were revalued based on the closing price of the Company’s stock on the modification date and will vest two years from the date the Cristal Transaction closed and based upon the achievement of established performance conditions. As a result, the estimated expense associated with the revalued award is being expensed over the period from the modification date through two years from the date that the Cristal Transaction closed.

During the third and fourth quarter of 2018, an additional 90,161 and 40,161 RSUs, respectively, were granted under the modified terms of the Integration Incentive Award, and during the third and fourth quarter of 2019, 65,387 and 16,750 additional RSUs were granted, respectively. All the integration awards discussed above will vest on April 10, 2021 if performance conditions are met.

In addition to the Integration Incentive Award, during 2019, we granted RSUs which have time and/or performance conditions. Both the time-based awards and the performance-based awards are classified as equity awards.

2019 RSU Grant-For the time-based awards valued at the weighted average grant date fair value, 195,178 RSUs were granted to Board members and vest a ratably over approximate one-year period, 1,311,677 RSUs were granted to management and vest ratably over a twenty-eight to thirty-seven month period ending March 5, 2022, and 3,528 RSUs were granted to certain Board members in lieu of cash fees earned and vested immediately. For the performance based awards, 1,307,927 RSUs were granted to management and cliff vest at the end of thirty-three to thirty-seven month period ending March 5, 2022. Vesting of the performance-based awards is based on a relative Total Shareholder Return (“TSR”) calculation compared to a peer group performance over the applicable three-year measurement period. The Company’s three-year TSR versus the peer group performance levels determines the payout percentage. The TSR metric is considered a market condition for which we use a Monte Carlo simulation to determine the grant date fair value of $12.65. The 2016 performance RSUs vested above target in 2019 and resulted in 687,485 RSUs additional shares being granted and vested immediately.

Similar TSR awards were granted during 2018 and 2017 with grant date fair values of $20.80 and $20.68, respectively, which were calculated utilizing a Monte Carlo simulation. The following weighted-average assumptions were utilized to value the grants in 2019, 2018 and 2017:


	2019		2018		2017
Dividend yield	N/A		N/A		1.37	%
Expected historical volatility	67.20	%	80.40	%	74.40	%
Risk free interest rate	2.50	%	2.32	%	1.51	%
Expected life (in years)	3		3		3

The following table presents a summary of activity for RSUs for 2019:


	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding, Outstanding, January 1, 2019	5,336,433	$	12.92
Granted	3,587,932	10.81
Vested	(3,266,534)	6.13
Forfeited	(100,172)	13.81
Outstanding, December 31, 2019	5,557,659	$	15.19
Expected to vest, December 31, 2019	5,469,633	$	15.57

At December 31, 2019, there was $40 million of unrecognized compensation expense related to nonvested RSUs, adjusted for estimated forfeitures, which is expected to be recognized over a weighted-average period of 2.0 years. The weighted-average grant-date fair value of RSUs granted during 2019, 2018 and 2017 was $10.81 per unit, $19.23, and $17.55 per unit, respectively. The total fair value of RSUs that vested during 2019, 2018 and 2017 was $20 million, $17 million and $23 million, respectively.

Options

The fair value of options granted is determined on the grant date using the Black-Scholes option-pricing model and is recognized in earnings on a straight-line basis over the employee service period of three years, which is the vesting period. The assumptions used in the Black-Scholes option-pricing model on the grant date are based on (i) a fair value using the closing price of our Ordinary Shares on the grant date, (ii) a risk-free interest rate based on U.S. Treasury Strips available with a maturity period consistent with the expected life assumption, (iii) an expected volatility assumption based on historical price movements of our peer group, and (iv) a dividend yield determined based on the Company’s expected dividend payouts. We did not issue any options during 2019 and 2018 and all our options outstanding are fully vested at December 31, 2019.

The following table presents a summary of option activity for 2019:


	Number of Options	Weighted Average Exercise Price		Weighted Average Contractual Life (years)	Intrinsic Value
Outstanding, January 1, 2019	1,319,743	$	21.53	4.16	$	—
Exercised	—	—
Forfeited	—	—
Expired	(58,841)	21.34
Outstanding and Exercisable, December 31, 2019	1,260,902	$	21.54	3.18	$	—

The aggregate intrinsic values in the table represent the total pre-tax intrinsic value (the difference between our share price at the indicated dates and the options’ exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their in-the-money options at the end of the year. The amount will change based on the fair market value of our stock. There were no options exercised during 2019 and consequently there was no related intrinsic value. Total intrinsic value of options exercised during 2018 and 2017 was less than $1 million and $1 million, respectively. We issue new shares upon the exercise of options. During 2018, we received $4 million, in cash for the exercise of stock options. At both December 31, 2019 and 2018, there was no unrecognized compensation expense related to options.