Stock-Based Compensation |
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Stock-Based Compensation | 13. Stock-Based Compensation In 2021, the Company established the 2021 Omnibus Incentive Plan (the “2021 Incentive Plan”). The 2021 Incentive Plan authorizes the issuance of up to 11.6 million shares of common stock as awards. Under the 2021 Incentive Plan, directors, officers and employees may be granted various types of stock-based compensation awards. These awards include stock options, restricted stock awards, RSUs, PSUs and cash incentive awards. As of December 31, 2023, 7.5 million shares of common stock were available for the grant under the 2021 Incentive Plan. Before the Separation, the stock-based compensation expense recorded by the Company included the expense associated with the employees historically attributable to the Company’s operations, as well as the expense associated with the allocation of equity-based compensation expense for corporate employees. The amounts do not necessarily reflect the costs that the Company would have incurred as an independent company in 2021. The following table summarizes stock-based compensation expense recorded in Selling, general and administrative expense in the Consolidated Statements of Income:
Stock Options The Company’s stock options vest over five years after the grant date and have a ten-year contractual term with an exercise price equal to the stock price on the grant date. The Black-Scholes option-pricing model was used to estimate the fair value of these awards. The Black-Scholes option-pricing model incorporates various subjective assumptions, including expected terms and expected volatility. Assumptions used in the Black-Scholes option-pricing model for the estimated fair value of options granted in 2021 were as follows: weighted-average risk-free rate of interest of 1.2%, expected volatility of 30%, weighted-average expected award life of 7 years and weighted-average fair value of $22.66. A summary of stock option award activity for the year ended December 31, 2023, is presented in the following table:
There was no intrinsic value for options outstanding and exercisable at December 31, 2023. As of December 31, 2023, unrecognized compensation cost related to options of $12 million is anticipated to be recognized over a weighted-average period of approximately 2 years. Restricted Stock Units and Performance-Based Units The Company grants RSUs and PSUs to its key employees, officers and directors with various vesting requirements. The holders of the RSUs and PSUs do not have the rights of a stockholder and do not have voting rights until the shares are issued and delivered in settlement of the awards. RSUs generally vest over the service period, typically four years, and PSUs generally vest based on achieving certain predefined performance objectives along with service conditions. For PSUs the number of shares may be increased to the maximum or reduced to the minimum threshold based on the results of these performance metrics in accordance with the terms established at the time of the award. The Company granted a portion of PSUs subject to market-based vesting conditions. The Company determines the fair value of PSUs subject to market-based vesting conditions using a Monte Carlo simulation model that incorporates the probability of the performance conditions being met as of the grant date. Assumptions used in the Monte Carlo simulation model for the estimated fair value were as follows:
(1) There were no PSUs issued by the Company in 2021. A summary of RSU and PSU award activity for the year ended December 31, 2023, is presented in the following table:
(1) The number of RSUs and PSUs vested includes common stock shares that the Company withheld on behalf of its employees to satisfy the minimum tax withholding. The total fair value of RSUs that vested during 2023 and 2022 was $22 million and $30 million, respectively. The total fair value of PSUs that vested during 2023 and 2022 was $7 million and $5 million, respectively. As of December 31, 2023, unrecognized compensation cost related to RSUs and PSUs of $60 million is anticipated to be recognized over a weighted-average period of approximately 3 years.
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