Murphy utilizes cash-based and/or share-based incentive awards to supplement normal salaries as compensation for executive management and certain employees. For share-based awards that qualify for equity accounting, costs are recognized as an expense in the Consolidated Statements of Operations using a grant date fair value-based measurement method over the periods that the awards vest. For share-based awards that settle in cash that are required to be accounted for under liability accounting rules, costs are recognized as expense using a fair value-based measurement method over the vesting period, but expense is adjusted as necessary through the date the award value is finally determined. Total expense for liability awards is ultimately adjusted to the final intrinsic value for the award.

The Company currently has outstanding incentive awards issued to certain employees under the Annual Incentive Plan (AIP), the 2012 Long-Term Incentive Plan (2012 Long-Term Plan), the 2018 Long-Term Incentive Plan (2018 Long-Term Plan) and the 2020 Long-Term Incentive Plan (2020 Long-Term Plan).

The AIP authorizes the Compensation Committee (the Committee) to establish specific performance goals associated with annual cash awards that may be earned by officers, executives and certain other employees. Cash awards under the AIP are determined based on the Company’s actual financial and operating results as measured against the performance goals established by the Committee.

The 2020 Long-Term Plan authorizes the Committee to make grants of the Company’s common stock to employees. These grants may be in the form of stock options (nonqualified or incentive), SARs, restricted stock, restricted stock units (RSUs), performance units, performance shares, dividend equivalents and other stock-based incentives. The 2020 Long-Term Plan expires in 2030. A total of 5 million shares are issuable during the

life of the 2020 Long-Term Plan. Shares issued pursuant to awards granted under this Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market. Share awards that have been canceled, expired, forfeited or otherwise not issued under an award shall not count as shares issued under this Plan. Based on awards made to date, 2.9 million shares are available for grant under the 2020 Long-Term Plan at December 31, 2022.

The Stock Plan for Non-Employee Directors (2021 NED Plan) permits the issuance of restricted stock, restricted stock units and stock options or a combination thereof to the Company’s Non-Employee Directors. The Company currently has outstanding incentive awards issued to Directors under the 2021 NED Plan and the 2018 Stock Plan for Non-Employee Directors (2018 NED Plan).

As of December 31, 2022, there were $51.8 million in compensation costs to be expensed over approximately the next three years related to unvested share-based compensation arrangements granted by the Company. Employees receive net shares, after applicable withholding obligations, upon each stock option exercise and restricted stock award. Total income tax benefits realized from tax deductions related to stock option exercises under share-based payment arrangements were immaterial for the years ended December 31, 2022, 2021 and 2020.

PERFORMANCE-BASED RESTRICTED STOCK UNITS – Performance-based restricted stock units (PSUs) to be settled in Common shares were granted in 2021 and 2022 under the 2020 Long-Term Plan and 2020 under the 2018 Long-Term Plan. Each grant will vest if the Company achieves specific performance objectives at the end of the designated performance period. Additional shares may be awarded if performance objectives are exceeded. If performance goals are not met, PSUs will not vest, but the recognized compensation cost associated with the stock award would not be reversed. For PSUs, the performance conditions are based on the Company’s total shareholder return (80% weighting), compared to an industry peer group of companies, and the EBITDA divided by Average Capital Employed (ACE) metric (20% weighting) for PSU awards, over the performance period. During the performance period, PSUs are subject to transfer restrictions and are subject to forfeiture if a grantee terminates for reasons other than retirement, disability or death. Termination for these three reasons will lead to a pro rata award of amounts earned. No dividends are paid nor do voting rights exist on awards of PSUs prior to their settlement.


(Number of stock units)	2022	2021	2020
Outstanding at beginning of year	2,670,756	2,207,429	2,129,733
Granted	595,700	1,156,800	999,700
Vested and issued	(654,177)	(642,473)	(429,194)
Forfeited	(463,812)	(51,000)	(492,810)
Outstanding at end of year	2,148,467	2,670,756	2,207,429

The fair value of the equity-settled performance-based awards granted in each year was estimated on the date of grant using a Monte Carlo valuation model. Expected volatility was based on daily historical volatility of the Company’s stock price compared to a peer group average over a three-year period. The risk-free interest rate is based on the yield curve of three-year U.S. Treasury bonds and the stock beta was calculated using three years of historical averages of daily stock data for Murphy and the peer group. The assumptions used in the valuation of the performance awards granted in 2022, 2021 and 2020 are presented in the following table.


	2022	2021	2020
Fair value per share at grant date	$37.77 - $47.37	$16.03	$21.51
Assumptions
Expected volatility	79.00% - 81.00%	74.00%	39.00%
Risk-free interest rate	1.39% - 2.85%	0.18%	1.40%
Stock beta	1.195 - 1.200	1.169	0.864
Expected life	3.0 years	3.0 years	3.0 years

TIME-BASED RESTRICTED STOCK UNITS – Time-based RSUs have been granted to the Company’s Non-Employee Directors (NED) under the 2018 NED Plan and 2021 NED Plan and to certain employees under the 2012 Long-Term Plan, 2018 Long-Term Plan and 2020 Long-Term Plan.


(Number of share units)	2022	2021	2020
Outstanding at beginning of year	1,451,438	1,383,043	1,535,080
Granted	416,492	573,907	446,848
Vested and issued	(462,418)	(476,012)	(271,285)
Forfeited	(177,720)	(29,500)	(327,600)
Outstanding at end of year	1,227,792	1,451,438	1,383,043

Prior to 2017, the Committee fixed the option price of each option granted at no less than fair market value (FMV) on the date of the grant and fixed the option term at no more than seven years from such date. Each option granted to date under the 2012 Long-Term Plan has been nonqualified, with a term of seven years and an option price equal to FMV at date of grant. Under these plans, one-half of each grant is generally exercisable after two years and the remainder after three years. For stock options, the number of shares issued upon exercise is reduced for settlement of applicable statutory income tax withholdings owed by the grantee.

The fair value of each option award was estimated on the date of grant using the Black-Scholes pricing model based on the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock and implied volatility on publicly traded at-the-money options on the Company’s stock. The Company estimates the expected term of the options granted based on historical option exercise patterns and considers certain groups of employees exhibiting different behavior. The risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.


	Number of Shares	Average Exercise Price
Outstanding at December 31, 2019	2,920,410	43.93
Outstanding at Exercised	(47,000)	17.57
Outstanding at Forfeited	(825,010)	54.85
Outstanding at December 31, 2020	2,048,400	40.14

Exercised	(170,000)	17.57
Forfeited	(558,900)	52.61
Outstanding at December 31, 2021	1,319,500	37.77

Exercised	(760,500)	23.29
Forfeited	(546,000)	49.65
Outstanding at December 31, 2022	13,000	28.51
Exercisable at December 31, 2019	3,182,345	49.10
Exercisable at December 31, 2020	2,048,400	37.88
Exercisable at December 31, 2021	1,319,500	34.25
Exercisable at December 31, 2022	13,000	28.51


	Options Outstanding				Options Exercisable
Exercisable Price	No. of Options	Avg. Life Remaining in Years	Aggregate Intrinsic Value		No. of Options	Avg. Life Remaining in Years	Aggregate Intrinsic Value
28.51	13,000	1.1	$	188,565	13,000	1.1	$	188,565

The total intrinsic value of options exercised during 2022 was $10.9 million. Intrinsic value is the excess of the market price of stock at date of exercise over the exercise price received by the Company upon exercise. Aggregate intrinsic value is nil when the exercise price of the stock option exceeds the market price of the Company’s common stock.

SAR awards have terms similar to stock options. CPSU terms are similar to other performance-based restricted stock awards. CRSUs generally settle on the third anniversary of the date of grant. Phantom units generally settle three to five years from date of grant. Each award granted is settled, net of applicable income tax withholdings, in cash rather than with common shares. Total pre-tax expense recorded in the Consolidated Statements of Operations for all cash-settled stock-based awards was $49.3 million in 2022, $18.2 million in 2021 and $1.5 million in 2020.

The Committee also administers the Company’s incentive compensation plans, which provide for annual or periodic cash awards to officers, directors and certain other employees. These cash awards are generally determinable based on the Company achieving specific financial and/or operational objectives. Compensation expense of $42.9 million, $29.0 million and $9.8 million was recorded in 2022, 2021 and 2020, respectively, for these plans.