SHARE-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

The following table provides information on share-based compensation expense and related income tax benefits recognized:


	Years ended December 31,
	2020		2019		2018
	(In thousands)
Unvested stock awards	$	25,509	$	19,253	$	17,249
Stock option and employee stock purchase plans	4,484		6,575		7,703
Share-based compensation expense	29,993		25,828		24,952
Income tax benefit	(4,728)		(4,667)		(4,615)
Share-based compensation expense, net of tax	$	25,265	$	21,161	$	20,337

Total unrecognized pre-tax compensation expense related to share-based compensation arrangements as of December 31, 2020 was $43 million and is expected to be recognized over a weighted-average period of approximately 2.1 years. The total fair value of equity awards vested during 2020, 2019 and 2018 was $27 million, $20 million and $18 million, respectively. The total cash received from employees under all share-based employee compensation arrangements for 2020, 2019 and 2018 was $8 million, $8 million and $17 million, respectively.

Share-Based Incentive Awards

Share-based incentive awards are provided to employees under the terms of various share-based compensation plans (collectively, the Plans). The Plans are administered by the Compensation Committee of the Board of Directors. Awards under the Plans principally include at-the-money stock options and unvested stock. Unvested stock awards include grants primarily of performance-based and time-vested restricted stock rights. Under the terms of our Plans, dividends on unvested stock are not paid unless the award vests. Upon vesting, the amount of the dividends paid is equal to the aggregate dividends declared on common shares during the period from the date of grant of the award until the date the shares underlying the award are delivered. As of December 31, 2020, there are 4.3 million shares authorized for issuance under the Plans and 3.6 million shares remaining available for future issuance.

We also grant stock awards to non-executive members of the Board of Directors. Stock awards to new Board members do not vest until the director has served a minimum of one year. Prior to 2018, stock awards to Board members were delivered upon separation from the Board. Beginning in 2018, each director may elect to receive his or her stock award in the form of either (1) shares that are distributed at the time of grant or (2) restricted stock units (RSUs) which will entitle the director to receive one share of Ryder stock for each RSU granted and are distributed upon or after separation from the Board. The fair value of the awards is determined and fixed based on Ryder’s stock price on the date of grant. Share-based compensation expense is recognized for RSUs in the year the RSUs are granted. Ryder shares delivered upon grant have standard voting rights and rights to dividend payments. RSUs that are distributed upon or after separation from service on the Board are eligible for non-forfeitable dividend equivalents until distribution but such RSUs have no voting rights until they are distributed.

Restricted Stock Awards

Restricted stock awards are unvested stock rights that are granted to employees and entitle the holder to shares of common stock as the award vests. Time-vested restricted stock rights typically vest ratably over three years regardless of company performance. The fair value of the time-vested awards is determined and fixed based on Ryder’s stock price on the date of grant.

Performance-based restricted stock rights (PBRSRs) are generally granted to executive management and include a performance-based vesting condition. PBRSRs are awarded based on various revenue, return-based and cash flow performance targets and may include a total shareholder return (TSR) modifier for certain members of management. The fair values of the PBRSRs that include a TSR modifier are estimated using a lattice-based option-pricing valuation model that incorporates a Monte-Carlo simulation. The fair value of PBRSRs that do not include a TSR modifier is determined and fixed on the grant date based on our stock price on the date of grant. Share-based compensation expense for PBRSRs is recognized on a straight-line basis over the vesting period, based upon the probability that the performance target will be met.

In 2018 and 2019, PBRSRs were awarded based on the spread between return on capital (ROC) and the cost of capital (COC) (ROC/COC) and strategic revenue growth (SRG). In 2020, PBRSRs were awarded based on return of equity (ROE),

SRG and earnings before interest, taxes, depreciation and amortization (EBITDA) margin percent. These awards vest after the three-year performance period. For these awards, up to 200% of the awards based on ROC/COC, SRG and ROE, and up to 300% of the awards based on EBITDA margin percent may be earned based on three-year targets. Our TSR will be compared against the TSR of each of the companies in a custom peer group to determine our TSR percentile rank versus this custom peer group. The number of PBRSRs will then be adjusted based on this rank. As of 2017, we no longer grant market-based awards.

The following is a summary of activity for time-vested and performance-based unvested restricted stock awards as of and for the year ended December 31, 2020:


	Time-Vested			Performance-Based
	Shares	Weighted- Average Grant Date Fair Value		Shares	Weighted- Average Grant Date Fair Value
	(In thousands)			(In thousands)
Unvested stock outstanding at January 1	730	$	63.21	374	$	67.14
Granted	752	39.39		288	36.35
Vested (1)	(243)	64.43		(60)	80.43
Forfeited (2)	(44)	47.78		(74)	56.70
Unvested stock outstanding at December 31	1,195	$	48.53	528	$	32.03

_______________

(1) Includes awards attained above target.

(2) Includes awards canceled due to employee terminations or performance conditions not being achieved.

Option Awards

Stock options are awards that allow employees to purchase shares of our stock at a fixed price in the future. Stock option awards are granted at an exercise price equal to the market price of our stock at the time of grant. These awards, which generally vest one-third each year, are fully vested three years from the grant date. Stock options have contractual terms of ten years.

During 2020, we did not grant any stock option awards. As of December 31, 2020, we had options outstanding of 1.9 million with a weighted-average exercise price of $71.09 and a weighted average-remaining contractual term of 5.3 years. The number of options exercisable as of December 31, 2020 was 1.7 million. As of December 31, 2019, we had options outstanding of 2.0 million and a weighted-average exercise price of $70.92.

The aggregate intrinsic values (the difference between the close price of our stock on the last trading day of the year and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders if all options were exercised at year-end was not material as of December 31, 2020. This amount fluctuates based on the fair market value of our stock.

The fair value of each option award is estimated on the date of grant using a Black-Scholes-Merton option-pricing valuation model. We use historical data to estimate stock option forfeitures. The following table presents the weighted-average assumptions used for the valuation, which are primarily based on our historical data and trends, and the grant-date fair value of options granted:


	Years ended December 31,
	2019		2018

Expected dividends	3.7%		2.8%
Expected volatility	31.4%		29.4%
Risk-free rate	2.4%		2.7%
Expected term in years	4.4 years		4.4 years
Grant-date fair value	$	11.74	$	15.89

Employee Stock Purchase Plan

We maintain an Employee Stock Purchase Plan (ESPP) that enables eligible participants in the U.S. and Canada to purchase full or fractional shares of Ryder common stock through payroll deductions of up to 15% of eligible compensation during quarterly offering periods. The price is based on the fair market value of the stock on the last trading day of the quarter. Stock purchased under the ESPP must be held for 90 days or one year for officers. There were 7.5 million shares authorized for issuance under the existing ESPP as of December 31, 2020. There were 2.0 million shares remaining available to be purchased in the future under the ESPP as of December 31, 2020.

The following table presents the shares purchased and the related weighted-average purchase price under the ESPP:


	Years ended December 31,
	2020		2019		2018

Shares purchased	320,000		228,000		199,000
Weighted average purchase price	$	32.39	$	47.97	$	54.89