Stock Based Compensation and Other Incentive Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Share-based Payment and Other Incentive Payment Arrangements [Text Block]

8. STOCK-BASED COMPENSATION AND OTHER INCENTIVE COMPENSATION

STOCK-BASED COMPENSATION

At December 31, 2021, we had stock-based awards outstanding under stock compensation plans approved by our stockholders. Under these plans, shares have been authorized for issuance to our directors, officers and certain other associates in the form of unvested restricted stock units, performance shares or other awards that are based on the value of our common stock. Shares available for future grants at December 31, 2021 were 7.2 million. The current stock plan will expire in May 2028.

RESTRICTED STOCK UNITS We have awarded restricted stock units (RSUs). Compensation expense associated with RSUs settled in stock is recorded to paid-in-capital ratably over the three-year vesting period.

The following table summarizes activity relating to our RSUs:


		Weighted-Average
	Number of	Grant Date Fair
	Shares/Units	Value per Share/Unit
	(in millions, except per share data)
Outstanding at January 1, 2019	3.5	$	16.00
Granted	1.0	15.78
Vested	(0.7)	15.53
Canceled	(0.7)	16.05
Outstanding at December 31, 2019	3.1	$	16.03
Granted	3.2	5.08
Vested	(0.8)	18.22
Canceled	(0.6)	10.33
Outstanding at December 31, 2020	4.9	$	9.20
Granted	0.9	10.29
Vested	(1.0)	13.65
Canceled	(0.4)	8.40
Outstanding at December 31, 2021	4.4	$	8.43

As of December 31, 2021, unrecognized compensation cost related to unvested RSUs totaled $11.1 million. The weighted average period over which this cost is expected to be recognized is approximately two years. In 2021 and 2020, the total fair market value of RSUs vested was $10.6 million and $5.0 million, respectively.

PERFORMANCE SHARES As of December 31, 2021, we have performance shares (PS) outstanding under our 2018 Omnibus Incentive Plan. We grant performance shares payable in stock to officers which vest in full over a three-year performance period. In 2021, these grants were based on AAM's free cash flow in each of the three years of the performance period, as well as the cumulative free cash flow over the same period, adjusted based on a total shareholder return (TSR) measure. In 2020, these grants were based on AAM's three-year cumulative free cash flow, adjusted based on a TSR measure, and in 2019 these grants were based on a TSR measure. The TSR metric compares our TSR over the three-year performance period relative to the TSR of our pre-defined competitor peer group. Based on these free cash flow and relative TSR performance metrics, the number of performance shares that become exercisable will be between 0% and 230% of the grant date amount. Share price appreciation and dividends paid are measured over the performance period to determine TSR. As these awards are settled in stock, the compensation expense is recorded ratably over the vesting period to paid-in-capital.

The following table summarizes activity relating to our performance shares:


		Weighted Average
	Number of	Grant Date Fair
	Shares	Value per Share
TSR Awards	(in millions, except per share data)
Outstanding at January 1, 2019	0.8	$	16.25
Granted	0.3	24.36
Vested	(0.2)	17.54
Canceled	(0.1)	20.49
Outstanding at December 31, 2019	0.8	$	20.13
Granted	—	—
Vested	(0.2)	24.63
Canceled	—	—
Outstanding at December 31, 2020	0.6	$	18.86
Granted	—	—
Vested	(0.3)	13.91
Canceled	—	—
Outstanding at December 31, 2021	0.3	$	24.36

Free Cash Flow Awards
Outstanding at January 1, 2019	0.3	$	14.28
Granted	—	—
Vested	—	—
Canceled	—	—
Outstanding at December 31, 2019	0.3	$	14.28
Granted	0.9	5.18
Vested	—	—
Canceled	—	—
Outstanding at December 31, 2020	1.2	$	7.50
Granted	0.4	11.26
Vested	(0.3)	14.28
Canceled	(0.1)	6.96
Outstanding at December 31, 2021	1.2	$	6.96

We estimate the fair value of our TSR performance shares on the date of grant using the Monte Carlo simulation approach. The Monte Carlo simulation approach utilizes inputs on volatility assumptions, risk free rates, the price of the Company’s and our competitor peer group's common stock and their correlation as of each valuation date. Volatility assumptions are based on historical and implied volatility measurements. We estimate the fair value of our free cash flow performance shares on the date of grant using our estimated three-year cumulative free cash flow, based on AAM's budget and long-range plan assumptions at the time, and adjust quarterly as necessary.

Based on the current fair value, the estimated unrecognized compensation cost related to unvested PS totaled $7.7 million, as of December 31, 2021. The weighted-average period over which this cost is expected to be recognized is approximately two years.

OTHER INCENTIVE COMPENSATION

LONG-TERM CASH AWARDS As of December 31, 2021, we have long-term cash awards (LTCAs) outstanding under our 2018 Omnibus Incentive Plan. The $7.8 million of LTCAs granted during 2021 are payable in cash to certain associates which vest in full over a three-year period. Compensation expense associated with LTCAs paid in cash is recorded ratably over the three-year vesting period. As of December 31, 2021, unrecognized compensation cost related to unvested LTCAs totaled $5.4 million. The weighted average period over which this cost is expected to be recognized is approximately two years.

PERFORMANCE UNITS As of December 31, 2021, we have performance units (PUs) outstanding under our 2018 Omnibus Incentive Plan. We grant PUs payable in cash to officers and certain other associates which vest in full over a three-year performance period and are based primarily on AAM's three-year cumulative free cash flow. The $11.7 million, $13.6 million and $14.2 million of PUs granted during 2021, 2020 and 2019, respectively, are payable for officers between 0% and 230% of the grant date amount, and for other associates between 0% and 150% of the grant date amount, using our cumulative free cash flow performance metric. Based on the current fair value, the estimated unrecognized compensation cost related to unvested PUs totaled $17.4 million, as of December 31, 2021. The weighted-average period over which this cost is expected to be recognized is approximately two years.