The Company's stock-based compensation plans are described below. Shares issued in satisfaction of stock-based compensation may be made available from authorized but unissued shares, shares held by the Company in treasury or from shares purchased in the open market. In 2020, 2019 and 2018, the Company issued shares from treasury in satisfaction of stock-based compensation.

Stock-based compensation expense, included in insurance operating costs and other expenses in the consolidated statement of operations, was as follows:

Stock-Based Compensation Expense


	For the years ended December 31,
	2020		2019		2018
Stock-based compensation plans expense	$	116	$	125	$	130
Income tax benefit	(20)		(21)		(27)
Excess tax benefit on awards vested, exercised and expired	(1)		(6)		(5)
Total stock-based compensation plans expense, net of tax	$	95	$	98	$	98

The Company did not capitalize any cost of stock-based compensation. As of December 31, 2020, the total compensation cost related to non-vested awards not yet recognized was $68, which is expected to be recognized over a weighted average period of 2 years.

In the second quarter of 2018, The Hartford modified the terms of the portion of its outstanding 2016 and 2017 performance share awards that are based on actual versus targeted return on equity over the performance period. The modification eliminated the benefit to return on equity that arose from the charge against earnings in 2017 driven by the effect of the lower corporate income tax rate on the carrying value of net deferred tax assets.

This modification had no impact on compensation cost recognized over the vesting period since compensation cost based on the original performance share conditions is projected to be higher than what the cost would be based on the performance share conditions as modified.

Stock Plan

Future stock-based awards may be granted under The Hartford's 2020 Stock Incentive Plan (the "Stock Incentive Plan") other than the Subsidiary Stock Plan and the Employee Stock Purchase Plan described below. The Stock Incentive Plan provides for awards to be granted in the form of non-qualified or incentive stock options qualifying under Section 422 of the Internal Revenue Code, stock appreciation rights, performance shares, restricted stock or restricted stock units, or any other form of stock-based award. The maximum number of shares, subject to adjustments set forth in the 2020 Stock Plan, that may be issued to Company employees and third-party service providers during the 10-year duration of the Stock Incentive Plan is the sum of 11,250,000 shares, any shares cancelled subsequent to February 29, 2020, plus any shares used for tax withholding purposes. If any award under an earlier incentive stock plan is forfeited, terminated, surrendered, exchanged, expires unexercised, or is settled in cash in lieu of stock (including to effect tax withholding) or for the net issuance of a lesser number of shares than the number subject to the award, the shares of stock subject to such award (or the relevant portion thereof) shall be available for awards under the Stock Incentive Plan and such shares shall be added to the maximum limit. As of December 31, 2020, there were 11,735,111 shares available for future issuance.

The fair values of awards granted under the Stock Incentive Plan are measured as of the grant date and expensed ratably over the awards’ vesting periods, generally 3 years. For stock option awards to retirement-eligible employees the Company recognizes the expense over a period shorter than the stated vesting period because the employees receive accelerated vesting upon retirement and therefore the vesting period is

considered non-substantive. Beginning with awards granted in 2017, employees with restricted stock units and performance shares receive accelerated vesting upon meeting certain retirement eligibility criteria.

Stock Option Awards

Under the Stock Incentive Plan, options granted have an exercise price at least equal to the market price of the Company’s common stock on the date of grant, and an option’s maximum term is not to exceed 10 years. Options generally become exercisable over a period of three years commencing one year from the date of grant. Certain other options become exercisable at the later of three years from the date of grant or upon specified market appreciation of the Company's common shares.

The Company uses a hybrid lattice/Monte-Carlo based option valuation model (the “Plan Valuation Model”) that incorporates the possibility of early exercise of options into the valuation. The Plan Valuation Model also incorporates the Company’s historical termination and exercise experience to determine the option value.

The Plan Valuation Model incorporates ranges of assumptions for inputs, and those ranges are disclosed below. The term structure of volatility is generally constructed utilizing implied volatilities from exchange-traded options, CPP warrants related to the Company’s stock, historical volatility of the Company’s stock and other factors. The Company uses historical data to estimate option exercise and employee termination within the Plan Valuation Model, and accommodates variations in employee preference and risk-tolerance by segregating the grantee pool into a series of behavioral cohorts and conducting a fair valuation for each cohort individually. The expected term of options granted is derived from the output of the option Plan Valuation Model and represents, in a mathematical sense, the period of time that options are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Constant Maturity Treasury yield curve in effect at the time of grant.

Stock Options Valuation Assumptions


	For the years ended December 31,
	2020				2019				2018
Expected dividend yield	2.6%				2.5%				1.8%
Expected annualized spot volatility	22.2	%	-	36.2%	20.7	%	-	36.7%	20.8	%	-	36.5%
Weighted average annualized volatility	30.9%				29.3%				29.0%
Risk-free spot rate	1.3	%	-	1.6%	2.4	%	-	2.6%	1.5	%	-	2.9%
Expected term	6.6 years				5.9 years				5.7 years

Non-qualified Stock Option Activity Under the Stock Incentive Plan


	Number of Options (in thousands)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
	For the year ended December 31, 2020
Outstanding at beginning of year	5,846	$	43.43
Granted	998	$	55.27
Exercised	(128)	$	24.15
Forfeited	(23)	$	51.27
Expired	—	$	—
Outstanding at end of year	6,693	$	45.54	5.8	$	34
Outstanding, fully vested and expected to vest	6,693	$	63.59	5.8	$	33
Exercisable at end of year	4,793	$	42.62	4.7	$	34

Aggregate intrinsic value represents the value of the Company's closing stock price on the last trading day of the period in excess of the exercise price multiplied by the number of options outstanding or exercisable. The aggregate intrinsic value excludes the effect of stock options that have a zero or negative intrinsic value. The weighted average grant-date fair value per share of options granted during the years ended December 31, 2020, 2019, and 2018 was $12.97, $11.71 and $14.04, respectively. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $2, $16, and $14, respectively.

Share Awards

Share awards granted under the Stock Incentive Plan and outstanding include restricted stock units and performance shares.

Restricted Stock and Restricted Stock Units

Restricted stock units are share equivalents that are credited with dividend equivalents. Dividend equivalents are accumulated and paid in incremental shares when the underlying units vest. Restricted stock are shares of The Hartford's common stock with

restrictions as to transferability until vested. Restricted stock units and restricted stock awards are valued equal to the market price of the Company’s common stock on the date of grant. Generally, restricted stock units vest at the end of or over three years; certain restricted stock units vest at the end of five years. Beginning in 2017, restricted stock units vest at the earlier of an employee's retirement eligibility date or three years. Equity awards granted to non-employee directors generally vest in one year and were made in the form of restricted stock units in 2020, 2019 and 2018.

Performance Shares

Performance shares become payable within a range of 0% to 200% of the number of shares initially granted based upon the attainment of specific performance goals achieved at the end of or over three years. While most performance shares vest at the end of or over three years, certain performance shares vest at the end of five years. Beginning in 2017, performance shares vest at the earlier of an employee's retirement eligibility date or three years.

Performance share awards granted prior to 2020 that are not dependent on market conditions are valued equal to the market

price of the Company's common stock on the date of grant less a discount for the absence of dividends. Performance share awards granted in 2020 that are not dependent on market conditions are valued equal to the market price of the Company’s common stock on the date of grant. Stock-compensation expense for these performance share awards without market conditions is based on a current estimate of the number of awards expected to vest based on the performance level achieved and, therefore, may change during the performance period as new estimates of performance are available.

Other performance share awards or portions thereof have a market condition based upon the Company's total stockholder return relative to a group of peer companies within a period of three years from the date of grant. Stock compensation expense for these performance share awards is based on the number of awards expected to vest as estimated at the grant date and, therefore, does not change for changes in estimated performance. The Company uses a risk neutral Monte-Carlo Plan Valuation Model that incorporates time to maturity, implied volatilities of the Company and the peer companies, and correlations between the Company and the peer companies and interest rates.

Assumptions for Total Shareholder Return Performance Shares


	For the years ended December 31,
	2020				2019				2018
Volatility of common stock	19.6%				19.4%				20.8%
Average volatility of peer companies	18.0	%	-	31.0%	16.0	%	-	27.0%	17.0	%	-	25.0%
Average correlation coefficient of peer companies	51.0%				50.0%				54.0%
Risk-free spot rate	1.2%				2.4%				2.4%
Term	3.0 years				3.0 years				3.0 years

Total Share Awards

Non-vested Share Award Activity Under the Stock Incentive Plan


	Restricted Stock and Restricted Stock Units			Performance Shares
	Number of Shares (in thousands)	Weighted-Average Grant-Date Fair Value		Number of Shares (in thousands)	Weighted-Average Grant date Fair Value
Non-vested shares	For the year ended December 31, 2020
Non-vested at beginning of year	3,912	$	50.83	770	$	52.31
Granted	1,323	$	54.64	391	$	55.62
Performance based adjustment, net				(73)	$	50.09
Vested	(1,224)	$	49.19	(276)	$	50.90

Forfeited	(145)	$	52.71	(22)	$	53.54
Non-vested at end of year	3,866	$	52.58	790	$	54.82

The weighted average grant-date fair value per share of restricted stock units and restricted stock granted during the years ended December 31, 2020, 2019, and 2018 was $54.64, $50.49 and $53.11, respectively. The weighted average grant-

date fair value per share of performance shares granted during the years ended December 31, 2020, 2019, and 2018 was $55.62, $54.07 and $50.26, respectively.

The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 was $73, $102 and $114, respectively, based on actual or estimated performance factors. The Company did not make cash payments in settlement of stock compensation during the years ended December 31, 2020, 2019 and 2018.

Subsidiary Stock Plan

In 2013 the Company established a subsidiary stock-based compensation plan similar to the Stock Incentive Plan, except that it awards non-public subsidiary stock as compensation. The Company recognized stock-based compensation plan expense of $11, $11 and $9 in the years ended December 31, 2020, 2019 and 2018, respectively, for the subsidiary stock plan. Upon employee vesting of subsidiary stock, the Company recognizes a noncontrolling equity interest. Employees are restricted from selling vested subsidiary stock to anyone other than the Company and the Company has discretion on the amount of stock to repurchase. Therefore, the subsidiary stock is classified as equity because it is not mandatorily redeemable. For the year ended December 31, 2020, the Company repurchased $10 in subsidiary stock.

Employee Stock Purchase Plan

The Company sponsors The Hartford Employee Stock Purchase Plan (“ESPP”). Under this plan, eligible employees of The Hartford purchase common stock of the Company at a discount rate of 5% of the market price per share on the last trading day of the offering period. Accordingly, the plan is a non-compensatory plan. Employees purchase a variable number of shares of stock through payroll deductions elected as of the beginning of the offering period. The Company may sell up to 15,400,000 shares of stock to eligible employees under the ESPP. As of December 31, 2020, there were 3,743,847 shares available for future issuance. During the years ended December 31, 2020, 2019 and 2018, 340,653 shares, 213,472 shares, and 219,661 shares were sold, respectively. The weighted average per share fair value of the discount under the ESPP was $1.99, $2.82 and $2.56 during the years ended December 31, 2020, 2019 and 2018, respectively. The fair value is estimated based on the 5% discount off the market price per share on the last trading day of the offering period.