Stock-based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

Tempur Sealy International has two stock-based compensation plans which provide for grants of non-qualified and incentive stock options, stock appreciation rights, restricted stock and stock unit awards, performance shares, stock grants and performance based awards to employees, non-employee directors, consultants and Company advisors. The plan under which equity awards may be granted in the future is the Amended and Restated 2013 Equity Incentive Plan (the "2013 Plan"). It is the policy of the Company to issue stock out of treasury shares upon issuance or exercise of share-based awards. The Company believes that awards and purchases made under these plans better align the interests of the plan participants with those of its stockholders.

On May 11, 2017, the Company's stockholders approved the amendment and restatement of the original 2013 Plan. The 2013 Plan provides for grants of stock options to purchase shares of common stock to employees and directors of the Company. The 2013 Plan may be administered by the Compensation Committee of the Board of Directors, by the Board of Directors directly, or, in certain cases, by an executive officer or officers of the Company designated by the Compensation Committee. The shares issued or to be issued under the 2013 Plan may be either authorized but unissued shares of the Company's common stock or shares held by the Company in its treasury. Tempur Sealy International may issue a maximum of 34.8 million shares of common stock under the 2013 Plan, subject to certain adjustment provisions. The maximum number of shares of common stock has been adjusted to include 26.1 million additional shares as a result of the four-for-one stock-split that occurred on November 24, 2020.

The Amended and Restated 2003 Equity Incentive Plan, as amended (the "2003 Plan"), was administered by the Compensation Committee of the Board of Directors, which, together with the Board of Directors, had the exclusive authority to administer the 2003 Plan, including the power to determine eligibility to receive awards, the types and number of shares of stock subject to the awards, the price and timing of awards and the acceleration or waiver of any vesting and performance of forfeiture restrictions, in each case subject to the terms of the 2003 Plan. Any of the Company's employees, non-employee directors, consultants and Company advisors, as determined by the Compensation Committee, were eligible to be selected to participate in the 2003 Plan. Tempur Sealy International allowed a maximum of 46.0 million shares of its common stock under the 2003 Plan to be issued. In May 2013, the Company's Board of Directors adopted a resolution that prohibited further grants under the 2003 Plan. The maximum allowed shares of common stock under the 2003 Plan has been adjusted to include 34.5 million additional shares as a result of the four-for-one stock-split that occurred on November 24, 2020.

In 2010, the Board of Directors approved the terms of a Long-Term Incentive Plan established under the 2003 Plan. In 2013, the Board of Directors approved the terms of another Long-Term Incentive Plan established under the 2013 Plan. Awards under both Long-Term Incentive Plans have typically consisted primarily of a mix of stock options, RSUs and PRSUs. Shares with respect to the PRSUs will be granted and vest following the end of the applicable performance period and achievement of applicable performance metrics as determined by the Compensation Committee of the Board of Directors.

The Company's stock-based compensation expense for the year ended December 31, 2020 included PRSUs, stock options, RSUs and DSUs. A summary of the Company’s stock-based compensation expense is presented below:


	Year Ended December 31,
(in millions)	2020		2019		2018
PRSU expense	$	77.4	$	1.4	$	2.5
Stock option expense	4.9		4.9		6.7
RSU/DSU expense	22.2		20.5		15.6
Total stock-based compensation expense	$	104.5	$	26.8	$	24.8

Performance Restricted Stock Units

A summary of the Company's PRSU activity and related information for the years ended December 31, 2020 and 2019 is presented below:


(shares in millions)	Shares	Weighted Average Grant Date Fair Value
Awards unvested at December 31, 2018	8.0	$	15.27
Granted	0.3	21.35
Vested	—	—
Forfeited	(4.8)	17.74
Awards unvested at December 31, 2019	3.5	15.02
Granted	3.5	21.39
Vested	(3.4)	15.03
Forfeited	—	—
Awards unvested at December 31, 2020	3.6	$	21.18

The Company grants PRSUs to executive officers and certain members of management. The Company granted PRSUs during the years ended December 31, 2020, 2019 and 2018. Actual payout under the PRSUs is dependent upon the achievement of certain financial goals.

During the first quarter of 2020, the Company granted 0.6 million PRSUs at target at a weighted average grant date fair value of $21.39 per share with a performance January 1, 2020 through December 31, 2020 as a component of the long-term incentive plan ("2020 PRSUs"). For the year ended December 31, 2020, the Company recognized stock-based compensation expense related to the 2020 PRSUs, as the Company achieved the maximum specified performance target for the performance period.

During 2017, the Company granted executive officers and certain members of management PRSUs if the Company achieves a certain level of adjusted earnings before interest, tax, depreciation and amortization ("Adjusted EBITDA") during four consecutive fiscal quarters as described below (the "2019 Aspirational Plan PRSUs"). Adjusted EBITDA is defined as the Company’s "Consolidated EBITDA" as such term is defined in the Company’s 2016 Credit Agreement. The 2019 Aspirational Plan PRSUs will vest based on the highest Adjusted EBITDA in any four consecutive fiscal quarter period ending between (and including) March 31, 2018 and December 31, 2019 (the “First Designated Period”). At the end of the First Designated Period, the Adjusted EBITDA targets were not met. As a result, one-half of the total 2019 Aspirational Plan PRSUs are no longer available for vesting based on performance and were forfeited in 2019.

Vesting for the remaining one-half of the total 2019 Aspirational Plan PRSUs was based on the highest Adjusted EBITDA per credit facility in any four consecutive fiscal quarter period ending between (and including) March 31, 2020 and December 31, 2020 (the "Second Designated Period"). On November 16, 2020, the Compensation Committee of the Board of Directors determined that the maximum performance condition was achieved during the Second Designated Period. The 2019 Aspirational Plan PRSUs vested on December 15, 2020. The Company recorded $45.2 million of stock-based compensation expense related to the 2019 Aspirational Plan PRSUs during the third quarter of 2020, as it became probable the Company would achieve the highest specified performance target. The amount recognized in the third quarter represents the cumulative catch-up adjustment. The Company recognized an additional $4.2 million of stock-based compensation expense in the fourth quarter of 2020 commensurate with the remaining requisite service period.

Stock Options

The Company uses the Black-Scholes option-pricing model to calculate the fair value of stock options granted. During the year ended December 31, 2020 and 2019, no stock options were granted. The assumptions used in the Black-Scholes option-pricing model for the years ended December 31, 2020, 2019 and 2018 are set forth in the following table. Expected volatility is based on the unbiased standard deviation of Tempur Sealy International’s common stock over the option term. The expected life of the options represents the period of time that the Company expects the options granted to be outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of the grant of the option for the expected term of the instrument. The dividend yield reflects an estimate of dividend payouts over the term of the award. The Company uses historical data to determine these assumptions.

Year Ended December 31,

2020

2019

2018

Expected volatility range of stock

N/A

39.8% - 40.1%

Expected life of option, range in years

N/A

Risk-free interest range rate

N/A

2.2% - 2.8%

Expected dividend yield on stock

N/A

—%

A summary of the Company's stock option activity under the 2003 Plan and 2013 Plan for the years ended December 31, 2020 and 2019 is presented below:


(in millions, except per share amounts and years)	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at December 31, 2018	6.4	$	15.63
Granted	—	—
Exercised	(1.2)	13.12
Forfeited	—	—
Options outstanding at December 31, 2019	5.2	$	16.30
Granted	—	—
Exercised	(0.5)	13.03
Forfeited	—	—
Options outstanding at December 31, 2020	4.7	$	16.69	5.59	47.7

Options exercisable at December 31, 2020	3.6	$	16.78	5.32	36.3

The aggregate intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $6.0 million, $5.9 million and $3.9 million, respectively.

A summary of the Company's unvested shares relating to stock options as of December 31, 2020 and 2019, and changes during the years ended December 31, 2020 and 2019, are presented below:


(shares in millions)	Shares	Weighted Average Grant Date Fair Value
Options unvested at December 31, 2018	2.4	$	16.55
Granted	—	—
Vested	(0.4)	16.67
Forfeited	—	—
Options unvested at December 31, 2019	2.0	$	16.50
Granted	—	—
Vested	(0.9)	16.67
Forfeited	—	—
Options unvested at December 31, 2020	1.1	$	16.38

Restricted/Deferred Stock Units

A summary of the Company's RSU and DSU activity and related information for the years ended December 31, 2020 and 2019 is presented below:


(in millions, except per share amounts)	Shares	Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value
Awards outstanding at December 31, 2018	3.3	$	15.96
Granted	2.7	10.77
Vested	(0.9)	15.64
Terminated	—	—
Awards outstanding at December 31, 2019	5.1	$	13.24	$	110.3
Granted	0.8	20.81
Vested	(1.6)	13.43
Terminated	(0.1)	13.99
Awards outstanding at December 31, 2020	4.2	$	14.57	$	113.6

The aggregate intrinsic value of RSUs and DSUs vested during the year ended December 31, 2020 was $33.0 million.

A summary of total unrecognized stock-based compensation expense based on current performance estimates related to stock options, DSUs, RSUs and PRSUs for the year ended December 31, 2020 is presented below:


(in millions, except years)	December 31, 2020		Weighted Average Remaining Vesting Period (Years)
Unrecognized stock option expense	$	1.6	1
Unrecognized DSU/RSU expense	30.4		2.19
Unrecognized PRSU expense	47.1		2.12
Total unrecognized stock-based compensation expense	$	79.1	2.12