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Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2022
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | 13. Stock-Based Compensation As of December 31, 2022, we had awards outstanding under the Fortune Brands Home & Security, Inc. 2022 Long-Term Incentive Plan (the "2022 Plan"), the Fortune Brands Home & Security, Inc. 2013 Long-Term Incentive Plan (the “2013 Plan”) and the 2011 Long-Term Incentive Plan (the “2011 Plan”) (collectively, the "Plans"). In 2022, stockholders approved the 2022 Plan, which provides for the granting of stock options, performance share awards ("PSAs"), restricted stock units ("RSUs') and other equity-based awards to employees, directors and consultants. No new stock-based awards can be made under the 2013 Plan or the 2011 Plan, but there are outstanding stock options under the Plans that continue to be exercisable. As of December 31, 2022, approximately 5.1 million shares of common stock remained authorized for issuance under the 2022 Plan. In addition, shares of common stock that were granted and subsequently expired, terminated, cancelled or forfeited, or were used to satisfy the required withholding taxes with respect to awards under the Plans may be recycled back into the total numbers of shares available for issuance under the 2022 Plan. Upon the exercise or payment of stock-based awards, shares of common stock are issued from authorized common shares. In connection with the Separation, under the provisions of the Plans and the Employee Matters Agreement entered into in connection with the Separation, the Company adjusted its outstanding equity awards in order to preserve the intrinsic value of the awards immediately before and after the Separation. At the time of the Separation, outstanding equity awards granted to Company service providers were adjusted to preserve the intrinsic value of the awards held, with unvested PSAs converting into time-based RSUs (“Adjusted RSUs”). All outstanding equity awards granted to MasterBrand service providers were converted into replacement awards of MasterBrand equity under the same methodology and ceased to represent equity awards with respect to the Company. Due to the adjustment of outstanding equity awards as a result of the Separation, the Company compared the fair value of the outstanding equity awards immediately before and after the Separation and, based on such comparison, no incremental fair value was required to be recognized. The number of equity awards granted and forfeited in the tables below primarily relate to the modifications in connection with the Separation, which resulted in the adjustment of Company shares subject to outstanding awards held by Company service providers and the forfeiture of Company equity awards by MasterBrand service providers. Stock-based compensation expense was as follows:
(In millions) |  | 2022 |  |  |  | 2021 |  |  |  | 2020 |
Restricted stock units |  | $ | 16.6 |  |  |  | $ | 17.8 |  |  |  | $ | 15.6 |
Stock option awards |  |  | 6.6 |  |  |  |  | 5.3 |  |  |  |  | 4.6 |
Performance awards |  |  | 15.6 |  |  |  |  | 20.7 |  |  |  |  | 19.5 |
Director awards |  |  | 1.3 |  |  |  |  | 1.3 |  |  |  |  | 0.9 |
Total pre-tax expense |  |  | 40.1 |  |  |  |  | 45.1 |  |  |  |  | 40.6 |
Tax benefit |  |  | 9.2 |  |  |  |  | 7.9 |  |  |  |  | 6.2 |
Total after tax expense |  | $ | 30.9 |  |  |  | $ | 37.2 |  |  |  | $ | 34.4 |
Included in compensation costs are cash-settled restricted stock units of $0.3 million, $3.3 million and $2.3 million that are classified as a liability as of December 31, 2022, 2021 and 2020, respectively. Compensation costs that were capitalized in inventory were not material. Restricted Stock Units RSUs have been granted to officers and certain employees of the Company and represent the right to receive shares of Company common stock subject to continued employment through each vesting date. As a result of the Separation, the number of unvested RSUs awarded to the Company’s employees were adjusted to preserve the intrinsic value of such awards following the Separation. Also, all annual cycle PSAs outstanding on the date of the Separation were replaced with RSUs (“Adjusted RSUs”). For purposes of determining the number of Adjusted RSUs, the number of Adjusted RSUs earned was based upon projected performance results through the end of the applicable performance period, calculated based on actual performance from the beginning of the applicable performance period through the end of the fiscal quarter immediately preceding the Separation and expected performance through the remainder of the applicable performance period had the Separation not occurred. RSUs generally vest ratably over a three-year period, with the exception of the RSUs that were converted from PSAs, which vest at the end of the original three-year performance cycles. In addition, certain employees can elect to defer receipt of a portion of their RSU awards upon vesting. Compensation cost is recognized over the service period. We calculate the fair value of each RSU granted by using the average of the high and low share prices on the date of grant. A summary of activity with respect to RSUs outstanding under the Plans for the year ended December 31, 2022 was as follows:
|  | Number of Restricted Stock Units |  |  | Weighted-Average Grant-Date Fair Value |
Non-vested at December 31, 2021 |  |  | 396,399 |  |  | $ | 75.45 |
Granted |  |  | 1,485,979 |  |  | $ | 71.85 |
Vested |  |  | (184,290 | ) |  | $ | 69.37 |
Forfeited |  |  | (519,762 | ) |  | $ | 80.45 |
Non-vested at December 31, 2022 |  |  | 1,178,326 |  |  | $ | 69.65 |
The remaining unrecognized pre-tax compensation cost related to RSUs at December 31, 2022 was approximately $26.0 million, and the weighted-average period of time over which this cost will be recognized is 1.7 years. The fair value of RSUs that vested during 2022, 2021 and 2020 was $16.8 million, $15.6 million and $17.1 million, respectively. Stock Option Awards Stock options were granted to officers and certain employees of the Company and represent the right to purchase shares of Company common stock subject to continued employment through each vesting date. Stock options granted under the Plans generally vest over a three-year period and generally expire ten years from the grant date. As a result of the Separation, the number of stock options awarded to the Company’s employees and the corresponding exercise price of each award was adjusted to preserve the intrinsic value of such awards following the Separation. All stock-based compensation to employees is required to be measured at fair value and expensed over the requisite service period. We recognize compensation expense on awards on a straight-line basis over the requisite service period for the entire award. The fair value of Fortune Brands options was estimated at the date of grant using a Black-Scholes option pricing model with the assumptions shown in the following table:
|  |  | 2022 |  |  |  | 2021 |  |  |  | 2020 |
Current expected dividend yield |  |  |  | 1.2 | % |  |  |  | 1.2 | % |  |  |  | 1.4 | %
Expected volatility |  |  |  | 34.8 | % |  |  |  | 35.1 | % |  |  |  | 25.9 | %
Risk-free interest rate |  |  |  | 2.3 | % |  |  |  | 0.6 | % |  |  |  | 1.2 | %
Expected term |  |  | 5.2 years |  |  |  | 5.2 years |  |  |  | 5.3 years |
Beginning in 2020, the determination of expected volatility is based on the volatility of Fortune Brands common stock. The determination of expected volatility in prior years is based on a blended peer group volatility for companies in similar industries, at a similar stage of life and with similar market capitalization. The risk-free interest rate is based on U.S. government issues with a remaining term equal to the expected life of the stock options. The expected term is the period over which our employees are expected to hold their options. The expected term was determined based on the historical employee exercise behavior and the contractual term of the options. The dividend yield is based on the Company’s estimated dividend over the expected term. The weighted-average grant date fair value of stock options granted under the Plans during the years ended December 31, 2022, 2021 and 2020 was $24.50, $24.55 and $15.21, respectively. A summary of Fortune Brands stock option activity related to Fortune Brands and former employees of Fortune Brands, Inc., the Company from which we spun off from in 2011, for the year ended December 31, 2022 was as follows:
|  | Options |  |  | Weighted- Average Exercise Price |
Outstanding at December 31, 2021 |  |  | 1,819,151 |  |  | $ | 61.87 |
Granted |  |  | 2,715,899 |  |  | $ | 60.02 |
Exercised |  |  | (29,435 | ) |  | $ | 37.83 |
Expired/forfeited |  |  | (2,179,188 | ) |  | $ | 65.26 |
Outstanding at December 31, 2022 |  |  | 2,326,427 |  |  | $ | 56.84 |
Options outstanding and exercisable at December 31, 2022 were as follows:
|  | Options Outstanding (a) |  |  | Options Exercisable (b) |
Range Of Exercise Prices |  | Options Outstanding |  |  | Weighted- Average Remaining Contractual Life |  |  | Weighted- Average Exercise Price |  |  | Options Exercisable |  |  | Weighted- Average Exercise Price |
$20.01 to $76.63 |  |  | 2,326,427 |  |  |  | 5.93 |  |  | $ | 56.84 |  |  |  | 1,701,253 |  |  | $ | 51.98 |
(a) At December 31, 2022, the aggregate intrinsic value of options outstanding was $12.6 million. (b) At December 31, 2022, the weighted-average remaining contractual life of options exercisable was 5.0 years and the aggregate intrinsic value of options exercisable was $12.2 million. The remaining unrecognized compensation cost related to unvested awards at December 31, 2022 was $6.2 million, and the weighted-average period of time over which this cost will be recognized is 1.8 years. The fair value of options that vested during the years ended December 31, 2022, 2021 and 2020 was $26.2 million, $4.8 million and $8.0 million, respectively. The intrinsic value of Fortune Brands stock options exercised in the years ended December 31, 2022, 2021 and 2020 was $1.1 million, $40.1 million and $54.2 million, respectively. Performance Share Awards PSAs were granted to officers and certain employees of the Company in 2020, 2021 and 2022 and represented the right to earn shares of Company common stock based on the achievement of company-wide performance conditions during the three-year performance period. As a result of the Separation, these three outstanding PSAs were replaced with Adjusted RSUs as described above. For purposes of determining the number of Adjusted RSUs, the number of Adjusted RSUs earned was based upon projected performance results through the end of the applicable performance period, calculated based on actual performance from the beginning of the applicable performance period through the end of the fiscal quarter immediately preceding the Separation and expected performance through the remainder of the applicable performance period had the Separation not occurred. Compensation cost is amortized into expense over the performance period, which is generally three years, and is based on the probability of meeting performance targets. The fair value of each PSAs is based on the average of the high and low stock prices on the date of grant. The following table summarizes information about PSAs as of December 31, 2022, as well as activity during the year then ended. The number of performance share awards granted are shown below at the target award amounts:
|  | Number of Performance Share Awards |  |  | Weighted-Average Grant-Date Fair Value |
Non-vested at December 31, 2021 |  |  | 543,333 |  |  | $ | 64.68 |
Granted |  |  | 708,111 |  |  | $ | 69.40 |
Vested |  |  | (475,760 | ) |  | $ | 47.76 |
Forfeited |  |  | (755,112 | ) |  | $ | 79.47 |
Non-vested at December 31, 2022 |  |  | 20,572 |  |  | $ | 75.59 |
The remaining unrecognized pre-tax compensation cost related to PSAs at December 31, 2022 was approximately $0.8 million, and the weighted-average period of time over which this cost will be recognized is 1.9 years. The fair value of PSAs that vested during 2022 was $11.4 million (475,760 shares). Director Awards Stock awards are used as part of the compensation provided to outside directors under the Plans. Awards are issued annually in the second quarter. In addition, outside directors can elect to have director cash compensation paid in stock or can elect to defer payment of stock. Compensation cost is expensed at the time of an award based on the fair value of a share at the date of the award. In 2022, 2021 and 2020, we awarded 17,649, 12,114 and 20,181 shares of Company common stock to outside directors with a weighted-average fair value on the date of the award of $73.94, $107.73 and $46.82, respectively.

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