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Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2020
Share-based Payment Arrangement [Abstract] |
Stock-Based Compensation |
23. | Stock-Based Compensation
On May 9, 2019, our stockholders approved the WEX Inc. 2019 Equity and Incentive Plan (the “Plan”), which replaced our 2010 Equity and Incentive Plan (the “Prior Plan”). Upon the expiration of the Prior Plan on May 20, 2020, all then outstanding awards will remain in effect, but no additional awards may be made under the Prior Plan. The Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based or cash-based awards to non-employee directors, officers, employees, advisors or consultants. The Plans permit the Company to grant a total number of shares which is the sum of; (i) 3.7 million shares of common stock; plus (ii) such additional number of shares of common stock (up to 1.5 million) as is equal to the number of shares of common stock subject to awards granted under the Prior Plan. There were 3.6 million shares of common stock available for grant for future equity compensation awards under the Plan at December 31, 2020. As of December 31, 2020, the Company had four stock-based compensation award types, which are described below. The compensation cost that has been recorded as an expense for these programs totals $63.9 million, $45.6 million and $33.9 million for 2020, 2019 and 2018, respectively. In connection with the Noventis acquisition, the Company recognized an additional $5.5 million of compensation cost for 2019. Refer to Note 4, Acquisitions, for further information. The associated tax benefit related to these costs was $11.5 million, $9.9 million and $8.0 million, for 2020, 2019 and 2018, respectively. Restricted Stock Units The Company periodically grants RSUs, a right to receive a specific number of shares of the Company’s common stock at a specified date, to non-employee directors and certain employees. RSUs granted to non-employee directors vest 12 months from the date of grant, or upon termination of board service if the director elects to defer receipt. RSUs issued to certain employees generally vest evenly over up to three years and provide for accelerated vesting if there is a change of control (as defined in the Plan). The fair value of each RSU award is based on the closing market price of the Company’s stock on the day of grant as reported by the NYSE. The following is a summary of RSU activity during the year ended December 31, 2020:
(In thousands except per share data) | Units |  | Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2020 | 260 |  |  | $ | 181.23 |
Granted | 309 |  |  | 119.78 |
Vested, including 17 shares withheld for tax 1 | (74) |  |  | 160.30 |
Forfeited | (23) |  |  | 150.11 |
Unvested at December 31, 2020 | 472 |  |  | $ | 145.77 |
1 The Company withholds shares of common stock to pay the minimum required statutory taxes due upon RSU vesting. Cash is then remitted by the Company to the appropriate taxing authorities. As of December 31, 2020, there was $42.2 million of total unrecognized compensation cost related to RSUs. That cost is expected to be recognized over a weighted-average period of 1.2 years. The total grant-date fair value of RSUs granted was $37.0 million, $34.0 million and $16.8 million during 2020, 2019 and 2018, respectively. The total fair value of RSUs that vested during 2020, 2019 and 2018 was $11.9 million, $7.6 million and $9.2 million, respectively. Performance-Based Restricted Stock Units The Company periodically grants PBRSUs to employees. A PBRSU is a right to receive stock based on the achievement of both performance goals and continued employment during the vesting period. In a PBRSU, the number of shares earned varies based upon meeting certain performance goals. PBRSU awards generally have performance goals spanning one to three years, depending on the nature of the performance goal. The fair value of each PBRSU award is based on the closing market price of the Company’s stock on the grant date as reported by the NYSE. Market-Based Restricted Stock Units (TSR awards) Given the economic uncertainty and business disruption created by the COVID-19 pandemic, effective June 23, 2020, the Company's Compensation Committee approved certain modifications to performance-based restricted stock units previously granted on March 16, 2020 and March 20, 2019. Such changes included replacing Company performance metrics with TSR metrics for the March 16, 2020 awards, and for the March 20, 2019 awards, adding a relative TSR modifier to scale the payment up or down by +/- 15 percent. Additionally, the Company granted certain employees new TSR awards on June 24, 2020. Attainment of the Company's TSR awards is tied to WEX's TSR relative to the S&P 400 from the time of modification (for awards modified on June 23, 2020) or grant date (for awards granted on June 24, 2020). Given that these are market-based performance awards, the fair value is calculated by the Monte Carlo simulation valuation model. The key inputs for the fair values and other relevant information by grant date are outlined below:
Grant date | 6/24/2020 |  | 6/24/2020 |  | 3/16/2020 |  | 3/20/2019
Grantee(s) | Non-CEO |  | CEO |  | All |  | All
Number of grantees affected | 134 |  | 1 |  | 332 |  | 215
Modification date | N/A |  | N/A |  | 6/23/2020 |  | 6/23/2020
Risk-free rate | 0.21% |  | 0.21% |  | 0.20% |  | 0.18%
Stock price 1 | $160.14 |  | $160.14 |  | $173.15 |  | $173.15
Volatility | 47.72% |  | 47.72% |  | 51.32% |  | 62.29%
Performance period | June 24, 2020 – June 23, 2023 |  | June 24, 2020 – June 23, 2023 |  | June 23, 2020 – December 31, 2022 |  | June 23, 2020 – December 31, 2021
Shares at target | 110,467 |  | 28,101 |  | 199,870 |  | 86,845
Fair value per share 2 | $264.17 |  | $240.55 |  | $280.93 |  | $188.21
Total incremental compensation cost 3 | $11.5 million |  | $2.3 million |  | $21.8 million |  | $1.3 million
1 At the date of grant or modification date, whichever is applicable. 2 At the date of grant or modification date, whichever is applicable. The CEO's June 24, 2020 award has a one-year post-vesting holding period. 3 For the Company's awards that were modified on June 23, 2020, the final attainment for recipients other than executive officers will be based on the greater of the payout under the original awards performance metrics or the modified metrics as described above. As a result, the Company is required to assess which payout is more likely and adjust the expense accordingly. If the original awards' performance metrics are expected to result in a higher number of shares vesting, then the expense recorded will be based on awards expected to vest at the grant-date stock price. Alternatively, if the modified metrics are expected to result in a higher number of shares vesting, then the expense recorded will be based on the fair value calculated using the Monte Carlo simulation valuation model. As of December 31, 2020, the expense associated with the awards in the table above is calculated using the Monte Carlo modification-date fair value. The following is a summary of TSR awards and PBRSU activity during the year ended December 31, 2020:
TSR awards and PBRSUs |  |  |  |  |  |  |
(In thousands except per share data) | Shares |  |  |  |  |  | Weighted-Average Grant-Date Fair Value
Unvested at January 1, 2020 | 449 |  |  |  |  |  |  | $ | 140.58 |
Granted | 343 |  |  |  |  |  |  | 170.71 |
Forfeited | (21) |  |  |  |  |  |  | 150.40 |
Vested, including 52 shares withheld for tax 1 | (203) |  |  |  |  |  |  | 107.77 |
Performance adjustment 2 | 14 |  |  |  |  |  |  | 81.21 |
Unvested at December 31, 2020 | 582 |  |  |  |  |  |  | $ | 170.05 |
1 The Company withholds shares of common stock to pay the minimum required statutory taxes due upon PBRSU vesting. Cash is then remitted by the Company to the appropriate taxing authorities. 2 Reflects adjustments to the number of shares of PBRSUs expected to vest based on the change in performance attainment during the year ended December 31, 2020. As of December 31, 2020, there was $74.1 million of unrecognized compensation cost related to the TSR awards and PBRSUs that is expected to be recognized over a weighted-average period of 2.0 years. The total grant-date fair value of PBRSUs and TSRs granted during 2020, 2019 and 2018 was $58.5 million, $19.0 million and $18.3 million, respectively. The total grant-date fair value of PBRSUs that vested during 2020, 2019 and 2018 was $21.7 million, $9.3 million and $12.0 million, respectively. Stock Options Market Performance-Based Stock Options In May 2017, the Company granted market performance-based stock options with a contractual term of ten years to certain members of senior management. The options contain a market condition that requires the closing price of the Company’s stock to meet or exceed certain price thresholds for twenty consecutive trading days (“Stock Price Hurdle”) in order for shares to vest. The options also contain a service condition that requires the award recipients to be continually employed from the grant date until such date that the Stock Price Hurdle is satisfied in order for shares to vest. The Stock Price Hurdle began operating in May 2020, on the third anniversary of the grant date. As of December 31, 2020, 75 percent of the shares had vested as a result of the Company's stock exceeding the applicable Stock Price Hurdle. The Stock Price Hurdle condition ends five years from the date of grant, and therefore the remaining 25 percent of awards may still vest. The grant date fair value of these options was estimated on the date of the grant using a Monte-Carlo simulation model used to simulate a distribution of future stock price paths based on historical volatility levels. The Company expensed the total grant date fair value of these options on a graded basis over the derived service period of approximately three years. The table below summarizes the assumptions used to calculate the fair value:
Exercise price | $ | 99.69 |
Expected stock price volatility | 31.14 | %
Risk-free interest rate | 2.18 | %
Weighted average fair value of market performance-based stock options granted | $ | 28.69 |
Service-Based Stock Options The Company periodically grants stock options to certain officers and employees under the Plan, which generally become exercisable over three years (with approximately 33 percent of the total grant vesting each year on the anniversary of the grant date) and expire 10 years from the date of grant. All service-based stock option grants provide for an option exercise price equal to the closing market value of the common stock on the date of grant as reported by the NYSE. Based on the Company’s lack of historical option exercise experience and granting of stock options with “plain vanilla” characteristics, the Company uses the simplified method to estimate the expected term of its employee stock options. The fair value of each option award is estimated on the grant date using the following assumptions and a Black-Scholes-Merton option-pricing model. The expected term assumption as it relates to the valuation of the options represents the period of time that options granted are expected to be outstanding. The Company estimates expected stock price volatility based on historical volatility of the Company’s common stock over a period matching the expected term of the options granted. The option-pricing model also includes a risk-free interest rate for the period matching the expected term of the option and is based on the U.S. Treasury yield curve in effect at the time of the grant. We have never paid nor do we expect to pay any cash dividends on our common stock; therefore, we assume that no dividends will be paid over the expected terms of option awards. The table below summarizes the assumptions used to calculate the fair value by year of grant:
| 2020 |  | 2019 |  | 2018
Weighted average grant date fair value | $ | 35.13 |  |  | $ | 58.28 |  |  | $ | 51.27 |
Weighted average expected term (in years) | 6 |  | 6 |  | 6
Weighted average exercise price | $ | 109.66 |  |  | $ | 184.81 |  |  | $ | 158.23 |
Expected stock price volatility | 32.37 | % |  | 27.21 | % |  | 27.35 | %
Risk-free interest rate | 0.58 | % |  | 2.37 | % |  | 2.69 | %
The following is a summary of all stock option activity during the year ended December 31, 2020:
Stock Options |  |  |  |  |  |  |
(In thousands, except per share data) | Shares |  | Weighted-Average Exercise Price |  | Weighted-Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value
Outstanding at January 1, 2020 | 892 |  |  | $ | 115.82 |  |  |  |  |
Granted | 262 |  |  | 109.66 |  |  |  |  |
Exercised | (96) |  |  | 96.55 |  |  |  |  |
Forfeited or expired | (15) |  |  | 138.52 |  |  |  |  |
Outstanding at December 31, 2020 | 1,043 |  |  | $ | 115.72 |  |  | 7.2 |  | $ | 91,603 |
Exercisable on December 31, 2020 | 559 |  |  | $ | 110.49 |  |  | 6.4 |  | $ | 52,036 |
Vested and expected to vest at December 31, 2020 | 476 |  |  | $ | 121.90 |  |  | 8.2 |  | $ | 38,844 |
As of December 31, 2020, there was $9.6 million of total unrecognized compensation cost related to options. That cost is expected to be recognized over a weighted-average period of 1.1 years. The total intrinsic value of options exercised during the years ended December 31, 2020, 2019 and 2018 was $8.7 million, $5.7 million and $1.9 million, respectively. The total grant-date fair value of options granted during 2020, 2019 and 2018 was $9.3 million, $7.2 million, and $5.2 million, respectively. Deferred Stock Units Non-employee directors may elect to defer their cash fees and RSUs in the form of DSUs. The Company grants fully vested DSUs to non-employee directors. These awards are distributed as common stock 200 days immediately following the date upon which such director’s service as a member of the Company’s Board of Directors terminates for any reason. There were approximately 54 thousand and 63 thousand DSUs outstanding as of December 31, 2020 and 2019, respectively. DSU activity is included in the RSU table above. Unvested DSUs as of December 31, 2020 and 2019 were not material.

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