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Equity Compensation Plan | 12 Months Ended
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Dec. 31, 2021
Share-based Payment Arrangement [Abstract] |
Equity Compensation Plan |
17. | Equity Compensation Plan
We have equity compensation plans (the “Plans”) that provide for the delivery of shares pursuant to various market and performance-based incentive awards. As of December 31, 2021, there are 1.0 million shares available for future awards. Our policy is to issue new shares to satisfy share delivery obligations for awards made under the Plans. The Plans permit awards of restricted share units to be granted to executives and other key employees. Generally, share units awarded prior to February 2020 vest in three years, while those awarded thereafter vest in equal annual increments over three years. Compensation expense related to the restricted share units is based upon the market price of the underlying common stock as of the date of the grant and is amortized over the applicable vesting period using the straight-line method. As of December 31, 2021, there was $6.8 million of unrecognized compensation cost related to restricted share units expected to be recognized over a weighted-average remaining amortization period of 1.9 years. Under the terms of the Plans, performance share awards were granted to executives and other key employees during 2021, 2020 and 2019. Each grant will vest if EnPro achieves specific financial objectives at the end of each three-year performance period. Additional shares may be awarded if objectives are exceeded, but some or all shares may be forfeited if objectives are not met. Performance shares earned at the end of a performance period, if any, for shares issued in 2019 will be paid in actual shares of our common stock, less the number of shares equal in value to applicable withholding taxes if the employee chooses. Performance shares earned at the end of a performance period for shares issued in 2020 and 2021 will be paid in cash, less applicable withholding taxes if the employee chooses. During the performance period, a grantee receives dividend equivalents accrued in cash, and shares are forfeited if a grantee terminates employment, except in the case of retirement. Compensation expense related to the performance shares payable in stock granted in 2019 is computed using the fair value of the awards at the date of grant. Potential shares to be issued for performance share awards granted in 2019 are subject to a market condition based on the performance of our stock, measured based upon a calculation of total shareholder return, compared to a group of peer companies. The fair value of these awards was determined using a Monte Carlo simulation methodology. Compensation expense for these awards is computed based upon this grant date fair value using the straight-line method over the applicable performance period. Compensation expense related to the performance shares payable in cash granted in 2021 and 2020 is computed using the fair value of the awards as of December 31, 2021. The fair value of these awards was determined using a Monte Carlo simulation methodology. Compensation issued for performance share awards granted in 2021 and 2020 is subject to a market conditions based on the performance of our stock, measured based upon a calculation of total shareholder return, compared to a group of peer companies. Compensation expense for these awards is computed based upon the calculated fair value at the end of the period using the straight-line method over the applicable performance period. The shares will be remeasured and compensation expense will be adjusted based on the current market-based estimate. The Monte Carlo simulation model utilizes multiple input variables that determine the probability of satisfying the market condition stipulated in the award and calculates the fair value of each award. We issued performance share awards to eligible participants on February 16, 2021, February 18, 2020, and February 11, 2019. We used the following assumptions in determining the fair value of these awards:
|  | Expected stock price volatility |  | Annual expected dividend yield |  | Risk free interest rate
Shares granted February 16, 2021 |  |  |  |  |  |
EnPro Industries, Inc. |  | 47.32 | % |  | 1.40 | % |  | 0.22 | %
S&P 600 Capital Goods Index |  | 50.86 | % |  | n/a |  | 0.22 | %
Shares granted February 18, 2020 |  |  |  |  |  |
EnPro Industries, Inc. |  | 31.62 | % |  | 1.69 | % |  | 1.37 | %
S&P 600 Capital Goods Index |  | 34.90 | % |  | n/a |  | 1.37 | %
Shares granted February 11, 2019 |  |  |  |  |  |
EnPro Industries, Inc. |  | 30.72 | % |  | 1.4 | % |  | 2.53 | %
S&P 600 Capital Goods Index |  | 34.36 | % |  | n/a |  | 2.53 | %
The expected volatility assumption for us and each member of the peer group is based on each entity’s historical stock price volatility over a period equal to the length from the valuation date to the end of the performance cycle. The annual expected dividend yield is based on annual expected dividend payments and the stock price on the date of grant. The risk free rate equals the yield, as of the valuation date, on zero-coupon U.S. Treasury STRIPS that have a remaining term equal to the length of the remaining performance cycle. As of December 31, 2021, there was no remaining unrecognized compensation cost related to nonvested performance share awards to be paid in stock and all outstanding shares had vested. As of December 31, 2021 there was $8.6 million of unrecognized compensation cost related to nonvested performance share awards to be paid in cash and is expected to be recognized over a weighted-average vesting period of 1.7 years. A summary of award activity under these plans is as follows:
| Restricted Share Units |  | Performance Shares - Equity |  | Performance Shares - Liability
| Shares |  | Weighted- Average Grant Date Fair Value |  | Shares |  | Weighted- Average Grant Date Fair Value |  | Shares |  | Fair Value at December 31, 2020
Nonvested at December 31, 2018 | 218,930 |  |  | $ | 57.87 |  |  | 199,655 |  |  | $ | 75.87 |  |  | — |  |  | $ | — |
Granted | 78,576 |  |  | 68.48 |  |  | 116,342 |  |  | 77.15 |  |  | — |  |  | — |
Vested | (78,958) |  |  | 44.44 |  |  | (75,312) |  |  | 49.68 |  |  | — |  |  | — |
Forfeited | (6,830) |  |  | 72.99 |  |  | (12,130) |  |  | 82.26 |  |  | — |  |  | — |
Achievement level adjustment | — |  |  | — |  |  | 24,105 |  |  | 49.68 |  |  | — |  |  | — |
Shares settled for cash | (12,294) |  |  | 43.85 |  |  | — |  |  | — |  |  | — |  |  | — |
Nonvested at December 31, 2019 | 199,424 |  |  | 72.72 |  |  | 252,660 |  |  | 81.46 |  |  | — |  |  | — |
Granted | 97,144 |  |  | 59.27 |  |  | — |  |  | — |  |  | 95,924 |  |  | 105.91 |
Vested | (53,163) |  |  | 68.42 |  |  | — |  |  | — |  |  | — |  |  | — |
Forfeited | (34,890) |  |  | 71.14 |  |  | (33,218) |  |  | 81.91 |  |  | (2,336) |  |  | 105.91 |
Achievement level adjustment | — |  |  | — |  |  | (132,846) |  |  | 93.61 |  |  | — |  |  | — |
Shares settled for cash | (8,136) |  |  | 68.35 |  |  | — |  |  | — |  |  | — |  |  | — |
Nonvested at December 31, 2020 | 200,379 |  |  | 67.83 |  |  | 86,596 |  |  | 77.15 |  |  | 93,588 |  |  | 105.91 |
Granted | 134,895 |  |  | 75.97 |  |  | — |  |  | — |  |  | 160,206 |  |  | 174.16 |
Vested | (30,665) |  |  | 82.14 |  |  | (49,586) |  |  | 77.15 |  |  | — |  |  | — |
Forfeited | (104,573) |  |  | 70.59 |  |  | (6,978) |  |  | 77.15 |  |  | (69,272) |  |  | 177.86 |
Achievement level adjustment | — |  |  | — |  |  | (30,032) |  |  | 77.15 |  |  | — |  |  | — |
Shares settled for cash | (16,878) |  |  | 82.50 |  |  | — |  |  |  |  | — |  |  | — |
Nonvested at December 31, 2021 | 183,158 |  |  | $ | 70.07 |  |  | — |  |  | $ | — |  |  | 184,522 |  |  | $ | 177.86 |
The maximum potential number of shares to be issued at December 31, 2020 is represented by the restricted share units and equity based performance shares at nonvested balance at December 31, 2020. We account for forfeitures when they occur as opposed to estimating the number of awards that are expected to vest as of the grant date. Non-qualified and incentive stock options were granted in 2019, 2020, and 2021. No stock option has a term exceeding 10 years from the date of grant. All stock options were granted at not less than 100% of fair market value (as defined) on the date of grant. As of December 31, 2021, there was $2.2 million of unrecognized compensation cost related to stock options. No stock options granted in 2019 remained outstanding at December 31, 2021. The following table provides certain information with respect to stock options as of December 31, 2021:
Range of Exercise Price | Share Options Outstanding |  | Stock Options Exercisable |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Life
Under $80.00 | 68,549 |  |  | 23,163 |  |  | $ | 53.78 |  |  | 8.16
Over $80.00 and under $90.00 | 76,222 |  |  | — |  |  | 80.66 |  |  | 9.18
Over $90.00 | 10,265 |  |  | — |  |  | 106.10 |  |  | 9.91
Total | 155,036 |  |  | 23,163 |  |  | $ | 70.46 |  |  | 8.78
We determine the fair value of stock options using the Black-Scholes option pricing formula. Key inputs into this formula include expected term, expected volatility, expected dividend yield, and the risk-free interest rate. We use the closing stock price on the grant date for determining the fair value. This fair value is amortized on a straight line basis over the vesting period. All options issued vest in equal annual increments over three years with the exception of options granted on November 26, 2021 that vest equally at the end of one quarter years, one and one quarter years, and two and one quarter years. The expected term represents the period that our stock options are expected to be outstanding, and is determined based on historical experience of similar awards, given the contractual terms of the awards, vesting schedules, and expectations of future employee behavior. The fair value of stock options reflects a volatility factor calculated using historical market data for EnPro's common stock. The time frame used was approximated as a six year period from the grant date for all options granted except for those options granted at November 26, 2021 that used a 5.6 year period. The dividend assumption is based on our current expectations for our dividend policy. We base the risk-free interest rate on the yield to maturity at the time of the stock option grant on zero-coupon U.S. government bonds having a remaining life equal to the option's expected life. When estimating forfeitures, we consider voluntary termination behaviors as well as analysis of actual option forfeitures. We issued options at various times throughout 2021. The following assumptions were used to estimate the fair value of the 2021 option awards:
| Grant Date
| February 25, 2021 |  | May 4, 2021 |  | May 17, 2021 |  | August 5, 2021 |  | November 26, 2021
Fair-value at grant date (per share) | $ | 27.46 |  |  | $ | 30.32 |  |  | $ | 33.53 |  |  | $ | 29.78 |  |  | $ | 36.53 |
Assumptions: |  |  |  |  |  |  |  |  |
Average expected term | 6.0 years |  | 6.0 years |  | 6.0 years |  | 6.0 years |  | 5.6 years
Expected volatility | 40.29 | % |  | 40.37 | % |  | 40.46 | % |  | 40.65 | % |  | 39.51 | %
Risk-free interest rate | 1.02 | % |  | 1.05 | % |  | 1.07 | % |  | 0.87 | % |  | 0.42 | %
Expected dividend yield | 1.35 | % |  | 1.24 | % |  | 1.14 | % |  | 1.26 | % |  | 1.74 | %
The option awards issued in 2020 had a fair value of $13.64 per share and $18.67 per share at the grant dates of February 27, 2020 and August 27, 2020, respectively. The following assumptions were used to estimate the fair value of the 2020 option awards:
| Grant Date
| February 27, 2020 |  | August 27, 2020
Average expected term | 6 years |  | 6 years
Expected volatility | 31.53 | % |  | 39.51 | %
Risk-free interest rate | 1.17 | % |  | 0.42 | %
Expected dividend yield | 1.93 | % |  | 1.74 | %
A summary of option activity under the Plans as of December 31, 2021, and changes during the year then ended, is presented below:
| Share Options Outstanding |  | Weighted Average Exercise Price
Balance at December 31, 2020 | 202,804 |  |  | $ | 58.91 |
Granted | 162,327 |  |  | 81.96 |
Exercised | (38,451) |  |  | 48.32 |
Forfeited | (171,644) |  |  | 68.82 |
Balances at December 31, 2021 | 155,036 |  |  | $ | 70.46 |
The year-end intrinsic value related to stock options is presented below:
| As of and for the Years Ended December 31,
(in millions) | 2021 |  | 2020 |  | 2019
Options outstanding | $ | 6.1 |  |  | $ | 4.0 |  |  | $ | 0.5 |
Options exercisable | $ | 1.3 |  |  | $ | 0.6 |  |  | $ | 0.4 |
We recognized the following equity-based employee compensation expenses and benefits related to our Plan activity:
| Years Ended December 31,
(in millions) | 2021 |  | 2020 |  | 2019
Compensation expense | $ | 5.0 |  |  | $ | 5.4 |  |  | $ | 6.8 |
Related income tax benefit | $ | 1.4 |  |  | $ | 1.4 |  |  | $ | 2.2 |
Each non-employee director received an annual grant of common stock (or, at the directors election, phantom shares) equal in value to $110,000 in the year ended December 31, 2021. Each non-employee director received an annual grant of phantom shares equal in value to $110,000 in the years ended December 31, 2020 and 2019. With respect to certain phantom shares awarded in prior years, we will pay each non-employee director in cash the fair market value of the director's phantom shares upon termination of service as a member of the board of directors. The remaining phantom shares granted will be paid out in the form of one share of our common stock for each phantom share, with the value of any fractional phantom shares paid in cash. Expense recognized in the years ended December 31, 2021, 2020 and 2019 related to these share and phantom share grants was $1.0 million, $0.9 million and $0.9 million, respectively. No cash payments were used to settle phantom shares in 2021, 2020 or 2019.

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