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Equity Compensation Plans | 12 Months Ended
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Dec. 31, 2023
Share-Based Payment Arrangement [Abstract] |
Equity Compensation Plans |
17. | Equity Compensation Plans
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, 2023, there are 1.3 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 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, 2023, there was $5.5 million of unrecognized compensation cost related to restricted share units expected to be recognized over a weighted-average remaining amortization period of 1.7 years. Under the terms of the Plans, performance share awards were granted to executives and other key employees during 2023, 2022 and 2021. Each grant will vest if Enpro achieves specific financial objectives at the end of each three-year performance period. Additional amounts under these awards are paid out if objectives are exceeded, but some or all the awards may be forfeited if objectives are not met. Performance shares earned at the end of a performance period, if any, for shares issued in 2023 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 awards granted in 2022, if any, and 2021 will be paid in cash, less applicable withholding taxes if the employee chooses. Awards are forfeited if a grantee terminates employment, during the performance period, except in the case of retirement. Compensation expense related to performance share awards payable in stock granted in 2023 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 2023 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 was computed based upon this grant date fair value using the straight-line method over the applicable performance period. Compensation expense related to the performance share awards payable in cash granted in 2022 and 2021 is computed using the fair value of the awards as of December 31, 2023. The fair value of these awards was determined using a Monte Carlo simulation methodology. Compensation issued for performance share awards 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, 2023, February 15, 2022 and February 16, 2021. 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, 2023 |  |  |  |  |  |
Enpro Inc. |  | 36.78 | % |  | — | % |  | 4.34 | %
S&P 600 Capital Goods Index |  | 44.65 | % |  | n/a |  | 4.34 | %
Shares granted February 15, 2022 |  |  |  |  |  |
Enpro Inc. |  | 33.1 | % |  | 1.00 | % |  | 4.26 | %
S&P 600 Capital Goods Index |  | 39.43 | % |  | n/a |  | 4.26 | %
Shares granted February 16, 2021 |  |  |  |  |  |
EnPro Industries, Inc. |  | 47.32 | % |  | 1.4 | % |  | 0.22 | %
S&P 600 Capital Goods Index |  | 50.86 | % |  | n/a |  | 0.22 | %
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, 2023 there was $2.1 million of unrecognized compensation cost related to nonvested performance share awards to be paid in cash and $2.9 million of unrecognized compensation cost related to nonvested performance share awards to be settled in shares of common stock. These costs are expected to be recognized over a weighted-average vesting period of 1.6 years. A summary of award activity under the Plans is as follows:
| Restricted Share Units |  | Performance Shares - Equity
| Shares |  | Weighted- Average Grant Date Fair Value |  | Shares |  | Weighted- Average Grant Date Fair Value
Nonvested at December 31, 2022 | 124,597 |  |  | 88.52 |  |  | — |  |  | — |
Granted | 62,209 |  |  | 116.89 |  |  | 60,998 |  |  | 148.97 |
Vested | (42,450) |  |  | 79.61 |  |  | — |  |  | — |
Forfeited | (12,947) |  |  | 96.14 |  |  | (878) |  |  | 148.97 |
Shares settled for cash | (17,850) |  |  | 87.90 |  |  | — |  |  | — |
Nonvested at December 31, 2023 | 113,559 |  |  | $ | 107.07 |  |  | 60,120 |  |  | $ | 148.97 |
The maximum potential number of shares to be issued at December 31, 2023 is represented by the restricted share units nonvested balance at December 31, 2023. The number of nonvested performance share awards shown in the table above represents the maximum potential shares to be issued. 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. During the first quarter of calendar 2021 and 2022, the Company granted Performance Shares to certain key employees which are payable in cash after a three-year vesting period. Actual payments to be made to participating employees are based on an initial target amount, which is adjusted based on the relative three-year performance of Enpro’s share price versus a set of peer companies. Expense related to each grant is recognized on a straight-line basis utilizing the best current estimate of the grant value at maturity. Expense recognized for calendar 2023, 2022 and 2021 was $9.1 million, $7.8 million, and $6.9 million, respectively. The total liability related to this Performance Share cash plan was $18.0 million at December 31, 2023, of which $12.4 million is classified as current. Non-qualified and incentive stock options were granted in 2021, 2022, and 2023. 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, 2023, there was $2.7 million of unrecognized compensation cost related to stock options. The following table provides certain information with respect to stock options as of December 31, 2023:
Range of Exercise Price | Stock Options Outstanding |  | Stock Options Exercisable |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Life
Under $80.00 | 42,091 |  |  | 42,091 |  |  | $ | 53.78 |  |  | 6.16
Over $80.00 and under $95.00 | 63,231 |  |  | 39,280 |  |  | $ | 80.57 |  |  | 7.18
Over $95.00 and under $110.00 | 64,234 |  |  | 24,932 |  |  | $ | 106.47 |  |  | 8.11
Over $110.00 | 51,871 |  |  | — |  |  | $ | 111.29 |  |  | 9.21
Total | 221,427 |  |  | 106,303 |  |  | $ | 90.19 |  |  | 7.73
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 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. The following assumptions were used to estimate the indicated fair value of the 2023 option awards:
| Grant Date
| February 16, 2023 |  | March 2, 2023 |  | October 30, 2023
Fair-value at grant date (per share) | $ | 47.27 |  |  | $ | 45.13 |  |  | $ | 48.88 |
Assumptions: |  |  |  |  |
Average expected term | 6 years |  | 6 years |  | 6 years
Expected volatility | 39.59 | % |  | 39.75 | % |  | 40.38 | %
Risk-free interest rate | 4.02 | % |  | 4.22 | % |  | 4.84 | %
Expected dividend yield | 0.99 | % |  | 1.05 | % |  | 1.01 | %
The following assumptions were used to estimate the indicated fair value of the 2022 option awards:
| Grant Date
| February 15, 2022 |  | February 24, 2022
Fair-value at grant date (per share) | $ | 38.86 |  |  | $ | 39.07 |
Assumptions: |  |  |
Average expected term | 6 years |  | 6 years
Expected volatility | 39.85 | % |  | 39.88 | %
Risk-free interest rate | 1.99 | % |  | 1.89 | %
Expected dividend yield | 1.06 | % |  | 1.05 | %
The following assumptions were used to estimate the indicated 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 years |  | 6 years |  | 6 years |  | 6 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 | %
A summary of option activity under the Plans as of December 31, 2023, and changes during the year then ended, is presented below:
| Stock Options Outstanding |  | Weighted Average Exercise Price
Balance at December 31, 2022 | 184,930 |  |  | $ | 82.32 |
Granted | 51,871 |  |  | 111.29 |
Exercised | (14,975) |  |  | 65.73 |
Forfeited | (399) |  |  | 106.54 |
Balance at December 31, 2023 | 221,427 |  |  | $ | 90.19 |
The year-end intrinsic value related to stock options is presented below:
| December 31,
(in millions) | 2023 |  | 2022 |  | 2021
Options outstanding | $ | 14.7 |  |  | $ | 4.9 |  |  | $ | 6.1 |
Options exercisable | $ | 8.6 |  |  | $ | 2.4 |  |  | $ | 1.3 |
We recognized the following equity-based employee compensation expenses and benefits related to our Plan activity:
| Years Ended December 31,
(in millions) | 2023 |  | 2022 |  | 2021
Compensation expense | $ | 8.8 |  |  | $ | 6.0 |  |  | $ | 5.0 |
Related income tax benefit | $ | 2.4 |  |  | $ | 1.6 |  |  | $ | 1.4 |
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 years ended December 31, 2023, 2022 and 2021. 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, 2023, 2022 and 2021 related to these share and phantom share grants was $1.2 million, $1.0 million and $1.0 million, respectively. No cash payments were used to settle phantom shares in 2023, 2022 or 2021.

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