Share-Based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

Share-based plans. The Company grants long-term equity-based incentives and awards for the benefit of its employees and directors under the shareholder approved Polaris Inc. 2007 Omnibus Incentive Plan (as amended and restated as of April 30,2020) (the “Omnibus Plan”), which were previously provided under several separate incentive and compensatory plans. Upon approval by the shareholders of the Omnibus Plan, in April 2007 prior equity plans maintained by the Company were frozen and no further grants or awards have since been or will be made under such plans. A maximum of 27,775,000 shares of common stock are available for issuance under the Omnibus Plan, together with additional shares canceled or forfeited under the Prior Plans.

Stock option awards granted to date under the Omnibus Plan generally vest one to four years from the award date and expire after ten years. In addition, since 2007, the Company has granted a total of 216,000 deferred stock units to its non-employee directors under the Omnibus Plan (20,000, 15,000 and 12,000 in 2020, 2019 and 2018, respectively), which will be converted into common stock when the director’s board service ends or upon a change in control. Restricted units and performance-based restricted units (collectively restricted stock) awarded under the Omnibus Plan generally vests after a one to four year period. The final number of shares issued under performance-based awards are dependent on achievement of certain performance measures.

Under the Polaris Inc. Deferred Compensation Plan for Directors (“Director Plan”) and the Omnibus Plan, members of the Board of Directors who are not Polaris officers or employees may annually elect to receive common stock equivalents in lieu of director fees, which will be converted into common stock when board service ends. Alternatively, these common stock equivalents may be diversified into other investments until board service ends, pursuant to the terms of the Director Plan. A maximum of 500,000 shares of common stock has been authorized under the Director Plan of which 73,000 common stock equivalents have been earned and 427,000 shares have been issued to retired directors as of December 31, 2020. Authorized shares under the Director Plan were exhausted in 2017. Since 2017, the Company has granted a total of 48,000 common stock equivalents to its non-employee directors under the Omnibus Plan (13,000 in 2020, 14,000 in 2019, and 10,000 in 2018). As of December 31, 2020 and 2019, Polaris’ liability under the plans for the common stock equivalents totaled $8.0 million and $11.0 million, respectively.

Polaris maintains a long term incentive program under which awards are issued to provide incentives for certain employees to attain and maintain the highest standards of performance and to attract and retain employees of outstanding

competence and ability with no cash payments required from the recipient. Long term incentive program awards are granted in restricted stock units and stock options and therefore treated as equity awards.

Share-based compensation expense. The amount of compensation cost for share-based awards recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company analyzes historical data to estimate pre-vesting forfeitures and records share compensation expense for those awards expected to vest.

Total share-based compensation expenses were as follows (in millions):


	For the Years Ended December 31,
	2020		2019		2018
Option awards	$	13.8	$	21.8	$	23.4
Other share-based awards	40.9		48.0		28.5
Total share-based compensation before tax	54.7		69.8		51.9
Tax benefit	13.1		16.6		12.3
Total share-based compensation expense included in net income	$	41.6	$	53.2	$	39.6

These share-based compensation expenses are reflected in cost of sales and operating expenses in the accompanying consolidated statements of income. At December 31, 2020, there was $60.1 million of total unrecognized share-based compensation expense related to unvested share-based equity awards. Unrecognized share-based compensation expense is expected to be recognized over a weighted-average period of 1.04 years. Included in unrecognized share-based compensation expense is approximately $10.2 million related to stock options and $49.9 million for restricted stock.

In addition to the above share-based compensation expenses, the Company sponsors a qualified non-leveraged employee stock ownership plan (ESOP). Shares allocated to eligible participants’ accounts vest at various percentage rates based on years of service and require no cash payments from the recipient. See Note 5 for additional information.

General stock option and restricted stock information. The following summarizes stock option activity and the weighted average exercise price for the Omnibus Plan for the year ended December 31, 2020:


	Omnibus Plan (Active)
	Options Outstanding	Weighted Average Exercise Price
Balance as of December 31, 2019	5,654,258	$	96.83
Granted	606,060	93.88
Exercised	(428,617)	72.49
Forfeited/Expired	(729,405)	95.62
Balance as of December 31, 2020	5,102,296	$	98.70

Options exercisable as of December 31, 2020	3,398,589	$	102.23

The weighted average remaining contractual life of options outstanding and of options outstanding and exercisable as of December 31, 2020 was 5.17 years and 3.84 years, respectively. Substantially all unvested outstanding options are expected to vest.

The following assumptions were used to estimate the weighted average fair value of options of $21.76, $19.54 and $26.50 granted during the years ended December 31, 2020, 2019 and 2018, respectively:


	For the Years Ended December 31,
	2020	2019	2018
Weighted-average volatility	34%	32%	30%
Expected dividend yield	2.6%	2.9%	2.1%
Expected term (in years)	4.5	4.5	4.4
Weighted average risk free interest rate	1.4%	2.5%	2.6%

The total intrinsic value of options exercised during the year ended December 31, 2020 was $13.4 million. The total intrinsic value of options outstanding and of options outstanding and exercisable at December 31, 2020, was $35.6 million and $25.8 million, respectively. The total intrinsic values are based on the Company’s closing stock price on the last trading day of the applicable year for in-the-money options.

The grant date fair value for performance awards with a total shareholder return (TSR) market condition were estimated using a Monte Carlo simulation model utilizing the following weighted-average assumptions:


	For the Years Ended December 31,
	2020	2019	2018
Weighted-average volatility	35%	34%	33%
Expected dividend yield	2.6%	2.7%	2.1%
Expected term (in years)	3.0	3.0	3.0
Weighted average risk free interest rate	1.4%	2.4%	2.3%

The Company used its historical stock price as the basis for the Company’s volatility assumption. The assumed risk-free interest rates were based on U.S. Treasury rates in effect at the time of grant. The expected term was based on the vesting period. The weighted-average fair value used to record compensation expense for TSR performance share awards granted during 2020, 2019, and 2018 was $98.09, $96.38, and $106.43 per award, respectively.

The following table summarizes restricted stock activity for the year ended December 31, 2020:


	Shares Outstanding	Weighted Average Grant Price
Balance as of December 31, 2019	1,386,009	$	96.92
Granted	391,206	92.23
Vested	(423,154)	87.93
Forfeited/Cancelled	(210,985)	99.28
Balance as of December 31, 2020	1,143,076	$	98.20
Expected to vest as of December 31, 2020	1,135,950	$	98.12

The shares granted above include 96,000 performance restricted stock unit awards. These performance grants are the number of shares that would be earned at the target level of performance. The number of shares of Polaris common stock that could actually be delivered at the end of the three-year performance period for performance restricted stock units may be anywhere from 0% to 200% of target for each performance share, depending on the performance of the Company during such performance period.

The total intrinsic value of restricted stock expected to vest as of December 31, 2020 was $108.2 million. The total intrinsic value is based on the Company’s closing stock price on the last trading day of the year. The weighted average fair values at the grant dates of grants awarded under the Omnibus Plan for the years ended December 31, 2020, 2019 and 2018 were $92.23, $89.75 and $114.42, respectively.