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Stock-Based Compensation Plans | 12 Months Ended
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Dec. 31, 2021
Stock-Based Compensation Plans |
Stock-Based Compensation Plans | 17. Stock-Based Compensation Plans The Western Union Company 2006 Long-Term Incentive Plan and 2015 Long-Term Incentive Plan The Western Union Company 2015 Long-Term Incentive Plan (“2015 LTIP”), approved on May 15, 2015, provides for the granting of stock options, restricted stock awards and units, unrestricted stock awards and units, and other equity-based awards to employees and non-employee directors of the Company. Prior to this, equity-based awards were granted out of the 2006 Long-Term Incentive Plan (“2006 LTIP”). Shares available for grant under the 2015 LTIP were 15.7 million as of December 31, 2021. Stock options granted to employees under the 2015 LTIP and the 2006 LTIP are issued with exercise prices equal to the fair market value of Western Union common stock on the grant date, have 10-year terms, and typically vest over four equal annual increments beginning one year after the grant date. Stock options granted to executive officers and retirement eligible employees generally vest on a prorated basis upon termination. Compensation expense related to stock options is recognized over the requisite service period, which is the same as the vesting period. Restricted stock units granted to employees typically vest three years after the grant date or vest over three or four equal annual increments beginning one year after the grant date. Restricted stock units granted to executive officers and retirement eligible employees generally vest on a prorated basis upon termination. The fair value of restricted stock units is measured based on the fair value of the shares on the grant date. The majority of stock unit awards granted prior to 2019 do not provide for the payment of dividend equivalents. For those grants, the value of the grant is reduced by the net present value of the foregone dividend equivalent payments. Beginning with awards granted in February 2019, restricted stock units accrue dividend equivalents, with dividend equivalents paid in cash to the extent that the underlying shares vest. Restricted stock units that accrue dividend equivalents are valued using the Company’s stock price on the grant date. Compensation expense related to restricted stock units is recognized over the requisite service period, which is the same as the vesting period. The compensation committee of the Company’s Board of Directors has granted the Company’s executive officers and certain other key employees, excluding the CEO, long-term incentive awards under the 2015 LTIP, which consisted of 50% Financial PSUs (as defined below), 30% restricted stock unit awards, and 20% TSR PSUs (as defined below) in 2021 and 2020. The former CEO received long-term incentive awards under the 2015 LTIP consisting of 50% Financial PSUs, 20% TSR PSUs, 20% stock option awards, and 10% restricted stock unit awards in 2021 and 2020. The compensation committee granted Senior Vice Presidents of the Company awards under the 2015 LTIP, which consisted of 50% Financial PSUs and 50% restricted stock unit awards in 2021 and 2020. The compensation committee granted certain other non-executive employees of the Company participating in the 2015 LTIP annual equity grants consisting of restricted stock unit awards and Financial PSUs in 2021 and 2020. In December 2021, the Company granted its new CEO restricted stock units and stock options on the date of hire. The terms of these awards are consistent with the restricted stock units and stock options discussed above, with the exception of the vesting period of the restricted stock units, which vest over two equal increments in August 2022 and February 2023. The performance-based restricted stock units granted to the Company’s executives in 2021 are restricted stock units and consist of two separate awards. The first award consists of performance-based restricted stock units, which require the Company to meet certain annual financial objectives over a three-year performance period (2021 through 2023) (“Financial PSUs”). Beginning with awards granted in February 2019, Financial PSUs accrue dividend equivalents, with dividend equivalents paid in cash to the extent that the underlying shares vest. The second award consists of performance-based restricted stock units with a market condition tied to the Company’s total shareholder return in relation to the S&P 500 Index as calculated over a three-year performance period (2021 through 2023) (“TSR PSUs”). Both of these awards will vest 100% on the third anniversary of the grant date, contingent upon threshold market and financial performance metrics being met. The actual number of performance-based restricted stock units that the recipients will receive for awards in 2021 and 2020 range from 0% up to 200% of the target number of stock units granted, contingent upon actual financial and total shareholder return performance results. The grant date fair value of all performance-based restricted stock units is fixed, and the amount of restricted stock units that will ultimately vest depends upon the level of achievement of the performance and market conditions over the performance period. Financial PSUs and TSR PSUs granted to executive officers and retirement eligible employees generally vest on a prorated basis upon termination. The fair value of the Financial PSUs is measured with a methodology similar to that used to value the restricted stock units discussed above, while the fair value of the TSR PSUs is determined using the Monte-Carlo simulation model. Unlike the Financial PSUs, compensation costs related to the TSR PSUs are recognized regardless of whether the market condition is satisfied, provided that the requisite service period has been completed. The Company has also granted restricted stock units and options under the 2015 LTIP to the non-employee directors of the Company. The fair value of these restricted stock units is measured based on the fair value of the shares on the grant date and may be settled upon vesting unless the participant elects to defer the receipt of common shares under the applicable plan rules. Options have 10-year terms and are issued with exercise prices equal to the fair market value of Western Union common stock on the grant date. Both of these awards vest one year after the grant date and on a prorated basis upon a qualifying departure. Compensation expense for these awards is recognized over the requisite service period, which is the same as the vesting period. Stock Option Activity A summary of stock option activity for the year ended December 31, 2021 was as follows (options and aggregate intrinsic value in millions):
|  |  |  |  | Weighted- Average Exercise |  |  | Weighted-Average Remaining Contractual Term |  |  | Aggregate Intrinsic |
|  | Options |  |  | Price |  |  | (Years) |  |  | Value |
Outstanding as of January 1 |  |  | 4.9 |  |  | $ | 19.11 |  |  |  |  |  |  |
Granted |  |  | 2.6 |  |  | $ | 18.87 |  |  |  |  |  |  |
Exercised |  |  | (0.6 | ) |  | $ | 19.59 |  |  |  |  |  |  |
Cancelled/forfeited |  |  | — |  |  | $ | 21.00 |  |  |  |  |  |  |
Outstanding as of December 31 |  |  | 7.0 |  |  | $ | 18.98 |  |  |  | 6.9 |  |  | $ | 2.3 |
Options exercisable as of December 31 |  |  | 3.6 |  |  | $ | 18.48 |  |  |  | 4.5 |  |  | $ | 1.9 |
The Company received $11.6 million, $2.2 million, and $36.7 million, in cash proceeds related to the exercise of stock options during the years ended December 31, 2021, 2020, and 2019, respectively. Upon the exercise of stock options, shares of common stock are issued from authorized common shares. The Company realized total tax benefits during the years ended December 31, 2021, 2020, and 2019 from stock option exercises of $0.6 million, $0.2 million, and $2.4 million, respectively. The total intrinsic value of stock options exercised during the years ended December 31, 2021, 2020, and 2019 was $2.8 million, $0.8 million, and $11.6 million, respectively. Restricted Stock Activity A summary of activity for restricted stock units and performance-based restricted stock units for the year ended December 31, 2021 was as follows (units in millions):
|  |  |  |  | Weighted-Average |
|  | Units |  |  | Grant-Date Fair Value |
Non-vested as of January 1 |  |  | 6.9 |  |  | $ | 20.88 |
Granted |  |  | 3.7 |  |  | $ | 22.63 |
Vested |  |  | (2.1 | ) |  | $ | 20.03 |
Forfeited |  |  | (1.0 | ) |  | $ | 21.52 |
Non-vested as of December 31 |  |  | 7.5 |  |  | $ | 21.91 |
Stock-Based Compensation Expense The following table sets forth the total impact on earnings for stock-based compensation expense recognized in the Consolidated Statements of Income resulting from stock options, restricted stock units, performance-based restricted stock units and deferred stock units for the years ended December 31, 2021, 2020, and 2019 (in millions, except per share data):
|  | 2021 |  |  | 2020 |  |  | 2019 |
Stock-based compensation expense |  | $ | (44.3 | ) |  | $ | (41.7 | ) |  | $ | (48.9 | )
Income tax benefit from stock-based compensation expense |  |  | 7.5 |  |  |  | 6.9 |  |  |  | 8.5 |
Net income impact |  | $ | (36.8 | ) |  | $ | (34.8 | ) |  | $ | (40.4 | )
Earnings per share impact: |  |  |  |  |  |  |  |  |
Basic and diluted |  | $ | (0.09 | ) |  | $ | (0.08 | ) |  | $ | (0.09 | )
As of December 31, 2021, there was $8.1 million of total unrecognized compensation cost, net of assumed forfeitures, related to non-vested stock options, which is expected to be recognized over a weighted-average period of 3.7 years, and there was $71.1 million of total unrecognized compensation cost, net of assumed forfeitures, related to non-vested restricted stock units and performance-based restricted stock units, which is expected to be recognized over a weighted-average period of 1.9 years. Fair Value Assumptions The Company used the following assumptions for the Black-Scholes option pricing model to determine the value of Western Union options granted for the years ended December 31, 2021, 2020, and 2019:
|  | 2021 |  |  | 2020 |  |  | 2019 |
Stock options granted: |  |  |  |  |  |  |  |  |
Weighted-average risk-free interest rate |  | 1.3% |  |  | 1.5% |  |  | 2.5% |
Weighted-average dividend yield |  | 4.2% |  |  | 4.0% |  |  | 4.2% |
Volatility |  | 29.1% |  |  | 25.2% |  |  | 22.8% |
Expected term (in years) |  |  | 7.03 |  |  |  | 7.12 |  |  |  | 7.05 |
Weighted-average grant date fair value |  | $ | 3.26 |  |  | $ | 3.96 |  |  | $ | 2.56 |
Risk-free interest rate - The risk-free rate for stock options granted during all periods presented was determined by using a United States Treasury rate for the period that coincided with the expected terms listed above. Expected dividend yield - The Company’s expected annual dividend yield for all periods presented was the calculation of the annualized Western Union dividend divided by an average Western Union stock price on each respective grant date. Expected volatility - For the Company’s CEO and non-employee directors, the Company used a blend of implied and historical volatility, which was calculated using the market price of traded options on Western Union’s common stock and the historical volatility of Western Union stock data. There were no options granted to non-executive employees in 2021, 2020, or 2019. Expected term - For 2021, 2020, and 2019, the expected term for the CEO and non-employee director grants was approximately seven years and eight years, respectively. The Company’s expected term for options was based upon, among other things, historical exercises, the vesting term of the Company’s options, and the options’ contractual term of 10 years. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and the Company’s historical experience and future expectations. The calculated fair value is recognized as compensation cost in the Company’s consolidated financial statements over the requisite service period of the entire award. Compensation cost is recognized only for those options expected to vest, with forfeitures estimated at the date of grant and evaluated and adjusted periodically to reflect the Company’s historical experience and future expectations. Any change in the forfeiture assumption is accounted for as a change in estimate, with the cumulative effect of the change on periods previously reported being reflected in the consolidated financial statements of the period in which the change is made.

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