The Company grants stock options, RSUs, RSAs and PSUs to certain employees and directors of the Company under the 2015 Equity and Incentive Award Plan, and previously did so under the 2001 Stock Option and Incentive Award Plan (the "2015 Plan" and "2001 Plan"). The 2001 Plan was originally approved by the Company’s shareholders in May 2001 and was amended and restated with shareholder approval in May 2009 and discontinued with the approval of the 2015 Plan on May 6, 2015. The 2015 Plan was subsequently amended and restated with shareholder approval in February 2019. Beginning in 2015, as part of the Company’s long-term incentive compensation program ("LTIP Plan") and pursuant to the Company’s 2001 Plan and 2015 Plan, the Company granted a mix of stock options, time-based restricted stock and performance share units to key executives and managers and also granted time-based restricted stock units to directors of the Company. As of December 31, 2021, the aggregate number of shares of common stock that may be issued or transferred under the 2015 Plan is 2,558,933.

In accordance with the terms of the Separation and the Employee Matters Agreement between The Aaron's Company and PROG Holdings, all unexercised, unissued and/or unvested share-based awards previously granted to Aaron's Holdings Company, Inc. employees and directors under the 2001 Plan and 2015 Plan prior to the separation and distribution date of November 30, 2020 were converted at the time of distribution to replacement stock options, RSUs, PSUs and RSAs.

The replacement awards were converted using formulas designed to preserve the intrinsic economic value of the awards after taking into consideration the distribution. Aaron's Holdings Company, Inc. employees who held unvested PSUs, and/or RSAs of Aaron's Holdings Company, Inc. on the record date of November 27, 2020 generally had the option to elect one of two conversion methods for determining the replacement awards:

i.to receive replacement awards of both PROG Holdings and The Aaron's Company for the number of whole units, rounded down to the nearest whole unit, of PROG Holdings and The Aaron's Company common stock that they would have received as a shareholder of Aaron's Holdings Company, Inc. at the date of separation, which is one share of The Aaron's Company for every two shares of PROG Holdings (i.e., "the shareholder method"); or

ii.to receive replacement awards only of the respective employer's common stock for an amount determined by a conversion ratio determined by calculating the product of the pre-distribution share price of Aaron's Holdings Company, Inc. and the pre-distribution number of awards to be cancelled and replaced pursuant to this conversion, then dividing the product by the post-distribution volume weighted adjusted three-day average share price of the respective employer's common stock, rounded down to the nearest whole share (i.e., "the employee method").

In accordance with the Employee Matters Agreement, the conversion of certain awards, including substantially all unvested and unexercised vested stock options, was required to be determined following the employee method. The conversion of RSUs held by the board of directors was required to be determined following the shareholder method.

Under both the shareholder method and the employee method, the terms and conditions of the converted awards were replicated, and, as necessary, adjusted to ensure that the vesting schedules were unchanged and the awards were converted in accordance with the Employee Matters Agreement. In connection with the conversion, certain equity awards of PROG Holdings employees and directors were converted into equity awards of The Aaron's Company and are therefore not reflected in the ending awards outstanding in the tables below; however, these awards result in stock-based compensation expense of PROG Holdings as the awards continue to vest. In connection with the conversion, certain employees and directors of The Aaron's Company have outstanding RSUs, PSUs, RSAs, and stock options in PROG Holdings, which are reflected in the ending awards outstanding in the tables below; however, these awards do not result in stock-based compensation expense of PROG Holdings for periods subsequent to the separation and distribution date.

The Company accounted for the conversion of the awards as award modifications in accordance with ASC 718, Compensation - Stock Compensation ("ASC 718"). The Company compared the fair value of the outstanding awards immediately prior to the conversion with the fair value of the outstanding awards immediately after the conversion, and determined that the conversion of equity awards held by PROG Holdings employees, corporate employees of Aaron's Holding Company, Inc., the Company's directors, and The Aaron's Company directors resulted in incremental compensation expense of $5.2 million related to outstanding vested awards. The incremental expense is classified as continuing operations and is included as a component of separation related charges in the accompanying consolidated statements of earnings for the year ended December 31, 2020. The incremental expense related to outstanding unvested awards held by PROG Holdings employees was immaterial.

In connection with the separation and distribution on November 30, 2020, PROG Holdings and The Aaron's Company entered into a Transition Agreement with the former Chief Executive Officer of Aaron's Holdings Company, Inc., pursuant to which the former CEO would retire and transition to the non-employee Chairman of the Board of Directors of The Aaron's Company, effective November 30, 2020. The Transition Agreement provided that all unvested stock options, RSAs and PSUs granted to the former CEO in prior periods would become fully vested as promptly as practicable following the completion of the separation and distribution. These awards also followed the conversion methodology outlined in the "Conversion at Separation" section above, pursuant to the terms of the Employee Matters Agreement.

The terms of the Transition Agreement resulted in award modifications under ASC 718 as both the fair value and vesting conditions of the awards had been changed. The modifications resulted in incremental compensation expense of $4.5 million associated with the conversion and an additional incremental expense of $8.7 million related to the accelerated vesting of the equity awards. The total incremental expense was due to (i) increased fair value of the awards immediately after the modification as compared to immediately prior to the modifications and (ii) the accelerated vesting of all awards following the completion of the separation and distribution, which resulted in the recognition of a total $13.2 million expense during the fourth quarter of 2020. The incremental compensation expense associated with the modification of the former CEO's awards is included in continuing operations as a component of separation related charges in the accompanying consolidated statements of earnings for the year ended December 31, 2020.

The Company has elected a policy to estimate forfeitures in determining the amount of stock compensation expense. Total stock-based compensation expense was $21.3 million, $41.2 million and $26.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. The stock-based compensation expense classified within discontinued operations in the consolidated statements of earnings was $5.4 million and $5.4 million for the years ended December 31, 2020 and 2019, respectively. The stock-based compensation expense classified within continuing operations is included as a component of operating expenses in the consolidated statements of earnings, with the exception of the incremental compensation expense in 2020 associated with the modifications described above, which were included as a component of separation related charges.

The total income tax benefit recognized in the consolidated statements of earnings for stock-based compensation arrangements was $5.5 million, $10.1 million and $6.6 million in the years ended December 31, 2021, 2020 and 2019, respectively. Benefits of tax deductions in excess of recognized compensation cost, which are included in operating cash flows and as a component of income tax expense in the consolidated statements of earnings, were $0.2 million, $2.6 million and $4.8 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Under the Company’s 2001 Plan, options granted become exercisable after a period of one to five years and unexercised options lapse 10 years after the date of grant. Under the Company’s 2015 Plan, options granted to date become exercisable after a period of one to three years and unexercised options lapse 10 years after the date of the grant. Unvested options are subject to forfeiture upon termination of service for both plans. The Company recognizes compensation expense for options that have a graded vesting schedule on a straight-line basis over the requisite service period. Shares are issued from the Company’s treasury shares upon share option exercises.

The Company determines the fair value of stock options on the grant date using a Black-Scholes-Merton option pricing model that incorporates expected volatility, expected option life, risk-free interest rates and expected dividend yields. The expected volatility is based on implied volatilities from traded options on the Company’s stock and the historical volatility of the Company’s common stock subsequent to the separation and distribution of The Aaron's Company in combination with the volatility of the Company's comparable peer group prior to the separation and distribution for the most recent period generally commensurate with the expected estimated life of each respective grant. The expected lives of options are based on the Company’s historical option exercise experience. The Company believes that the historical experience method is the best estimate of future exercise patterns. The risk-free interest rates are determined using the implied yield available for zero-coupon United States government issues with a remaining term equal to the expected life of the grant. The expected dividend yields are based on the approved annual dividend rate in effect and the market price of the underlying common stock at the time of grant. Beginning in 2021, the annual dividend rate is assumed to be zero, and no assumption for a future dividend rate has been included, as the Company does not currently anticipate paying any dividends.

The Company granted 150,000, 400,000 and 293,000 stock options during the years ended December 31, 2021, 2020 and 2019, respectively. The weighted-average fair value of options granted and the weighted-average assumptions used in the Black-Scholes-Merton option pricing model for such grants were as follows:


	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding December 31, 2021	Weighted Average Remaining Contractual Life (in Years)	Weighted Average Exercise Price		Number Exercisable December 31, 2021	Weighted Average Exercise Price
$20.00-30.00	192,633	4.16	$	24.14	192,633	$	24.14
30.01-40.00	133,002	7.61	36.33		41,143	36.09
40.01-50.00	346,931	7.35	46.87		168,147	46.18
50.01-60.00	5,304	9.35	53.55		—	—
20.00-60.00	677,870	6.51	38.40		401,923	34.59


	Options (In Thousands)	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in Years)	Aggregate Intrinsic Value (in Thousands)		Weighted Average Fair Value
Outstanding at January 1, 2021	723	$	37.45
Granted	150	47.17
Forfeited/Expired	(115)	43.58
Exercised	(80)	38.81
Outstanding at December 31, 2021	678	38.40		6.5	$	5,359	$	13.41
Expected to Vest	268	43.89		8.6	790		15.85
Exercisable at December 31, 2021	402	34.59		5.4	4,562		11.71

The aggregate intrinsic value amounts in the table above represent the closing price of the Company’s common stock on December 31, 2021 in excess of the exercise price, multiplied by the number of in-the-money stock options as of that same date. Options outstanding that are expected to vest are net of estimated future option forfeitures.

The aggregate intrinsic value of options exercised, which represents the value of the Company’s common stock at the time of exercise in excess of the exercise price, was $1.0 million, $24.9 million and $6.5 million during the years ended December 31, 2021, 2020 and 2019, respectively. The total grant-date fair value of options exercised during the year ended December 31, 2021, 2020 and 2019 was $1.0 million, $7.8 million and $4.6 million, respectively.

Restricted stock units or restricted stock awards (collectively, "restricted stock") may be granted to employees and directors under the 2015 Plan and typically vest over approximately one to three-year periods. Restricted stock grants are settled in stock and may be subject to one or more objective employment, performance or other forfeiture conditions as established at the time of grant. The Company recognizes compensation expense for restricted stock with a graded vesting schedule on a straight-line basis over the requisite service period as restricted stock is not subject to Company performance metrics. Shares are issued from the Company’s treasury shares upon vesting. Any shares of restricted stock that are forfeited may again become available for issuance.

The Company granted 521,000, 375,000 and 225,000 shares of restricted stock at weighted-average fair values of $44.44, $41.45 and $54.28 in the years ended December 31, 2021, 2020 and 2019, respectively. The following table summarizes information about restricted stock activity during 2021:


	Restricted Stock (In Thousands)	Weighted Average Fair Value
Non-vested at January 1, 2021	460	$	37.49
Granted	521	44.44
Forfeited	(86)	49.20
Vested	(169)	43.31
Non-vested at December 31, 2021	726	43.13

For performance share units, which are settled in stock, the number of shares earned is determined at the end of the one to three-year performance periods based upon achievement of specified performance conditions. The performance criteria vary by agreement and have included the following performance conditions: (i) adjusted pre-tax profit, (ii) return on investment capital, (iii) consolidated revenues, (iv) segment or business unit revenues, (v) certain business development and technology initiatives and/or (vi) business unit customer count. When the performance criteria are met, the award is earned and vests assuming continued employment through the specified service period(s). Shares are issued from the Company’s treasury shares upon vesting. The number of performance-based shares which could potentially be issued ranges from 0% up to a maximum of 100%, 200%, 260%, or 400% of the target award depending on the specified terms and conditions of the target award.

The fair value of performance share units is based on the fair market value of the Company’s common stock on the date of grant. The compensation expense associated with these awards is amortized on an accelerated basis over the vesting period based on the Company’s projected assessment of the level of performance that will be achieved and earned. In the event the Company determines it is no longer probable that the minimum performance criteria specified in the plan will be achieved, all previously recognized compensation expense is reversed in the period such a determination is made.

Effective May 9, 2018, the Company's Board of Directors and shareholders approved the Employee Stock Purchase Plan ("ESPP"), which is a tax-qualified plan under Section 423 of the Internal Revenue Code. The purpose of the Company's ESPP is to encourage ownership of the Company's common stock by eligible employees of PROG Holdings, Inc. and certain subsidiaries. Under the ESPP, eligible employees are allowed to purchase common stock of the Company during six-month offering periods at the lower of: (i) 85% of the closing trading price per share of the common stock on the first trading date of an offering period in which a participant is enrolled; or (ii) 85% of the closing trading price per share of the common stock on the last day of an offering period. Employees participating in the ESPP can contribute up to an amount not exceeding 10% of their base salary and wages up to an annual maximum of $25,000 in total fair market value of the common stock (determined at the time the ability to purchase shares of common stock is granted) and may not purchase more than 500 shares in each offering period.

The compensation cost related to the ESPP is measured on the grant date based on eligible employees' expected withholdings and is recognized over each six-month offering period. Total compensation cost recognized in connection with the ESPP was $0.4 million, $0.6 million and $0.5 million for years ended December 31, 2021, 2020 and 2019, respectively. The compensation costs attributable to continuing operations were recognized as stock-based compensation included as a component of operating expenses in the consolidated statements of earnings. The compensation cost related to the ESPP that was classified within discontinued operations in the consolidated statements of earnings was $0.3 million and $0.2 million for the years ended December 31, 2020 and 2019, respectively.

During the year ended December 31, 2021, the Company issued 38,044 shares under the ESPP at a weighted average purchase price of $39.62. During the year ended December 31, 2020, the Company issued 52,107 shares at a weighted average purchase price of $38.55. During the year ended December 31, 2019, the Company issued 46,642 shares at a purchase price of $42.07. As of December 31, 2021, the aggregate number of shares of common stock that may be issued under the ESPP was 37,270.