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Stock-Based Compensation | 12 Months Ended
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May 29, 2021
Share-based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based Compensation The Company utilizes equity-based compensation incentives as a component of its employee and non-employee director and officer compensation philosophy. Currently, these incentives consist principally of stock options, restricted stock, restricted stock units and performance share units. The Company issues shares in connection with its share-based compensation plans from authorized, but unissued, shares. At May 29, 2021 there were 7,182,670 shares authorized under the various stock-based compensation plans.The Company also offers a stock purchase plan for its domestic and certain international employees. Valuation and Expense Information The Company measures the cost of employee services received in exchange for an award of equity instruments based on their grant-date fair market value. This cost is recognized over the requisite service period. Certain of the Company's equity-based compensation awards contain provisions that allow for continued vesting into retirement. Stock-based awards are considered fully vested for expense attribution purposes when the employee's retention of the award is no longer contingent on providing subsequent service. The Company classifies pre-tax stock-based compensation expense primarily within Operating expenses in the Consolidated Statements of Comprehensive Income. Pre-tax compensation expense and the related income tax benefit for all types of stock-based programs were as follows for the periods indicated:
(In millions) | May 29, 2021 |  | May 30, 2020 |  | June 1, 2019
Employee stock purchase program | $ | 0.4 |  |  | $ | 0.3 |  |  | $ | 0.3 |
Stock option plans | 3.7 |  |  | 0.6 |  |  | (0.4) |
Restricted stock units | 4.1 |  |  | 3.9 |  |  | 4.6 |
Performance share units | 0.8 |  |  | (2.1) |  |  | 2.8 |
Total | $ | 9.0 |  |  | $ | 2.7 |  |  | $ | 7.3 |
Tax benefit | $ | 2.0 |  |  | $ | 0.5 |  |  | $ | 1.6 |
As of May 29, 2021, total pre-tax stock-based compensation cost not yet recognized related to non-vested awards was approximately $13.7 million. The weighted-average period over which this amount is expected to be recognized is 1.5 years. Employee Stock Purchase Program Under the terms of the Company's Employee Stock Purchase Plan, 4 million shares of authorized common stock were reserved for purchase by plan participants at 85 percent of the market price. Shares of common stock purchased under the employee stock purchase plan were 71,468, 70,145, and 62,957 for the fiscal years ended 2021, 2020 and 2019 respectively. Stock Options The Company grants options to purchase the Company's stock to certain key employees and non-employee directors under its Long-Term Incentive Plan, as amended (the "LTIP") at a price not less than the market price of the Company's common stock on the date of grant. Under the current award program, all options become exercisable between one year and three years from date of grant and expire ten years from date of grant. Most options are subject to graded vesting with the related compensation expense recognized on a straight-line basis over the requisite service period. In fiscal 2021 there was one stock option valuation date, but two valuations. In fiscal 2020 were no stock option grants awarded to employees or non-employee directors. In fiscal 2019 there were two separate stock option valuation dates. Therefore the table below has been presented with the assumptions relevant to each valuation date. The Company estimated the fair value of employee stock options on the date of grant using the Black-Scholes model. In determining these values, the following weighted-average assumptions were used for the options granted during the fiscal years indicated:
| 2021 |  | 2020 |  | 2019
Risk-free interest rates (1) | 2.30-2.47% |  | N/A |  | 2.65-2.70%
Expected term of options (2) | 3.8-4.1 years |  | N/A |  | 4.4 years
Expected volatility (3) | 43-44% |  | N/A |  | 27 | %
Dividend yield (4) | 1.99 | % |  | N/A |  | 2.18-2.33%
Weighted-average grant-date fair value of stock options: |  |  |  |  |
Granted with exercise prices equal to the fair market value of the stock on the date of grant | $ | 6.10 |  |  | N/A |  | $ | 8.05 |
Granted with exercise prices greater than the fair market value of the stock on the date of grant | $ | 5.62 |  |  | N/A |  | N/A
(1) Represents term-matched, zero-coupon risk-free rate from the Treasury Constant Maturity yield curve, continuously compounded. (2) Represents historical settlement data, using midpoint scenario with 1-year grant date filter assumption for outstanding options. (3) The blended volatility approach was used. 90% term-matched historical volatility from daily stock prices and 10% percent weighted average implied volatility from the 90 days preceding the grant date. (4) Represents the quarterly dividend divided by the three-month average stock price as of February 28, 2020. The following is a summary of the transactions under the Company's stock option plan:
| Shares Under Option |  | Weighted-Average Exercise Prices |  | Aggregate Intrinsic Value (in millions) |  | Weighted-Average Remaining Contractual Term (Years)
Outstanding at May 30, 2020 | 361,416 |  |  | $ | 32.80 |  |  | $ | 0.2 |  |  | 5.8
Granted at market | 1,409,792 |  |  | $ | 22.9 |  |  |  |  |
Exercised | (86,238) |  |  | $ | 30.81 |  |  |  |  |
Forfeited or expired | (11,598) |  |  | $ | 22.53 |  |  |  |  |
Outstanding at May 29, 2021 | 1,673,372 |  |  | $ | 24.63 |  |  | $ | 38.8 |  |  | 8.56
Ending vested + expected to vest | 1,673,372 |  |  | $ | 24.63 |  |  | $ | 38.8 |  |  | 8.56
Exercisable at end of period | 230,462 |  |  | $ | 32.55 |  |  | $ | 3.5 |  |  | 5.35
The weighted-average remaining recognition period of the outstanding stock options at May 29, 2021 was 1.62 years. The total pre-tax intrinsic value of options exercised during fiscal 2021, 2020 and 2019 was $0.5 million, $5.5 million and $3.3 million, respectively. The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company's closing stock price as of the end of the period presented, which would have been received by the option holders had all option holders exercised in-the-money options as of that date. Total cash received during fiscal 2021 from the exercise of stock options was approximately $3 million. Restricted Stock Units The Company grants restricted stock units to certain key employees under its LTIP. This program provides that the actual number of restricted stock units awarded is based on the value of a portion of the participant's long-term incentive compensation divided by the fair value of the Company's stock on the date of grant. The awards generally cliff-vest after a three-year service period, with prorated vesting under certain circumstances and full or partial accelerated vesting upon retirement. Awards granted in fiscal 2021 had a graded vesting schedule of 25% after the first year, 25% after the second year, and the remaining 50% after the third year. Each restricted stock unit represents one equivalent share of the Company's common stock to be awarded, free of restrictions, after the vesting period. Compensation expense related to these awards is recognized over the requisite service period, which includes any applicable performance period. Dividend equivalent awards are credited quarterly. The units do not entitle participants to the rights of stockholders of common stock, such as voting rights, until shares are issued after vesting. The following is a summary of restricted stock unit transactions for the fiscal years indicated:
| Share Units |  | Weighted Average Grant-Date Fair Value |  | Aggregate Intrinsic Value (in millions) |  | Weighted-Average Remaining Contractual Term (Years)
Outstanding at May 30, 2020 | 243,774 |  |  | $ | 37.02 |  |  | $ | 5.6 |  |  | 1.3
Granted | 307,652 |  |  | $ | 26.71 |  |  |  |  |
Forfeited | (6,955) |  |  | $ | 32.36 |  |  |  |  |
Released | (60,460) |  |  | $ | 33.98 |  |  |  |  |
Outstanding at May 29, 2021 | 484,011 |  |  | $ | 30.84 |  |  | $ | 23.1 |  |  | 1.4
Ending vested + expected to vest | 484,011 |  |  | $ | 30.84 |  |  | $ | 23.1 |  |  | 1.4
The weighted-average remaining recognition period of the outstanding restricted stock units at May 29, 2021, was 1.4 years. The fair value of the share units that vested during the twelve months ended May 29, 2021, was $1.5 million. The weighted average grant-date fair value of restricted stock units granted during 2021, 2020, and 2019 was $26.71, $44.70 and $37.81 respectively. Performance Share Units The Company grants performance share units to certain key employees under its LTIP. The number of units initially awarded was based on the value of a portion of the participant's long-term incentive compensation, divided by the fair value of the Company's common stock on the date of grant. Each unit represents one equivalent share of the Company's common stock. The number of common shares ultimately issued in connection with these performance share units is determined based on the Company's financial performance over the related three-year service period or the Company's financial performance based on certain total shareholder return results as compared to a selected group of peer companies. Compensation expense is determined based on the grant-date fair value and the number of common shares projected to be issued and is recognized over the requisite service period. The following is a summary of performance share unit transactions for the fiscal years indicated:
| Share Units |  | Weighted Average Grant-Date Fair Value |  | Aggregate Intrinsic Value (in millions) |  | Weighted-Average Remaining Contractual Term (Years)
Outstanding at May 30, 2020 | 384,537 |  |  | $ | 37.95 |  |  | $ | 8.9 |  |  | 1.3
Granted | 84,989 |  |  | $ | 37.21 |  |  |  |  |
Forfeited | (52,914) |  |  | $ | 24.76 |  |  |  |  |
Released | (48,553) |  |  | $ | 23.67 |  |  |  |  |
Outstanding at May 29, 2021 | 368,059 |  |  | $ | 41.54 |  |  | $ | 17.6 |  |  | 1.1
Ending vested + expected to vest | 368,059 |  |  | $ | 41.54 |  |  | $ | 17.6 |  |  | 1.1
The weighted-average remaining recognition period of the outstanding performance share units at May 29, 2021, was 1.3 years. The fair value for shares that vested during the twelve months ended May 29, 2021, was 1.1 million. The weighted average grant-date fair value of performance share units granted during 2021, 2020, and 2019 was $37.21, $45.71, and $36.37 respectively. Deferred Compensation Plan The Herman Miller, Inc. Executive Equalization Retirement Plan is a supplemental deferred compensation plan and was made available for salary deferrals and Company contributions beginning in January 2008. The plan is available to a select group of management or highly compensated employees who are selected for participation by the Executive Compensation Committee of the Board of Directors. The plan allows participants to defer up to 50 percent of their base salary and up to 100 percent of their incentive cash bonus. Company contributions to the plan “mirror” the amounts the Company would have contributed to the various qualified retirement plans had the employee's compensation not been above the IRS statutory ceiling ($290,000 in 2021). The Company does not guarantee a rate of return for these funds. Instead, participants make investment elections for their deferrals and Company contributions. Investment options are closely aligned to those available under the Herman Miller Profit Sharing and 401(k) Plan. The Nonemployee Officer and Director Deferred Compensation Plan allows the Board of Directors of the Company to defer a portion of their annual director fee. Investment options are the same as those available under the Herman Miller Profit Sharing and 401(k) Plan, including Company stock. In accordance with the terms of the Executive Equalization Plan and Nonemployee Officer and Director Deferred Compensation Plan, the salary and bonus deferrals, Company contributions and director fee deferrals have been placed in a Rabbi trust. The assets in the Rabbi trust remain subject to the claims of creditors of the Company and are not the property of the participant. Investments in securities other than the Company's common stock are included within the Other assets line item, while investments in the Company's stock are included in the line item Deferred compensation plan in the Company's Consolidated Balance Sheets. A liability of the same amount is recorded on the Consolidated Balance Sheets within the Other liabilities line item. Investment asset realized and unrealized gains and losses are recognized within the Company's Consolidated Statements of Comprehensive Income in the Interest and other investment income line item. The associated changes to the liability are recorded as compensation expense within the Selling, general and administrative line item within the Company's Consolidated Statements of Comprehensive Income. The net effect of any change to the asset and corresponding liability is offset and has no impact on Net earnings in the Consolidated Statements of Comprehensive Income. Director Fees Company directors may elect to receive their director fees in one or more of the following forms: cash, deferred compensation in the form of shares or other selected investment funds, unrestricted Company stock at the market value at the date of election or stock options that vest in one year and expire in 10 years. The exercise price of the stock options granted may not be less than the market price of the Company's common stock on the date of grant. Under the plan, the Board members received the following shares or options in the fiscal years indicated:
| 2021 |  | 2020 |  | 2019
Shares of common stock | 3,013 |  |  | 7,769 |  |  | 10,185 |
Shares through the deferred compensation program | — |  |  | 1,045 |  |  | 7,619 |

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