SHARE-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement, Noncash Expense [Abstract]

Our employee share-based compensation plans consist of our employee stock purchase plan and our long-term incentive plan. Effective April 29, 2020, our shareholders approved the Deluxe Corporation 2020 Long-Term Incentive Plan, simultaneously terminating our previous plan. Under the current plan, 5.0 million shares of common stock plus any shares released as a result of the forfeiture or termination of awards issued under our prior plan are reserved for issuance, with 3.3 million shares remaining available for issuance as of December 31, 2021. Full value awards such as restricted stock, restricted stock units and performance share unit awards reduce the number of shares available for issuance by a factor of 2.23, or if such an award were

forfeited or terminated without delivery of the shares, the number of shares that again become eligible for issuance would be multiplied by a factor of 2.23. Under our current and previous plans, we have granted non-qualified stock options, restricted stock units, restricted shares and performance share unit awards. Our current plan also allows for the issuance of stock appreciation rights, none of which have been granted as of December 31, 2021. Our policy regarding the recognition of compensation expense for employee share-based awards can be found in Note 1.

The following amounts were recognized in our consolidated statements of income (loss) for share-based compensation awards for the years ended December 31:


(in thousands)	2021		2020		2019
Restricted shares and restricted stock units	$	20,407	$	15,066	$	13,411
Performance share unit awards	4,338		2,590		2,907
Stock options	4,187		3,689		2,954
Employee stock purchase plan	545		479		430
Total share-based compensation expense	$	29,477	$	21,824	$	19,702
Income tax benefit	$	(7,714)	$	(5,779)	$	(5,350)

As of December 31, 2021, the total compensation expense for unvested awards not yet recognized in our consolidated statements of income (loss) was $35,860, net of the effect of estimated forfeitures. This amount is expected to be recognized over a weighted-average period of 2.1 years.

Non-qualified stock options – All options allow for the purchase of shares of common stock at prices equal to the stock's market value at the date of grant. Options become exercisable beginning 1 year after the grant date, with one-fourth vesting each year over 4 years. Options granted under the current plan may be exercised up to 10 years following the grant date. Awards granted prior to 2019 have a 7 year life. Beginning 1 year after the grant date, in the case of qualified retirement, death or disability, options vest immediately and the period over which the options can be exercised is shortened. Beginning 1 year after the grant date, in the case of involuntary termination without cause, a pro-rata portion of the options vest immediately and the period over which the options can be exercised is shortened. Employees forfeit unvested options when they voluntarily terminate their employment with the company, and they have up to 3 months to exercise vested options before they are canceled. In the case of involuntary termination with cause, the entire unexercised portion of the award is canceled. All options may vest immediately upon a change of control, as defined in the award agreement. The following weighted-average assumptions were used in the Black-Scholes option pricing model to determine the fair value of stock options granted:


	2021		2020		2019
Risk-free interest rate	0.7	%	1.3	%	2.3	%
Dividend yield	2.9	%	3.2	%	2.7	%
Expected volatility	42.0	%	25.8	%	24.5	%
Weighted-average option life (in years)	4.8		5.4		5.3

The risk-free interest rate for periods within the expected option life is based on the U.S. Treasury yield curve in effect at the grant date. The dividend yield is estimated over the expected life of the option based on historical dividends paid. Expected volatility is based on the historical volatility of our stock over the most recent historical period equivalent to the expected life of the option. The expected option life is the average length of time over which we expect the employee groups will exercise their options, based on historical experience with similar grants.

Each option is convertible into 1 share of common stock upon exercise. Information regarding options issued under the current and all previous plans was as follows:


	Number of options (in thousands)	Weighted-average exercise price per option		Aggregate intrinsic value (in thousands)		Weighted-average remaining contractual term (in years)
Outstanding, December 31, 2018	1,245	$	62.04
Granted	644	44.72
Exercised	(21)	32.42
Forfeited or expired	(521)	62.75
Outstanding, December 31, 2019	1,347	53.92
Granted	1,030	38.13
Exercised	(12)	38.80
Forfeited or expired	(231)	54.87
Outstanding, December 31, 2020	2,134	46.28
Granted	440	41.50
Exercised	(31)	27.56
Forfeited or expired	(357)	44.87
Outstanding, December 31, 2021	2,186	45.81		$	69	6.7

Exercisable at December 31, 2019	485	$	61.44
Exercisable at December 31, 2020	654	57.68
Exercisable at December 31, 2021	1,015	51.48		$	14	4.8

The weighted-average grant-date fair value of options granted was $11.57 per option for 2021, $6.39 per option for 2020 and $8.30 per option for 2019. The intrinsic value of a stock award is the amount by which the fair value of the underlying stock exceeds the exercise price of the award. The total intrinsic value of options exercised was $510 for 2021, $118 for 2020 and $292 for 2019.

Restricted stock units – We grant restricted stock unit awards to all North American employees and during 2021 and 2020, we paid a portion of employee bonuses in restricted stock units. We also grant certain other restricted stock unit awards under our long-term incentive plan. These awards generally vest over 3 years.

Additionally, certain management employees have the option to receive a portion of their bonus payment in the form of restricted stock units. When employees elect this payment method, we provide an additional matching amount of restricted stock units equal to 100% of the restricted stock units earned under the bonus plan. These awards vest 2 years from the date of grant. In the case of qualified retirement, death, disability or change of control, the awards vest immediately. In the case of involuntary termination without cause or voluntary termination, employees receive a cash payment for the units earned under the bonus plan, but forfeit the company-provided matching amount.

In addition to awards granted to employees, non-employee members of our board of directors can elect to receive all or a portion of their fees in the form of restricted stock units. Directors are issued shares in exchange for the units upon the earlier of the tenth anniversary of February 1st of the year following the year in which the non-employee director ceases to serve on the board or such other objectively determinable date pre-elected by the director.

Each restricted stock unit is convertible into 1 share of common stock upon completion of the vesting period. Information regarding our restricted stock units was as follows:


	Number of units (in thousands)	Weighted-average grant date fair value per unit		Weighted-average remaining contractual term (in years)
Outstanding at December 31, 2018	195	$	45.41
Granted	611	44.73
Vested	(93)	49.31
Forfeited	(49)	45.40
Outstanding at December 31, 2019	664	44.35
Granted	628	37.25
Vested	(282)	45.18
Forfeited	(83)	40.44
Outstanding at December 31, 2020	927	39.68
Granted	642	42.90
Vested	(425)	40.50
Forfeited	(112)	39.78
Outstanding at December 31, 2021	1,032	41.37		3.0

Of the awards outstanding at December 31, 2021, 39 thousand restricted stock units with a value of $1,446 were included in accrued liabilities and other non-current liabilities on the consolidated balance sheet. As of December 31, 2021, these units had a fair value of $37 per unit and a weighted-average remaining contractual term of 5 months.

The total fair value of restricted stock units that vested was $16,646 for 2021, $7,839 for 2020 and $4,374 for 2019. We made cash payments of $64 during 2021, $58 during 2020 and $263 during 2019 to settle share-based liabilities.

Restricted shares – For restricted share awards granted to employees under our current long-term incentive plan, in most cases one-fourth of the shares vested each year over 4 years. No restricted share awards were outstanding as of December 31, 2021.

Information regarding unvested restricted shares was as follows:


	Number of shares (in thousands)	Weighted-average grant date fair value per share
Unvested at December 31, 2018	168	$	66.02

Vested	(117)	63.15
Forfeited	(25)	73.62
Unvested at December 31, 2019	26	71.61
Vested	(16)	72.79
Forfeited	(2)	61.43
Unvested at December 31, 2020	8	71.02
Vested	(8)	71.02

Unvested at December 31, 2021	—	—

The total fair value of restricted shares that vested was $332 for 2021, $600 for 2020 and $5,608 for 2019.

Performance share unit awards – Our performance share unit awards have a 3 year vesting period. Shares will be issued at the end of the vesting period if performance targets relating to revenue and total shareholder return are achieved. If employment is terminated for any reason prior to the 1 year anniversary of the commencement of the performance period, the award is forfeited. On or after the 1 year anniversary of the commencement of the performance period, a pro-rata portion of the

shares awarded at the end of the performance period is issued in the case of qualified retirement, death, disability, involuntary termination without cause or resignation for good reason, as defined in the agreement. The following weighted-average assumptions were used in the Monte Carlo simulation model in determining the fair value of market-based performance share units granted:


	2021		2020		2019
Risk-free interest rate	0.3	%	1.4	%	2.3	%
Dividend yield	4.4	%	2.4	%	3.1	%
Expected volatility	55.6	%	28.6	%	26.8	%

The risk-free interest rate for periods within the expected award life is based on the U.S. Treasury yield curve in effect at the grant date. The dividend yield is estimated over the expected life of the award based on historical dividends paid. Expected volatility is based on the historical volatility of our stock.

Information regarding unvested performance share units was as follows:


	Performance share units (in thousands)	Weighted-average grant date fair value per unit		Weighted-average remaining contractual term (in years)
Unvested at December 31, 2018	250	$	67.54
Granted(1)	151	41.79
Vested	(118)	59.67
Forfeited	(38)	54.42
Adjustment for performance results achieved(2)	7	54.42
Unvested at December 31, 2019	252	57.64
Granted(1)	127	36.06
Vested	(61)	71.03
Forfeited	(23)	62.18
Unvested at December 31, 2020	295	45.20
Granted(1)	208	32.46
Forfeited	(68)	67.77

Unvested at December 31, 2021	435	35.56		1.1

(1) Reflects awards granted assuming achievement of performance goals at target.

(2) Reflects the difference between the awards earned at the end of the performance period and the target number of shares.

Employee stock purchase plan – During 2021, 108 thousand shares were issued under this plan at prices ranging from $18.84 to $37.32. During 2020, 125 thousand shares were issued under this plan at prices ranging from $18.22 to $40.97. During 2019, 65 thousand shares were issued under this plan at prices ranging from $37.93 to $39.92.