Annual report pursuant to Section 13 and 15(d)

Stock Based Compensation

v3.21.1
Stock Based Compensation
12 Months Ended
Jan. 30, 2021
Share Based Compensation [Abstract]  
Stock Based Compensation

 

12.

Stock-Based Compensation

The following disclosures present the Company’s equity plans on a combined basis. The equity plans are administered by the Compensation and Management Development Committee of the Board of Directors (the “CMD Committee”). The CMD Committee is authorized to grant options, stock appreciation rights, restricted stock and restricted stock units to officers and key employees of the Company and its subsidiaries and to non-employee directors. The equity plans are intended to help the Company attract and retain directors, officers, other key executives and employees and is also intended to provide incentives and rewards relating to the Company’s business plans to encourage such persons to devote themselves to the business of the Company. There have been no grants of stock appreciation rights under the equity plans.

Stock option grants have an exercise price at least equal to the market value of the underlying common stock on the date of grant, have ten-year terms and typically vest ratably over four years of continued employment. Restricted stock and time-based restricted stock unit awards generally vest one to four years from the date of grant. Performance-based restricted stock units generally are earned based on the attainment of specified goals achieved over the performance period.

As of January 30, 2021, approximately 7.8 million shares of common stock were available for additional grants pursuant to the Company’s equity plans. Shares awarded are generally issued from the Company's treasury stock.

Stock-based compensation expense included the following components:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(millions)

 

Stock options

 

$

8

 

 

$

15

 

 

$

24

 

Restricted stock units

 

 

23

 

 

 

23

 

 

 

39

 

 

 

$

31

 

 

$

38

 

 

$

63

 

 

All stock-based compensation expense is recorded in SG&A expense in the Consolidated Statements of Operations.

Stock Options

There were no grants of stock options during 2020. The fair value of stock options granted during 2019 and 2018 and the weighted average assumptions used to estimate the fair value are as follows:

 

 

 

2019

 

 

2018

 

Weighted average grant date fair value of stock options granted

   during the period

 

$

5.11

 

 

$

7.43

 

Dividend yield

 

 

6.3

%

 

 

5.2

%

Expected volatility

 

 

40.6

%

 

 

41.1

%

Risk-free interest rate

 

 

2.4

%

 

 

2.7

%

Expected life

 

5.5 years

 

 

5.6 years

 

 

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company estimates the expected volatility and expected option life assumption consistent with ASC Topic 718, Compensation Stock Compensation. The expected volatility of the Company’s common stock at the date of grant is estimated based on a historic volatility rate and the expected option life is calculated based on historical stock option experience as the best estimate of future exercise patterns. The dividend yield assumption is based on historical and anticipated dividend payouts. The risk-free interest rate assumption is based on observed interest rates consistent with the expected life of each stock option grant. The Company uses historical data to estimate pre-vesting option forfeitures and records stock-based compensation expense only for those awards that are expected to vest. Compensation expense is recorded for all stock options expected to vest based on the amortization of the fair value at the date of grant on a straight- line basis primarily over the vesting period of the options.

Activity related to stock options for 2020 is as follows:

 

 

 

Shares

 

 

Weighted

Average

Exercise Price

 

 

Weighted

Average

Remaining

Contractual

Life

 

 

Aggregate

Intrinsic

Value

 

 

 

(thousands)

 

 

 

 

 

 

(years)

 

 

(millions)

 

Outstanding, beginning of period

 

 

18,499

 

 

$

39.77

 

 

 

 

 

 

 

 

 

Granted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Canceled or forfeited

 

 

(2,154

)

 

 

32.84

 

 

 

 

 

 

 

 

 

Exercised

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding, end of period

 

 

16,345

 

 

$

40.69

 

 

 

 

 

 

 

 

 

Exercisable, end of period

 

 

14,357

 

 

$

42.74

 

 

 

3.6

 

 

$

 

Options expected to vest

 

 

1,371

 

 

$

25.84

 

 

 

7.4

 

 

$

 

 

Additional information relating to stock options is as follows:

 

 

 

2020

 

 

2019

 

 

2018

 

 

 

(millions)

 

Intrinsic value of options exercised

 

$

 

 

$

10

 

 

$

27

 

Cash received from stock options exercised

 

 

 

 

 

6

 

 

 

45

 

 

As of January 30, 2021, the Company had $5 million of unrecognized compensation costs related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately 1.7 years.

Restricted Stock Units

The weighted average grant date fair values of performance-based and time-based restricted stock units granted during 2020, 2019 and 2018 are as follows:

 

 

 

2020

 

 

2019

 

 

2018

 

Restricted stock units (performance-based)

 

$

6.24

 

 

$

24.28

 

 

$

30.64

 

Restricted stock units (time-based)

 

 

6.96

 

 

 

17.81

 

 

 

25.57

 

 

 

During 2020, 2019 and 2018, the CMD Committee approved awards of performance-based restricted stock units to certain senior executives of the Company. Each award reflects a target number of shares (“Target Shares”) that may be issued to the award recipient. These awards may be earned upon the completion of three-year performance periods ending January 28, 2023, January 29, 2022 and January 30, 2021, respectively. Whether units are earned at the end of the performance period will be determined based on the achievement of certain performance objectives over the performance period. The performance objectives include achieving an EBITDA as a percent to sales ratio, owned plus licensed comparable sales growth and a return on invested capital ratio. The 2019 and 2018 performance-based restricted stock units also include a performance objective relating to relative total shareholder return (“TSR”). Relative TSR reflects the change in the value of the Company’s common stock over the performance period in relation to the change in the value of the common stock of a peer group over the performance period, assuming the reinvestment of dividends. Depending on the results achieved during the three-year performance periods, the actual number of shares that a grant recipient receives at the end of the period may range from 0% to 150% of the Target Shares granted for the 2020 performance-based restricted stock units and 0% to 200% of the Target Shares granted for the 2019 and 2018 performance-based restricted stock units.

The fair value of the Target Shares and restricted stock awards are based on the fair value of the underlying shares on the date of grant. The fair value of the portion of the Target Shares that relate to a relative TSR performance objective was determined using a Monte Carlo simulation analysis to estimate the total shareholder return ranking of the Company among a peer group over the remaining performance periods. The expected volatility of the Company’s common stock at the date of grant was estimated based on a historical average volatility rate for the approximate three-year performance period. The dividend yield assumption was based on historical and anticipated dividend payouts. The risk-free interest rate assumption was based on observed interest rates consistent with the approximate three-year performance measurement period.

The fair value of a restricted stock unit award at the grant date is equal to the market price of the Company's common stock on the grant date. Compensation expense is recorded for all restricted stock unit awards based on the amortization of the fair market value at the date of grant over the period the restrictions lapse or over the performance period of the performance-based restricted stock units. As of January 30, 2021, the Company had $52 million of unrecognized compensation costs related to nonvested restricted stock units, which is expected to be recognized over a weighted average period of approximately 2.5 years.

Activity related to restricted stock units for 2020 is as follows:

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

Grant Date

 

 

 

Shares

 

 

Fair Value

 

 

 

(thousands)

 

Nonvested, beginning of period

 

 

4,747

 

 

$

23.37

 

Granted – performance-based

 

 

1,553

 

 

 

6.24

 

Performance adjustment

 

 

(508

)

 

 

30.48

 

Granted – time-based

 

 

6,216

 

 

 

6.96

 

Forfeited

 

 

(830

)

 

 

21.43

 

Vested

 

 

(1,426

)

 

 

23.54

 

Nonvested, end of period

 

 

9,752

 

 

$

9.95