Stock-Based Compensation Plans

12 Months Ended

Dec. 31, 2021

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation Plans

Note 18.    Stock-Based Compensation Plans

Stock option plans

The Company has two stock option plans, the Omnibus Long-Term Incentive Plan and the ShareSave Plan 2008 under which it currently grants awards. The stock options have vesting periods ranging from 2 to 5 years and in all cases stock options granted expire within 10 years of the date of grant. All grants are at the sole discretion of the Compensation Committee of the Board of Directors. Grants may be priced at market value or at a premium or discount. The aggregate number of shares of common stock reserved for issuance which can be granted under the plans is 2,550,000.

In the fourth quarter of 2020, a number of stock options that were granted to 14 employees in February 2018 were modified to extend the vesting period by two years. The incremental compensation cost resulting from the modifications was $2.4 million, resulting from the performance targets that were not achieved in 2020 being extended to a future period.

The fair value of stock options is measured on the grant date using either the Black-Scholes model, or in cases where performance criteria are dependent upon external factors such as the Company’s stock price, using a Monte Carlo model. The following weighted average assumptions were used to determine the grant-date fair value of options:

	2021			2020			2019
Dividend yield		1.03	%		1.18	%		1.09	%
Expected life		5 years			5 years			5 years
Volatility (daily)		40.3	%		27.0	%		26.8	%
Risk free interest rate		0.23	%		1.13	%		2.48	%

The following table summarizes the transactions of the Company’s stock option plans for the year ended December 31, 2021:

	Number of Options			Weighted Average Exercise Price		Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2020		442,893		$	32.49	$	45.31
Granted – at discount		81,596		$	0.00	$	92.37
– at market value		10,688		$	99.85	$	32.73
Exercised		(185,488	)	$	53.07	$	30.28
Forfeited		(63,656	)	$	6.29	$	68.80
Outstanding at December 31, 2021		286,033		$	18.08	$	62.88

At December 31, 2021, there were 107,383 (Weighted Average Exercise Price $22.54, Weighted Average Grant-Date Fair Value $43.65) stock options that were exercisable, 66,190 had performance conditions attached.

The Company’s policy is to issue shares from treasury stock to holders of stock options who exercise those options, but if sufficient treasury stock is not available, the Company will issue previously unissued shares of stock to holders of stock options who exercise options.

The stock option compensation cost for 2021, 2020 and 2019 was $4.4 million, $5.8 million and $6.6 million, respectively. The total intrinsic value of options exercised in 2021, 2020 and 2019 was $3.7 million, $4.9 million and $3.5 million, respectively. The total intrinsic value of options outstanding at December 31, 2021 is $20.7 million.

The total compensation cost related to non-vested stock options not yet recognized at December 31, 2021 was $7.1 million and this cost is expected to be recognized over the weighted-average period of 1.93 years.

In 2021, the Company recorded a current tax benefit of $1.3 million in respect of stock option compensation (2020 – $1.6 million). This amount is inclusive of excess tax benefits.

Forfeits are accounted for as an adjustment to the charge in the period in which the forfeits occur.

Stock equivalent units

The Company awards Stock Equivalent Units (“SEUs”) from time to time as a long-term performance incentive. SEUs are cash settled equity instruments conditional on certain performance criteria and linked to the Innospec Inc. share price. SEUs have vesting periods ranging from six months to 5 years and in all cases SEUs granted expire within 10 years of the date of grant. Grants may be priced at market value or at a premium or discount. There is no limit to the number of SEUs that can be granted. As at December 31, 2021 the liability for SEUs of $17.3 million is included in accrued liabilities in the consolidated balance sheets until they are cash settled.

In the fourth quarter of 2020, a number of SEUs that were granted to 61 employees in February 2018 were modified to extend the vesting period by two years. The adjusted compensation cost resulting from the modifications has been recognised by the fair valuation at the balance sheet date based on the extended vesting period.

The fair value of SEUs is measured at the balance sheet date using either the Black-Scholes model, or in cases where performance criteria are dependent upon external factors such as the Company’s stock price, using a Monte Carlo model. The following assumptions were used to determine the fair value of SEUs at the balance sheet dates:

	2021			2020			2019
Dividend yield		1.28	%		1.15	%		0.99	%
Expected life		5 years			5 years			5 years
Volatility (daily)		39.6	%		39.9	%		26.6	%
Risk free interest rate		0.97	%		0.17	%		1.62	%

The following table summarizes the transactions of the Company’s SEUs for the year ended December 31, 2021:

	Number of SEUs			Weighted Average Exercise Price		Weighted Average Grant-Date Fair Value
Outstanding at December 31, 2020		390,164		$	4.35	$	63.96
Granted – at discount		199,431		$	0.00	$	85.54
– at market value		3,803		$	99.85	$	32.71
Exercised		(40,115	)	$	17.27	$	44.22
Forfeited		(25,345	)	$	2.52	$	66.45
Outstanding at December 31, 2021		527,938		$	2.50	$	73.27

At December 31, 2021, there were 25,877 (Weighted Average Exercise Price $12.41, Weighted Average Grant-Date Fair Value $47.12) SEUs that were exercisable, 21,074 had performance conditions attached.

The charges for SEUs are spread over the life of the award subject to a revaluation to fair value each quarter. The revaluation may result in a charge or a credit to the income statement in the quarter dependent upon our share price and other performance criteria.

The SEU compensation cost for 2021, 2020 and 2019 was $3.1 million, $1.9 million and $20.1 million, respectively. The total intrinsic value of SEUs exercised in 2021, 2020 and 2019 was $1.8 million, $6.3 million and $7.3 million, respectively. The total intrinsic value of SEUs outstanding at December 31, 2021 is $46.4 million.

The weighted-average remaining vesting period of non-vested SEUs is 1.31 years.

Forfeits are accounted for as an adjustment to the charge in the period in which the forfeits occur.