Stock-Based Compensation

In 2016, the Company’s stockholders approved the XPO Logistics, Inc. 2016 Omnibus Incentive Compensation Plan (the “2016 Plan”). The 2016 Plan replaces the XPO Logistics, Inc. Amended and Restated 2011 Omnibus Incentive Compensation Plan (the “2011 Plan”) and the Con-way Inc. 2012 Equity and Incentive Plan (the “Con-way Plan”), the latter of which was assumed by the Company in connection with the acquisition of Con-way in 2015. Any awards granted under the 2011 Plan and the Con-way Plan will remain in effect pursuant to their respective terms.

Under the terms of the 2016 Plan, the Company grants various types of stock-based compensation awards to directors, officers and key employees. The 2016 Plan provides for awards in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, deferred share units, performance compensation awards, performance units, cash incentive awards and other equity-based or equity-related awards (collectively, “Awards”) that the Compensation Committee of the Board of Directors (the “Committee”) determines are consistent with the purpose of the 2016 Plan and the interests of the Company.

The maximum aggregate number of shares of common stock that may be delivered pursuant to Awards under the 2016 Plan is 3.4 million shares. Awards that are settled in cash would not reduce the number of shares available for delivery under the 2016 Plan. In the event of any extraordinary dividend or other extraordinary distribution, recapitalization, rights offering, stock split, reverse stock split, split-up or spin-off, the Committee shall equitably adjust any or all of the number of shares of the Company with respect to which Awards may be granted, including 2011 Plan share limits, the terms of any outstanding Award, the number of shares subject to outstanding Awards, and the exercise price of any Award, if applicable. Any shares delivered pursuant to an Award may consist, in whole or in part, of authorized and unissued shares or of treasury shares.

The 2016 Plan will continue in effect until December 20, 2026, unless terminated earlier by the Board of Directors. As of December 31, 2018, there were 1.7 million shares available for issuance under the 2016 Plan.

In December 2017, the Company’s stockholders approved the XPO Logistics, Inc. Employee Stock Purchase Plan (the “ESPP”). Under the terms of the ESPP, all eligible employees in the U.S. can purchase common stock through payroll deductions (which cannot exceed 10% of each employee’s compensation) at 5% below fair market value on the last trading day at the end of each six-month purchase period during two offering periods per year, beginning on April 1 and October 1. Under the ESPP, employees must hold the stock they purchase for a minimum of three months from the date of purchase. Subject to adjustment for changes in the Company’s capitalization, the number of shares to be granted under the ESPP is not to exceed two million shares. The first offering period occurred in 2018. The ESPP will be in effect until October 2027, unless terminated earlier at the discretion of the Board of Directors. The plan is deemed non-compensatory, and therefore no stock-based compensation expense will be recognized. Executive officers and directors of the Company are not eligible to participate in the ESPP. There were two million shares available to be granted under the ESPP as of December 31, 2018.

The Company recognized the following stock-based compensation expense in SG&A in the Consolidated Statements of Income:



	Years ended December 31,
(In millions)	2018			2017			2016
Stock options	$	—		$	1		$	1
Stock appreciation rights	—			1			1
Restricted stock units	21			12			13
Performance-based restricted stock units	9			10			13
Cash-settled performance-based restricted stock units	19			55			27
Total stock-based compensation expense	$	49		$	79		$	55
Tax benefit on stock-based compensation	(22		)	(8		)	(6		)

Stock Options

For employees and officers, stock options typically vest over three to five years after the grant date, have a 10-year contractual term, and an exercise price equal to the Company’s stock price on the grant date. For grants to members of the Company’s Board of Directors, stock options vest one year after the grant date, have a 10-year contractual term, and an exercise price equal to the Company’s stock price on the grant date.

The following is a summary of the weighted-average assumptions used to calculate the 2016 grant-date fair value using the Black-Scholes option pricing model. There were no stock options granted during 2018 and 2017.



	2016
Weighted-average risk-free interest rate	1.8	%
Weighted-average volatility	50.0	%
Weighted-average dividend yield	—
Weighted-average expected option term (in years)	6.44

The expected term of options granted has been derived based on the Company’s history of actual exercise behavior and represents the period of time that options granted are expected to be outstanding. The expected volatility is based on the Company’s historical market price at consistent points in a period equal to the expected life of the options. The risk-free interest rate is based on the U.S. Treasury yield curve with a term equal to the expected term of the option in effect at the time of grant.

A summary of stock option award activity for the year ended December 31, 2018 is presented below:



	Stock Options
	Number of Stock Options		Weighted-Average Exercise Price		Weighted-Average Remaining Term
Outstanding as of December 31, 2017	851,573		$	13.21	4.44
Granted	—		—
Exercised	(148,255	)	15.52
Forfeited	(1,000	)	23.31
Outstanding as of December 31, 2018	702,318		$	12.70	3.05
Options exercisable as of December 31, 2018	697,818		$	12.63	3.03

The weighted-average grant date fair value of options granted during 2016 was $11.37. The intrinsic value of options outstanding and exercisable as of December 31, 2018 was $31 million, respectively. As of December 31, 2018, the Company had an immaterial amount of unrecognized compensation cost related to stock options, which is expected to be recognized over a weighted-average period of one year.

The total intrinsic value of options exercised during 2018, 2017 and 2016 was $11 million, $9 million and $12 million, respectively. The total cash received from options exercised during 2018, 2017 and 2016 was $1 million, $1 million and $13 million, respectively.

Restricted Stock Units and Performance-Based Restricted Stock Units

The Company has granted RSUs and PRSUs to certain key employees, officers and directors of the Company with various vesting requirements as established by the Committee. The RSUs vest based on the passage of time. The vesting of certain RSU awards may also be subject to the price of the Company’s common stock exceeding a specified per share price for a designated period of time and continued employment by the grantee at the Company as of the vesting date. The PRSUs granted will vest based on the achievement of certain targets with respect to the Company’s overall financial performance for specified periods. The vesting of certain PRSUs is also subject to the price of the Company’s common stock exceeding a specified per share price for a designated period of time and generally require continued employment by the grantee at the Company as of the vesting date.

The RSUs and PRSUs may vest in whole or in part before the applicable vesting date if the grantee’s employment is terminated by the Company without cause or by the grantee with good reason (as defined in the grant agreement), upon death or disability of the grantee or in the event of a change in control of the Company. Upon vesting, the RSUs and PRSUs result in the issuance of shares of XPO common stock after required minimum tax withholdings. The holders of the RSUs and PRSUs do not have the rights of a stockholder and do not have voting rights until certificates representing shares are issued and delivered in settlement of the awards. The fair value of all grants of RSUs and PRSUs subject to market-based vesting conditions was estimated using the Monte Carlo simulation lattice model.

A summary of RSU and PRSU award activity for the year ended December 31, 2018 is presented below:



	RSUs				PRSUs
	Number of RSUs		Weighted-Average Grant Date Fair Value		Number of PRSUs		Weighted-Average Grant Date Fair Value
Outstanding as of December 31, 2017	1,041,554		$	41.96	1,838,227		$	24.37
Granted	532,537		97.85		470,251		58.49
Vested	(305,542	)	39.01		(1,085,748	)	18.86
Forfeited and canceled	(182,921	)	53.62		(185,805	)	36.10
Outstanding as of December 31, 2018	1,085,628		$	68.24	1,036,925		$	43.51

The total fair value of RSUs that vested during 2018, 2017 and 2016 was $30 million, $23 million and $27 million, respectively. All of the outstanding RSUs as of December 31, 2018 vest subject to service conditions.

The total fair value of PRSUs that vested during 2018, 2017 and 2016 was $96 million, $8 million and $7 million, respectively. Of the outstanding PRSUs as of December 31, 2018, 444,959 vest subject to service and a combination of market and performance conditions and 591,966 vest subject to service and performance conditions.

As of December 31, 2018, the Company had $69 million of unrecognized compensation cost related to non-vested RSU and PRSU compensation that is anticipated to be recognized over a weighted-average period of approximately 3.31 years.

Cash-Settled Performance-Based Restricted Stock Units

In February 2016, the Company entered into employment agreements with its executive officers. Pursuant to these agreements, on February 9, 2016, the Company granted cash-settled PRSUs under the 2011 Plan to certain executive officers. Twenty-five percent of the PRSUs vest and are settled in cash on each of the first four anniversaries of the grant, subject to the grantee’s continued employment through the applicable anniversary and achievement of certain performance targets for each tranche. Cash-settled PRSU awards are measured at fair value initially based on the closing price of the Company’s common stock at the date of grant and are required to be re-measured to fair value at each reporting date until settlement. Compensation expense for cash-settled PRSUs is recognized over the applicable performance periods based on the probability of achieving the performance conditions and the closing price of the Company’s common stock at each balance sheet date. The Company records as a liability (until settlement) the cost of a cash-settled PRSU award for which achievement of the performance condition is deemed probable. As of December 31, 2018 and 2017, the Company had recognized accrued liabilities of $18 million and $52 million, respectively, using a fair value per PRSU of $57.04 and $91.59, respectively.

A summary of cash-settled PRSU award activity for the year ended December 31, 2018 is presented below:



	Number of Cash-Settled PRSUs
Outstanding as of December 31, 2017	1,693,394
Granted	15,385
Vested	(564,465	)
Forfeited and canceled	(391,038	)
Outstanding as of December 31, 2018	753,276

As of December 31, 2018, the Company had $24 million of unrecognized compensation cost related to non-vested cash-settled PRSU compensation that is anticipated to be recognized over a weighted-average period of approximately one year; this will vary based on changes in the Company’s common stock price and the probability of achieving performance targets in future periods.