The Company maintains equity compensation plans that provide for the issuance of Knowles stock to directors, executive officers, and other employees. The maximum number of shares available for issuance under the plans is 16.1 million, of which 9.0 million were available for future awards at December 31, 2022.


	Years Ended December 31,
(in millions)	2022		2021		2020
Pre-tax stock-based compensation expense
Cost of goods sold	$	1.6	$	1.6	$	1.7
Research and development expenses	5.6		5.5		6.2
Selling and administrative expenses	21.4		25.0		9.4
Total pre-tax stock-based compensation expense	28.6		32.1		17.3
Tax benefit	4.4		5.1		—
Total stock-based compensation expense, net of tax	$	24.2	$	27.0	$	17.3

Compensation expense for stock-based awards is measured based on the fair value of the awards as of the date the stock-based awards are granted and adjusted to the estimated number of awards that are expected to vest. Forfeitures are estimated based on historical experience at the time of grant and revised in subsequent periods if actual forfeitures differ from those estimates. Compensation costs for stock-based awards are amortized over their service period.


	Years Ended December 31,
	2022	2021			2020
Risk-free interest rate	0.85%	0.06%			0.11%	to	1.42%
Dividend yield	—%	—%			—%
Expected life (years)	4.5	4.5			4.3	to	4.5
Volatility	34.3%	36.0%			38.8%	to	40.6%

Fair value at date of grant	$6.29	$6.14	to	$6.31	$4.78	to	$5.95

Expected volatilities are based on the historical volatility of the Company’s stock. The risk-free interest rate is based on U.S. government issues with a remaining term equal to the expected life of the stock options. The expected term is the period over which our employees are expected to hold their options. It is based on the simplified method from the SEC’s safe harbor guidelines. The Company does not currently anticipate paying dividends over the expected term.

The exercise price per share for the stock options granted by the Company was equal to the closing price of Knowles' stock on the NYSE on the date of the grant. The period during which options granted by the Company were exercisable was fixed by Knowles' Compensation Committee of the Board of Directors at the time of grant. Generally, stock options vest one-third on each of the first three anniversaries of the grant date and expire 7 years from the grant date.


	SSARs						Stock Options
	Number of Shares	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Term (Years)	Number of Shares	Weighted-Average Exercise Price		Aggregate Intrinsic Value		Weighted-Average Remaining Contractual Term (Years)
(in millions, except share and per share amounts)
Outstanding at December 31, 2021	375,964	$	23.16				3,478,438	$	15.04

Granted	—	—					216,813	21.14

Exercised	(36,759)	21.77					(850,844)	11.97
Forfeited	—	—					(69,873)	20.63
Expired	(115,641)	22.14					(71,110)	17.86
Outstanding at December 31, 2022	223,564	$	23.92	$	—	0.1	2,703,424	$	16.28	$	3.2	2.8

Exercisable at December 31, 2022	223,564	$	23.92	$	—	0.1	2,204,948	$	15.63	$	3.2	2.3

There was no unrecognized compensation expense related to SSARs at December 31, 2022. Unrecognized compensation expense related to stock options not yet exercisable at December 31, 2022 was $1.2 million. This cost is expected to be recognized over a weighted-average period of 1.1 years.


	Years Ended December 31,
(in millions)	2022		2021		2020
SSARs

Aggregate intrinsic value of SSARs exercised	$	0.1	$	0.1	$	—

Stock Options
Cash received by Knowles for exercise of stock options	$	7.5	$	25.6	$	1.8
Aggregate intrinsic value of stock options exercised	6.0		6.6		0.4
Tax benefit from stock options exercised	1.2		1.2		—

RSUs vest based on the passage of time. Generally, RSUs have a three year vesting schedule and vest one-third on each of the first three anniversaries of the grant date. The fair value of RSUs vested during the year ended December 31, 2022 was $17.7 million. At December 31, 2022, $21.0 million of unrecognized compensation expense related to RSUs is expected to be recognized over a weighted-average period of 1.5 years.

The Company grants PSUs to senior management. In each case, the awards will cliff vest three years following the grant date. PSUs will be settled in shares of the Company's common stock. Depending on the Company's overall performance relative to the applicable measures, the size of the PSU awards are subject to adjustment, up or down, resulting in awards at the end of the performance period that can range from 0% to 225% of target. The Company will ratably recognize the expense over the applicable service period for each grant of PSUs and adjust the expense for the expected achievement of performance conditions as appropriate. The fair value of PSUs is determined by using a Monte Carlo simulation. For the awards granted in February 2022 and 2021, the number of PSUs that may be earned and vest is based on total shareholder return (“TSR”) relative to the component companies of the Russell 2000 Index over a three-year performance period.

The COVID-19 pandemic brought on unique and unprecedented challenges to the Company, particularly in the hearing health and medtech markets. Many of the Company's executive compensation programs were affected, including outstanding PSU awards. Due to the impact of the COVID-19 pandemic on the Company’s overall business performance, effective February 8, 2021, the Company’s Compensation Committee approved certain modifications to PSUs granted in February 2018, 2019, and 2020.

For the awards granted in February 2018 (the “2018 PSUs”), the number of PSUs that may be earned and vest was originally based on the Company’s revenues and stock price performance over a three-year performance period. The modified award was based on the Company’s revenues and stock price performance over three separate one-year performance periods to isolate the impact of the COVID-19 pandemic on the Company's fiscal 2020 performance. In addition, the performance periods corresponding to fiscal 2018 and 2019 were weighted at 25% each while the performance period corresponding to fiscal 2020 was weighted at 50%, given the impact of fiscal 2020 performance on shareholders. Service conditions were not modified. The modification of the 2018 PSUs affected nine employees and resulted in total incremental compensation expense of $3.9 million, which was recognized in the first quarter of 2021 as there was no remaining service period. In February 2021, the 2018 PSUs were converted from 329,092 PSUs to 190,544 shares of common stock based on achievement of the modified conditions.

For the awards granted in February 2019 (the “2019 PSUs”), the number of PSUs that may be earned and vest was originally based on the Company's revenues and TSR relative to the component companies of the S&P Semiconductor Select Industry Index over a three-year performance period. The modified award was based on the Company’s revenues and TSR relative to the component companies of the S&P Semiconductor Select Industry Index over three separate one-year performance periods to isolate the impact of the COVID-19 pandemic on the Company's fiscal 2020 performance. Each period was weighted equally, as the Company expected to face challenges related to the COVID-19 pandemic in fiscal 2021. Service conditions were not modified. The modification of the 2019 PSUs affected eight employees and resulted in total incremental compensation expense of $2.4 million, which was recognized over the remaining service period. Incremental compensation expense was subject to adjustment for the achievement of the performance condition based on fiscal 2021 revenues. In February 2022, the 2019 PSUs were converted from 227,812 PSUs to 150,811 shares of common stock based on achievement of the modified conditions.

For the awards granted in February 2020 (the “2020 PSUs”), the number of PSUs that may be earned and vest was originally based on TSR relative to the component companies of the S&P Semiconductor Select Industry Index over a three-year performance period. The modified award replaces the S&P Semiconductor Select Industry Index with the Russell 2000 Index. The Company is a member of the Russell 2000 Index, which represents a broader, more diversified index that better aligns with the Company's strategy. Service conditions were not modified. The modification of the 2020 PSUs affected eight employees and resulted in total incremental compensation expense of $4.7 million, which will be recognized over the remaining service period.

The fair value of PSUs vested during the year ended December 31, 2022 was $3.2 million. At December 31, 2022, $9.5 million of unrecognized compensation expense related to PSUs is expected to be recognized over a weighted-average period of 1.1 years.