Share-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-Based Payment Arrangement, Noncash Expense [Abstract]

Note 12. Share-based Compensation

The Company’s share-based compensation plan under which it may grant future awards, the Donnelley Financial Solutions, Inc. Amended and Restated 2016 Performance Incentive Plan (as amended, the “2016 PIP”), was approved by the Board of Directors (the “Board”) and the Company’s stockholders and provides incentives to key employees of the Company. Awards under the 2016 PIP may include cash or stock bonuses, stock options, stock appreciation rights, restricted stock, PSUs, performance cash awards or RSUs. In addition, non-employee members of the Board may receive awards under the 2016 PIP. Increases to the shares of common stock available for issuance under the 2016 PIP requires stockholder approval. On May 13, 2021, the Company's stockholders voted and approved 3.4 million of additional shares of common stock for issuance under the 2016 PIP. At December 31, 2022, there were 3.5 million remaining shares of common stock authorized and available for grant under the 2016 PIP.

For all share-based awards granted to employees and directors, including stock options, RSUs and PSUs, the Company recognizes compensation expense based on estimated grant date fair values as well as certain assumptions as of the grant date, if applicable. The Company estimates the number of awards expected to vest based, in part, on historical forfeiture rates and also based on management’s expectations of employee turnover within the specific employee groups receiving each type of award. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods, if actual forfeitures differ from those estimates. The Company recognizes compensation costs for RSUs expected to vest, on a straight-line basis over the requisite service period of the award, which is generally the vesting term of three years. The Company recognizes compensation costs for PSUs, which cliff vest, on a straight-line basis over the performance period of the award. Compensation expense for stock options is recognized on a straight-line basis over the requisite service period of the award, which is generally the vesting term of four years.

Share-based awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting upon specified events, including death or permanent disability of the grantee or a change in control of the Company. In addition, upon a change in control of the Company, PSUs will be measured at 100% attainment of the target performance metrics and will remain subject to time based vesting until the end of the vesting period; provided that the award will vest in full if, within three months prior to or two years after the date of the change in control of the Company, the grantee’s employment is terminated without cause by the Company or for good reason by the grantee.

Total share-based compensation expense was $19.3 million, $19.5 million and $13.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. The income tax benefit related to share-based compensation expense was $7.2 million, $9.5 million and $3.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022, $22.6 million of total unrecognized compensation expense related to share-based compensation awards is expected to be recognized over a weighted-average period of 1.6 years.

Stock Options

The fair value of each stock option award was estimated on each grant date using the Black-Scholes option pricing model. The Company used the following methods to determine its underlying assumptions:

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Expected volatility was estimated based on a weighted-average of historical volatilities for the Company’s peer group

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The risk-free interest rate was based on the U.S Treasury yield curve in effect on the date of grant

•

The expected term of options granted was based on the simplified method of using the mid-point between the vesting term and the original contractual term

•

The expected dividend yield was based on the Company’s current dividend rate

The Company did not grant any stock options in any of the three years ended December 31, 2022. The weighted-average fair value of options exercised during the years ended December 31, 2022 and 2021 was $3.03 and $4.10, respectively. There were no options exercised during the year ended December 31, 2020.

Stock option awards outstanding as of December 31, 2022 and 2021, and changes during the year ended December 31, 2022, were as follows:


	Shares Under Option (thousands)			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term (years)		Aggregated Intrinsic Value (millions)
Outstanding at December 31, 2021		562		$	18.30		5.9	$	16.2
Exercised		(22	)		18.42		—		0.4
Cancelled/forfeited/expired		(16	)		21.77		—		0.2
Outstanding at December 31, 2022		524			18.19		4.9		10.7
Vested and expected to vest at December 31, 2022		523		$	18.19		4.9	$	10.7
Vested and exercisable at December 31, 2022		485		$	18.51		4.8	$	9.8

Restricted Stock Units

The fair value of RSUs was determined based on the Company’s stock price on the grant date. The weighted-average grant date fair value of RSUs granted during the years ended December 31, 2022, 2021 and 2020 was $30.42, $28.38 and $8.70, respectively.

RSUs outstanding as of December 31, 2022 and 2021, and changes during the year ended December 31, 2022, were as follows:


	Shares (thousands)			Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2021		1,159		$	17.71
Granted		412			30.42
Vested		(558	)		15.74
Forfeited		(24	)		26.68
Nonvested at December 31, 2022		989		$	23.91

As of December 31, 2022, $13.2 million of unrecognized share-based compensation expense related to RSUs is expected to be recognized over a weighted-average period of 1.7 years.

Performance Share Units

The fair value of PSUs was determined based on the Company’s stock price on the grant date. The weighted-average grant date fair value of PSUs granted during the years ended December 31, 2022, 2021 and 2020 was $26.96, $27.84 and $8.73, respectively.

PSUs outstanding as of December 31, 2022 and 2021, and changes during the year ended December 31, 2022, were as follows:


	Shares (thousands)			Weighted-Average Grant Date Fair Value
Nonvested at December 31, 2021		953		$	16.77
Granted		359			26.96
Vested		(409	)		13.49
Nonvested at December 31, 2022		903		$	22.31

During 2022, 358,856 PSUs were granted to certain executive officers and senior management, 274 thousand of which related to the 2022 performance grant and 85 thousand of which related to additional shares issued during the year ended December 31, 2022 due to the achievement of certain targets for the year ended December 31, 2021. The total potential payout for 2022 awards granted during the year ended December 31, 2022 is payable upon the achievement of certain established performance targets and ranges from zero to 547 thousand shares.

PSU awards consist of four performance periods, including three annual performance periods and one three-year cumulative performance period.


Year Granted	Performance/ Service Period	Estimated or Actual Attainment	PSUs Outstanding as of December 31, 2022 (thousands)		Estimated PSU Attainment or Actual PSUs Earned (thousands)
2022	2022	140% (a)		68		95
2022	2023	(b)		68		—
2022	2024	(b)		69		—
2022	2022-2024	100% (c)		69		69
				274		164

2021	2021	200% (a)		77		154
2021	2022	87% (a)		77		67
2021	2023	(b)		77		—
2021	2021-2023	182% (c)		77		140
				308		361

2020	2020	138% (a)		80		110
2020	2021	200% (a)		80		160
2020	2022	69% (a)		80		55
2020	2020-2022	146% (a)		81		118
				321		443

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(a)

Amounts represent actual attainment and actual PSUs earned as the performance period is complete.

(b)

As the performance period has not yet commenced, expense is not being recognized.

(c)

Expense for the cumulative performance/service period is recognized at 100% of estimated attainment until the attainment expected by the end of the cumulative three-year performance period can be estimated, which generally occurs at the end of the second service year.

As of December 31, 2022, $9.4 million of unrecognized compensation expense related to PSUs is expected to be recognized over a weighted average period of 1.4 years.