Stock-Based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [Abstract]

The Company has outstanding stock-based compensation awards granted under the 2013 Stock Incentive Plan (“2013 Plan”) and the 2017 Omnibus Incentive Plan (“2017 Plan”) as described in Note 17, “Stock-Based Compensation Plans” to the consolidated financial statements in its annual report on Form 10-K for the year ended December 31, 2019.

Acquisition of Ingersoll Rand Industrial

As of the acquisition date of February 29, 2020, Ingersoll Rand Industrial employees’ unvested equity awards and a limited number of vested awards were converted into equity awards denominated in shares of the Company’s common stock based on a defined exchange ratio. Ingersoll Rand Industrial employees’ equity awards were converted into Ingersoll Rand stock options and restricted stock units.

For converted restricted stock units, the fair value of the equity award is based on the market price of the common stock on the grant date. The replacement restricted stock units will generally be governed by the same terms and conditions as those applicable prior to the acquisition. The portion of fair value of the replacement awards related to services provided prior to the acquisition was accounted for as consideration transferred. The remaining portion of the fair value is associated with future service and will be recognized as compensation expense over the vesting period.

For converted stock options, the exercise price per share of the converted award was equal to the exercise price per share of the stock option award immediately prior to the completion of the acquisition divided by the exchange ratio. The replacement options will generally be governed by the same terms and conditions as those applicable prior to the acquisition. The portion of fair value of the replacement awards related to services provided prior to the acquisition was accounted for as consideration transferred. The remaining portion of fair value is associated with future service and will be recognized as compensation expense over the vesting period. The fair value of stock options that the Company assumed in connection with the acquisition of Ingersoll Rand Industrial was estimated using the Black-Scholes model with the following assumptions.


Converted Stock Option Awards Assumptions
Expected life of options (in years)	2.0 - 3.6
Risk-free interest rate	0.9	%
Assumed volatility	34.2	%
Expected dividend rate	0.0	%

Stock-Based Compensation

For the three month periods ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense (benefit) of approximately $12.8 million and $(0.2) million, respectively. For the nine month periods ended September 30, 2020 and 2019, the Company recognized stock-based compensation expense of approximately $29.0 million and $13.4 million, respectively. These costs are included in “Cost of sales” and “Selling and administrative expenses” in the Condensed Consolidated Statements of Operations.

As of September 30, 2020, there was $195.1 million of total unrecognized compensation expense related to outstanding stock options, restricted stock unit awards and performance stock unit awards.

The Company’s stock-based compensation awards are typically granted in the first quarter of the year and primarily consist of stock options, restricted stock units and, commencing in 2020, performance share units. Eligible employees were also granted restricted stock units, during the three months ended September 30, 2020, that vest ratably over two years, subject to the passage of time and the employee's continued employment during such period. In some instances, such as death, awards may vest concurrently with or following an employee's termination.

Stock Option Awards

Stock options are granted to employees with an exercise price equal to the fair value of the Company’s per share common stock on the date of grant. Stock option awards typically vest over four or five years and expire ten years from the date of grant.

A summary of the Company’s stock option (including SARs) activity for the nine month period ended September 30, 2020 is presented in the following table (underlying shares in thousands).


	Shares	Weighted-Average Exercise Price (per share)
Stock options outstanding as of December 31, 2019	8,028	$	14.14
Converted Ingersoll Rand Industrial stock options	985	24.72
Granted	1,460	24.77
Exercised or settled	(1,492)	9.63
Forfeited	(195)	26.20
Expired	(13)	30.85
Stock options outstanding as of September 30, 2020	8,773	17.57

Vested as of September 30, 2020	5,350	12.25

The following assumptions were used to estimate the fair value of options granted (excluding previously disclosed converted awards) during the nine month periods ended September 30, 2020 and 2019 using the Black-Scholes option-pricing model.


	For the Nine Month Period Ended September 30,
Assumptions	2020		2019
Expected life of options (in years)	6.3		6.3
Risk-free interest rate	0.4% - 1.5%		2.4% - 2.6%
Assumed volatility	24.6% - 41.1%		30.7% - 31.8%
Expected dividend rate	0.0	%	0.0	%

Restricted Stock Unit Awards

Restricted stock units are granted to employees and non-employee directors based on the market price of the Company’s common stock on the grant date and recognized in compensation expense over the vesting period. A summary of the Company’s restricted

stock unit activity for the nine month period ended September 30, 2020 is presented in the following table (underlying shares in thousands).


	Shares	Weighted-Average Grant-Date Fair Value
Non-vested as of December 31, 2019	719	$	29.31
Converted Ingersoll Rand Industrial restricted stock units	305	33.06
Granted	5,009	33.31
Vested	(234)	29.36
Forfeited	(107)	30.48
Non-vested as of September 30, 2020	5,692	33.01

Performance Share Unit Awards

Performance share units are granted to employees and are subject to a three years performance period. The number of shares issued at the end of the performance period is determined by the Company’s total shareholder return percentile rank versus the S&P 500 index for the three year performance period. The grant date fair value of these awards is determined using a Monte Carlo simulation pricing model and compensation cost is recognized straight-line over a three year period. The Monte Carlo simulation pricing model for the fiscal year 2020 grants utilized the following assumptions: (i) expected term of 2.82 years (equal to the remaining performance measurement period at the grant date), (ii) volatility of 35.2%, (iii) risk-free interest rate of 0.5% and (iv) expected dividend rate of 0.0%. Compensation expense is recognized based on the grant date fair value.

A summary of the Company’s performance stock unit activity for the nine month period ended September 30, 2020 is presented in the following table (underlying shares in thousands).


	Shares	Weighted-Average Grant-Date Fair Value
Non-vested as of December 31, 2019	—	$	—
Granted	302	29.72
Forfeited	(32)	29.72
Non-vested as of September 30, 2020	270	29.72