Stock Based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

Stock Based Compensation

NOTE 18. STOCK-BASED COMPENSATION

We had no stock-based compensation plans prior to the Separation; however, certain of our employees participated in the Fortive Plans, which provided for the grants of stock options and RSUs. Prior to the Separation, Fortive allocated stock-based compensation expense to the Company based on Vontier employees participating in the Fortive Plans. This is reflected in the accompanying Consolidated and Combined Statements of Earnings and Comprehensive Income for the period prior to the Separation.

In connection with the Separation and the related employee matters agreement, the Company adopted the 2020 Stock Incentive Plan (the “Stock Plan”) that became effective upon the Separation. Outstanding equity awards of Fortive held by our employees at the separation date (the “Converted Awards”) were converted into or replaced with Vontier equity awards (the “Conversion Awards”) under the Stock Plan based on the “concentration method,” and were adjusted to maintain the economic value immediately before and after the distribution date using the relative fair market value of Fortive common stock based on the Fortive “regular-way” close price as of October 8, 2020 and the Vontier “when-issued” trading price as of October 8, 2020. Other than replacement equity awards of Vontier issued in replacement of Fortive’s restricted stock units and stock options, the terms of the converted or replacement equity awards of Vontier (e.g. vesting date and expiration date) continued unchanged. Incremental stock-based compensation expense recorded as a result of this equity award conversion was $2.0 million and will be recognized over the remaining service period.

The Stock Plan provides for the grant of stock appreciation rights, restricted stock units (“RSUs”), performance stock units (“PSUs”), performance-based restricted stock awards (“RSAs”) and performance stock awards (“PSAs”) (collectively, “Stock Awards”), stock options or any other stock-based award. A total of 17.0 million shares of our common stock have been authorized for issuance under the Stock Plan and as of December 31, 2020, approximately 11 million shares of our common stock remain available for issuance under the Stock Plan.

Stock options under the Stock Plan generally vest pro rata over a five-year period and terminate 10 years from the grant date, though the specific terms of each grant are determined by the Compensation Committee of our Board of Directors. Our executive officers and certain other employees may be awarded stock options with different vesting criteria and stock options granted to non-employee directors are fully vested as of the grant date. Exercise prices for stock options granted under the Stock Plan were equal to the closing price of Vontier’s common stock on the NYSE on the date of grant, while stock options issued as Conversion Awards were priced to maintain the economic value before and after the Separation.

RSUs issued under the Stock Plan provide for the issuance of common stock at no cost to the holder. RSUs granted to employees under the Stock Plan generally provide for time-based vesting over five years, although certain employees may be awarded RSUs with different time-based vesting criteria. RSUs granted to non-employee directors under the Stock Plan vest on the earlier of the first anniversary of the grant date or the date of, and immediately prior to, the next annual meeting of our shareholders following the grant date. Prior to vesting, RSUs granted under the Stock Plan do not have dividend equivalent rights, do not have voting rights and the shares underlying the RSUs are not considered issued or outstanding.

In December 2020, PSUs were granted under the Stock Plan as Conversion Awards that vest based on our total shareholder return ranking relative to the S&P 500 Index.

Stock awards generally vest only if the employee is employed by us (or in the case of directors, the director continues to serve on the Board) on the vesting date. To cover the exercise of stock options, vesting of RSUs and issuances of PSUs, we generally issue shares authorized but previously unissued.

Stock-based Compensation Expense

Stock-based compensation has been recognized as a component of Selling, general, and administrative expense in the accompanying Consolidated and Combined Statements of Earnings and Comprehensive Income. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. We estimate pre-vesting forfeitures at the time of grant by analyzing historical data and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Ultimately, the total expense recognized over the vesting period will equal the fair value of awards that actually vest.

Share-based compensation expense related to stock options, restricted stock units and performance stock units was $22.5 million, $13.1 million and $13.8 million during the years ended December 31, 2020, 2019 and 2018, respectively, which was reduced by the related tax benefit of $4.1 million, $2.1 million and $2.6 million, respectively.

The following summarizes the unrecognized compensation cost for the Stock Plan awards as of December 31, 2020. This compensation cost is expected to be recognized over a weighted average period of approximately two years, representing the remaining service period related to the awards. Future compensation amounts will be adjusted for any changes in estimated forfeitures:

($ in millions)
Stock Awards	$	27.3
Stock options	14.2
Total unrecognized compensation cost	$	41.5

Stock Options

The following summarizes option activity under the Stock Plan and the Fortive Plans for the years ended December 31, 2020, 2019 and 2018 (in thousands, except price per share and numbers of years):

	Options(c)	Weighted Average Exercise Price(c)		Weighted  Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding as of January 1, 2018	1,896	$	38.09
Granted	318	76.67
Exercised	(292)	28.99
Canceled/forfeited	(61)	54.13
Outstanding as of December 31, 2018	1,861	44.78
Granted	376	77.47
Exercised	(335)	28.18
Canceled/forfeited	(148)	42.67
Outstanding as of December 31, 2019	1,754	53.74
Granted	815
Exercised	(360)
Canceled/forfeited	(80)
Aggregate impact of conversion related to the Separation (a)	2,406
Outstanding as of December 31, 2020	4,535	$	27.17	7.3	$	28,288
Vested and expected to vest as of December 31, 2020 (b)	3,530	$	26.40	7.0	$	24,736
Exercisable as of December 31, 2020	1,607	$	21.21	5.2	$	19,597
(a) The “Aggregate impact of conversion related to the Separation” represents the additional stock options issued as a result of the Separation by applying the “concentration method” to convert employee options based on the ratio of the fair value of Fortive and Vontier common stock calculated using the closing prices as of October 8, 2020.
(b) The “expected to vest” options are the net unvested options that remain after applying the forfeiture rate assumption to total unvested options.
(c) The options and weighted average exercise price for the periods prior to the Separation are pre-impact of the modification of the awards related to the Separation.

The aggregate intrinsic values in the table above represent the total pretax intrinsic value (the difference between the closing stock price of Vontier common stock on the last trading day of 2020 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2020. The amount of aggregate intrinsic value will change based on the price of Vontier’s common stock.

The weighted average exercise price of stock options granted, exercised, canceled/forfeited is not included in the table above for the full year ended December 31, 2020 as activity during this period included the Conversion Awards. The weighted average exercise price of Vontier stock options granted, exercised and canceled/forfeited for the period after separation until December 31, 2020 was $33.51, $18.70, and $30.10, respectively.

The fair value of each stock option issued was estimated on the date of grant using the Black-Scholes model for service condition awards with the following weighted average assumptions for the years ended December 31:

	2020			2019			2018
Risk-free interest rate	0.42		%	1.43% - 2.60%			2.71% - 2.96%
Volatility	27.2		%	19.9		%	18.2		%
Dividend yield	—		%	0.37		%	0.37		%
Expected years until exercise	6.5			5.5 - 8.0			5.5 - 8.0
Weighted average fair value at date of grant	$	9.95		$	19.17		$	18.66

The total fair value of options vested during the years ended December 31, 2020, 2019 and 2018 was $2.8 million, $1.9 million and $1.5 million, respectively.

Options outstanding as of December 31, 2020 are summarized below (in millions; except price per share and numbers of years):

	Outstanding				Vested
Exercise Price	Number of Options	Average Exercise Price		Average Remaining Life (in years)	Number of Options	Average Exercise Price
$9.92 - $23.46	1.5	$	18.23	5	1.2	$	17.27
$23.47 - $29.34	0.2	28.93		9	—	28.60
$29.35 - $31.46	2.2	31.37		9	0.2	31.12
$31.47 - $33.43	0.5	33.39		8	0.1	33.34
$33.44 - $33.66	0.1	33.66		10	0.1	33.66
Total shares	4.5				1.6

The following summarizes aggregate intrinsic value and cash receipts related to stock option exercise activity under the Stock Plan and the Fortive Plans for the years ended December 31:

($ in millions)	2020		2019		2018
Aggregate intrinsic value of stock options exercised	$	9.6	$	14.2	$	14.3
Cash receipts from stock options exercised (a)	$	9.4	$	11.0	$	8.3
(a) Cash receipts prior to the Separation were recorded as an increase to Former Parent's investment. This amount was $7.6 million, $11.0 million and $8.3 million in 2020, 2019, and 2018, respectively.

Stock Awards

The following summarizes information related to Stock Award activity under the Stock Plan and the Fortive Plans for the years ended December 31, 2020, 2019 and 2018 (in thousands; except price per share):

	Number of Stock Awards (b)	Weighted Average Grant-Date Fair Value
Unvested as of January 1, 2018	374	$	45.92
Granted	106	77.78
Vested	(124)	41.28
Forfeited	(15)	53.23
Unvested as of December 31, 2018	341	57.63
Granted	132	77.15
Vested	(106)	74.77
Forfeited	(48)	56.69
Unvested as of December 31, 2019	319	62.00
Granted	593
Vested	(96)
Forfeited	(26)
Aggregate impact of conversion related to the Separation (a)	592
Unvested as of December 31, 2020	1,382
(a) The “Aggregate impact of conversion related to the Separation” represents the additional Stock Awards issued as a result of the Separation by applying the “concentration method” to convert Stock Awards based on the ratio of the fair value of Fortive and Vontier common stock calculated using the closing prices as of October 8, 2020.
(b) The awards and weighted average grant-date fair value for the periods prior to the Separation are pre-impact of the modification of the awards related to the Separation.

The weighted average grant date fair value of Stock Awards granted, vested, and forfeited is not included in the table above for the full year ended December 31, 2020 as activity during this period included the conversion of Stock Awards under the Fortive Plans into awards under the Stock Plan. The weighted average fair value of Stock Awards granted, vested, and forfeited during the period after separation until December 31, 2020 was $33.64, $28.49, and $29.76, respectively.