Stock-Based Compensation

12 Months Ended

Dec. 31, 2021

Share-based Payment Arrangement [Abstract]

Prior to the Transactions

Prior to the Transactions, the Company operated under the Polaris Plan. The purpose of the Polaris Plan was to provide a means through which Holdings may attract and retain key personnel and to provide a means whereby Polaris Plan Participants can acquire and maintain an equity interest in Holdings, thereby strengthening their commitment to the welfare of Holdings and its subsidiaries, including MultiPlan, Inc. Under the Polaris Plan, Holdings may grant awards to select Polaris Plan Participants at the sole discretion of the Holdings Board. Polaris Plan awards are granted in the form of Holdings' Class B Units via the Polaris Agreement.

There were 343,114 Units available for issuance under the Polaris Plan. There were 267,768 Units issued and outstanding as of the date of the Liquidity Event, October 7, 2020. The Company's CEO, with the approval of the Holdings Board, determined participation and the allocation of the Units.

Each individual Award is composed of time vesting units and performance vesting units. Time vesting units and performance vesting units vest based on the vesting dates and the achievement of certain performance measures as defined in each agreement. The Company amortizes the time vesting units on a straight line basis, and the performance vesting units on a

graded vesting basis. In the event of the termination of an employee Participant due to a Qualifying Termination as defined by the Polaris Agreement, the Polaris Plan Participant shall have the right to cause Holdings to purchase all or any portion of the vested Units owned by the employee, subject to the approval of the Company's CEO. Based on this put right available to the employee Participants, stock-based compensation awards related to the Polaris Plan have been accounted for as liability classified awards within Holdings' consolidated financial statements. The Company records these awards within Shareholders' equity as an equity contribution from Holdings based on the fair value of the outstanding Units at each reporting period. Upon the occurrence of a definitive Liquidity Event all unvested units vest immediately prior to such Liquidity Event. All vested shares will be exchanged for new shares and cash as determined at the time of such Liquidity Event. See Note 4 The Transactions for details regarding the Transactions.

The consummation of the Transactions described in Note 4 The Transactions constituted a definitive Liquidity Event under the agreements governing the Unit awards and as a result all unvested Units vested on October 7, 2020. Therefore, the Company recorded an expense of $106.2 million related to the accelerated vesting during the fourth quarter of 2020. The Company recorded these awards within shareholders' equity as an equity contribution from Holdings based on the fair value of the outstanding Units at each reporting period.

The fair value of the outstanding Units was $475.5 million as of October 7, 2020, and represents the cumulative exit value of the Company, which reflects the transaction value plus prior distributions. We also removed the discount for lack of marketability from the calculation of fair value. The Company recorded stock-based compensation expense for Class B Units of $405.8 million during the period ended December 31, 2020, and stock-based compensation profit of $14.9 million during the period ended December 31, 2019. Forfeitures are accounted for as they occur.

The following table lists the principal assumptions used estimating the fair value of the Units during the year ended December 31, 2019:


Risk free rate of return	1.6	%
Expected volatility	24.9	%
Expected dividend yield	0.0	%
Discount for Lack of Marketability	20.0	%

Stock-based compensation expense related to Class B Units has been allocated between costs of services and general and administrative expenses in the accompanying consolidated statements of income (loss) and comprehensive income (loss) for the years ending December 31, 2020, and 2019 as follows:


	For the Year Ended December 31,
(in thousands)	2020		2019
Cost of services	$	163,025	$	(7,904)
General and administrative	242,818		(6,976)
Total stock-based compensation	$	405,843	$	(14,880)

After the consummation of the Transactions

The Company operates under the 2020 Omnibus Incentive Plan effective October 8, 2020. The purpose of the 2020 Omnibus Incentive Plan is to provide a means through which the Company and the other members of the Company may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors of the Company and its subsidiaries can acquire and maintain an equity interest in the Company, or be paid incentive compensation, including incentive compensation measured by reference to the value of Common Stock, thereby strengthening their commitment to the welfare of the Company and aligning their interests with those of the Company's stockholders.

There are 85,850,000 shares of Class A common stock available for the issuance of awards under the 2020 Omnibus Incentive Plan. The Company's CEO, with the approval of the Board, determines participation and the allocation of the Units. Awards under the 2020 Omnibus Incentive Plan typically vest from 6 months to 4 years and are generally subject to either cliff vesting or graded vesting. Awards do not have non-forfeitable rights to dividends or dividend equivalents.

The Company has adopted an Incentive Compensation Clawback Policy in order to help ensure that incentive compensation is paid or awarded based on accurate financial results and the correct calculation of performance against incentive targets.

Non-qualified stock options

Non-qualified stock option activity for the year ended December 31, 2021 is summarized below:


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contract Term (Years)	Aggregate Intrinsic Value
Nonvested at beginning of period	—	$	—
Awarded	4,167,862	8.43


Nonvested at end of period	4,167,862	$	8.43	3 years, 5 months	$	—

Exercisable at end of period	—	—		—	—

Restricted Stock and Restricted Stock Units

Restricted Stock and Restricted Stock Units activity for the year ended December 31, 2021 is summarized below:


	Employee RS	Director RSUs	Employee RSUs	Fixed Value RSUs	Weighted Average grant date fair value per share
Nonvested at beginning of period	1,468,750	42,847	—	—	$	8.82
Awarded	133,689	87,275	2,903,845	492,610	6.56
Vested	(930,564)	(48,061)	(522,539)	—	8.47
Forfeited	(671,875)	—	(37,325)	—	8.65
Nonvested at end of period	—	82,061	2,343,981	492,610	$	6.24

On August 4, 2021, the Company granted $2.0 million of Fixed Value RSUs to the chief executive officer as part of the side letter agreement entered into on the same date. The required service period of the grant is the time between the grant date and the vesting date of January 31, 2022, and the compensation cost related to the grant was amortized ratably over the service period. This grant is accounted for as liability-classified award because the obligation is based on fixed monetary amount that was known at inception of the obligation, to be settled with a variable number of shares of our common stock based on the volume weighted average trading price of the common stock of the Company over the preceding 30 consecutive trading days prior to the grant's vesting date, which occurred on January 31, 2022.

Other share based compensation data

The following table lists the principal assumptions used in estimating the grant date fair value of NQSOs during the year ended December 31, 2021:


Risk free rate of return			1.10% - 1.52%
Expected volatility			40% - 52%
Expected dividend yield			0.0%
Expected life in years			6 years - 6 years, 3 months
Sub optimal exercise factor			1.9

The Company has allocated stock based compensation expense under the 2020 Omnibus Incentive Plan between costs of services and general and administrative expenses in the accompanying consolidated statements of income (loss) and comprehensive income (loss) for the years ending December 31, 2021, and 2020 as follows:


	For the Year Ended December 31,
(in thousands)	2021		2020
Cost of services	$	2,618	$	—
General and administrative	15,392		211
Total stock-based compensation	$	18,010	$	211

There was $22.8 million of unrecognized compensation cost as of December 31, 2021 related to the outstanding awards which is expected to be recognized over a weighted average period of 3 years, 3 months.