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SHARE-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2021

19. Share-Based Compensation Plans

The following table presents our total share-based compensation expense:

Years Ended December 31,
(in millions)		2021		2020		2019
Share-based compensation expense - pre-tax^(a)	$	278	$	274	$	314
Share-based compensation expense - after tax^(b)		220		216		248

(a)As a result of accelerated vesting events, such as retirement eligibility in the year of grant and involuntary terminations, we recognized $67 million, $63 million and $82 million in 2021, 2020 and 2019, respectively, prior to the end of the specified vesting periods. It is our policy to reverse compensation expense for forfeited awards when they occur.

(b)We also recognized $16 million of additional tax expense due to share settlements occurring in 2021.

Employee Plans

The Company sponsors several stock compensation programs under the AIG Long Term Incentive Plan (LTIP) (as amended) from which performance share units (PSUs), restricted stock units (RSUs), stock options and deferred stock units (DSUs) (collectively units) are issued. In addition, off-cycle grants are made from time to time during the year generally as sign-on awards to new hires or as a result of a change in employee status. The LTIP was governed by the AIG 2013 Omnibus Incentive Plan (2013 Omnibus Plan), until it was replaced by the 2021 Omnibus Plan, which was adopted at the annual shareholders’ meeting in May 2021. The adoption occurred after the annual 2021 LTI awards were granted.

Our share-settled awards are settled with previously acquired shares held in AIG’s treasury.

AIG Omnibus Incentive Plan

The 2013 Omnibus Plan, which replaced the AIG 2010 Stock Incentive Plan (2010 Plan), provided for the grants of share-based awards to our employees and non-employee directors. The total number of shares granted under the 2013 Omnibus Plan (the reserve) was the sum of 1) 45 million shares of AIG Common Stock, plus 2) the number of authorized shares that remained available for issuance under the 2010 Plan when the Omnibus Plan became effective, plus 3) the number of shares of AIG Common Stock relating to outstanding awards under the 2010 Plan at the time the 2013 Omnibus Plan became effective that subsequently were forfeited, expired, terminated or otherwise lapse or are settled in cash. Each share-based unit granted under the Omnibus Plan reduces the number of shares available for future grants by one share. However, shares with respect to awards that are forfeited, expired or settled for cash, and shares withheld for taxes on awards (other than options and stock appreciation rights awards) are returned to the reserve.

Upon the adoption of the 2021 Omnibus Plan, 8.1 million shares were added to the number of authorized shares that remained available for issuance under the 2013 Omnibus Plan at the time the 2021 Omnibus Plan was adopted, resulting in 24,343,068 shares being available for future grants under the 2021 Omnibus Plan as of December 31, 2021.

AIG Long Term Incentive Plan

Long-Term Incentive (LTI) Awards

The LTIP provides for an annual award to certain employees, including our senior executive officers and other highly compensated employees that may be comprised of a combination of one or more of the following units: PSUs, RSUs or stock options.

The number of PSUs issued on the grant date (the target) provides the opportunity for LTIP participants (usually senior management) to receive shares of AIG Common Stock based on AIG achieving specified performance goals at the end of a three-year performance period. These performance goals are pre-established by AIG’s Compensation and Management Resources Committee (CMRC) for each annual grant and may differ from year to year. The actual number of PSUs earned can vary from zero to 200 percent of the target for the 2021, 2020 and 2019 LTI awards, depending on AIG’s performance relative to a specified peer group and/or the outcome of pre-established financial goals, as applicable.

RSUs and stock options are earned based solely on continued service by the participant.

Vesting occurs on January 1 of the year immediately following the end of the three-year performance period. Recipients must be employed at each vesting date to be entitled to share delivery, except upon the occurrence of an accelerated vesting event, such as an involuntary termination without cause, disability, retirement eligibility or death during the vesting period.

Prior to 2021, LTI awards accrued dividend equivalent units (DEUs) in the form of additional PSUs and RSUs whenever a cash dividend was declared on shares of AIG Common Stock; the DEUs are subject to the same vesting terms and conditions as the underlying unit. Beginning in 2021, PSUs and RSUs granted via the annual 2021 LTI award (as of the date of grant), and those existing from the 2020 and 2019 LTI awards (as of the third quarter) accrue dividend equivalent rights (DERs) as AIG’s dividends are declared. These DERs will be settled in cash only if the underlying units’ vesting conditions are met; previously accrued DEUs were not impacted by this change.

Unit Valuation

The fair value of time-vesting RSUs as well as PSUs that are earned based on certain company-specific metrics was based on the closing price of AIG Common Stock on the grant date; while the fair value of PSUs that are earned based on AIG’s relative total shareholder return (TSR) was determined on the grant date using a Monte Carlo simulation.

The following table presents the assumptions used to estimate the fair value of PSUs that vest based on AIG’s TSR:

	2021
Expected dividend yield^(a)	-	%
Expected volatility^(b)	47.63	%
Risk-free interest rate^(c)	0.28	%

(a) The award agreement provides that TSR for AIG and each member of the Peer Group will be calculated assuming dividends distributed are reinvested on the ex-dividend date.

(b)We used the historical volatility over the most recent 2.81-year period for AIG and the members of the Peer Group, commensurate with the remaining Performance Period as of the Valuation Date.

(c)We converted the semi-annual zero-coupon U.S. Treasury rates as of the Valuation Date to continuously compounded rates. We then chose the continuously compounded risk-free rate that is commensurate with the length of the remaining performance period as of the valuation date and interpolated between the yields of the two-year and the three-year continuously compounded rates to determine the yield.

Modification of LTI awards

During the third quarter of 2019, we added a modifier to the 2019 performance share units awarded to certain senior executives to cap payout at 100 percent of target if our total shareholder return for the three-year performance period is below peer median. We did not recognize any incremental compensation expense as a result of this modification.

During the third quarter of 2020, we reduced the performance goals from three to two metrics for the 2018 LTI and 2019 LTI awards for certain PSU recipients, which resulted in a net credit of $4 million pre-tax to compensation expense. The modification did not apply to the Company’s senior executives.

The following table summarizes outstanding share-settled LTI awards^(a):

				Weighted Average
As of or for the Year	Number of Units			Grant-Date Fair Value
Ended December 31, 2021^(b)	2021 LTI	2020 LTI	2019 LTI	2021 LTI		2020 LTI		2019 LTI
Unvested, beginning of year	-	5,348,656	3,497,419	$	-	$	31.33	$	44.79
Granted	5,948,029	-	-		44.96		-		-
Vested^(c)	(1,344,917)	(771,594)	(3,174,495)		44.90		30.57		44.76
Forfeited	(214,678)	(410,568)	(322,924)		44.60		31.79		44.85
Unvested, end of year^(d)	4,388,434	4,166,494	-	$	45.00	$	31.43	$	-

(a) Excludes stock options, other RSUs and DSUs, which are discussed under Stock Options, Other RSU Grants and Non-Employee Plan, respectively.

(b) PSUs represent target amount granted and does not reflect potential increases or decreases that could result from the final outcome of the performance goals for the respective awards, which is determined by the CMRC in the quarter after the applicable performance period ends.

(c) Also reflects units that vest as a result of an accelerated vesting event that occurred prior to the specified vesting date.

(d) At December 31, 2021, the total unrecognized compensation cost for outstanding RSUs and PSUs was $185 million and the weighted-average and expected period of years over which that cost is expected to be recognized are 0.95 year and 2 years.

Stock Options

Stock options were issued as part of the 2021, 2020 and 2019 LTI awards, and to certain newly hired senior executives in 2017 and 2018. Option awards are generally granted with an exercise price equal to the market price of the company’s stock on the grant date. The fair value of the options was estimated on the grant date using the Black-Scholes model for the time-vesting options, and a Monte Carlo simulation for the hurdle-vesting options using the assumptions noted in the following table.

The following weighted-average assumptions were used for stock options granted:

	2021		2020		2019
Expected annual dividend yield^(a)	2.89	%	3.97	%	2.86	%
Expected volatility^(b)	36.68	%	42.03	%	23.17	%
Risk-free interest rate^(c)	0.95	%	0.57	%	2.47	%
Expected term^(d)	6.43	years	6.39	years	6.38	years

(a)The dividend yield is the projected annualized AIG dividend yield estimated by Bloomberg Professional service as of the valuation date.

(b) The expected volatility is based on the implied volatility of 24 months stock option estimated by the Bloomberg Professional service as of the valuation date.

(c) The risk-free interest rate is the continuously compounded interest rate for the term between the valuation date and the expiration date that is assumed to be constant and equal to the interpolated value between the closest data points on the U.S. dollar LIBOR-swap curve as of the valuation date.

(d) The contractual terms are 7 and 10 years from the date of grant.

The following table provides a rollforward of stock option activity:

				Weighted Average			Aggregate
As of or for the Year			Weighted Average		Remaining		Intrinsic Values
Ended December 31, 2021	Units		Exercise Price	Contractual Life		(in millions)
Outstanding, beginning of year	11,429,491	$	47.67		7.59
Granted	2,674,353		44.23
Exercised	(674,216)		46.16
Forfeited or expired	(408,201)		45.13
Outstanding, end of year	13,021,427	$	47.12		7.32	$	142
Exercisable, end of year	4,047,524	$	52.88		6.27	$	21

The weighted average grant-date fair value of stock options granted during 2021, 2020 and 2019 was $10.00, $9.61 and $10.01, respectively. As of December 31, 2021, we recognized $29.2 million of expense, while $21 million was unrecognized and is expected to be amortized up to 2.00 years.

Other RSU Grants

The Company may issue time-vesting RSUs for various reasons including, as a sign-on bonus, retention grant or replacement award in an acquisition. Vesting for these awards generally ranges from 1 to 3 years and is contingent on continuous service.

The following table summarizes outstanding share-settled RSU grants.

				Weighted Average
As of or for the Year	Number of Units			Grant-Date Fair Value
Ended December 31,	2021	2020	2019		2021		2020		2019
Unvested, beginning of year	1,151,380	1,231,185	1,634,610	$	46.18	$	54.17	$	56.11
Granted	493,140	583,068	399,779		49.36		35.54		52.40
Vested	(699,067)	(535,220)	(774,350)		50.03		50.89		57.32
Forfeited	(125,813)	(127,653)	(28,854)		51.80		54.90		55.23
Unvested, end of year	819,640	1,151,380	1,231,185	$	43.95	$	46.18	$	54.17

We recognized $18.7 million of expense related to these RSU grants in 2021. Total unrecognized compensation cost related to these grants was $24 million and the weighted-average and expected period of years over which that cost is expected to be recognized are 1.15 years and 4.00 years at December 31, 2021.

Non-Employee Plan

Our non-employee directors, who serve on our Board of Directors, receive share-based compensation in the form of fully vested DSUs with delivery deferred until retirement from the Board. DSUs granted in 2021, 2020 and 2019 accrue dividend equivalents in the form of additional DSUs equal to the amount of any regular quarterly dividend that would have been paid by AIG if the shares of AIG Common Stock underlying the DSUs had been outstanding. In 2021, 2020 and 2019, we granted to non-employee directors 55,133, 94,062 and 49,706 DSUs, respectively, under the 2013 Plan, and recognized expense of $2.7 million, $2.4 million and $2.6 million, respectively.