Stock-Based Incentive Compensation Plans

12 Months Ended

Dec. 31, 2019

Stock-Based Incentive Compensation Plans [Abstract]

Stock-Based Incentive Compensation Plans

18. Stock-Based Incentive Compensation Plans

We sponsor stock-based incentive compensation plans for our employees and directors and for the employees and agents of our subsidiaries that provide for the issuance of stock options, performance shares, stock appreciation rights (“SARs”) and restricted stock units (“RSUs”) among other types of awards. We issue new shares to satisfy option exercises and vested performance shares and RSUs.

Total compensation expense (in millions) by award type for our stock-based incentive compensation plans was as follows:



	For the Years Ended December 31,
	2019		2018			2017
Stock options	$	8	$	5		$	10
Performance shares		17		15			13
SARs		-		(1	)		2
RSUs		37		32			25
Total	$	62	$	51		$	50

Recognized tax benefit	$	13	$	11		$	18

Total unrecognized compensation expense (in millions) and expected weighted-average life (in years) by award type for our stock-based incentive compensation plans was as follows:



	For the Years Ended December 31,
	2019			2018			2017
			Weighted-			Weighted-			Weighted-
			Average			Average			Average
	Expense		Period	Expense		Period	Expense		Period
Stock options	$	9	0.9	$	9	1.1	$	9	1.4
Performance shares		15	1.3		14	0.9		12	1.2
SARs		-	3.4		-	2.7		2	3.2
RSUs		42	1.4		50	1.2		32	1.1
Total unrecognized stock-based
incentive compensation expense	$	66		$	73		$	55

Stock Options

The option price assumptions used for our stock option awards were as follows:



	For the Years Ended December 31,
	2019		2018		2017
Weighted-average fair value per option granted	$	13.23	$	18.74	$	18.27
Assumptions:
Dividend yield		2.8%		2.1%		2.0%
Expected volatility		26.9%		27.2%		31.5%
Risk-free interest rate		2.1-2.5%		2.5-2.9%		1.7-2.1%
Expected life (in years)		5.8		5.8		5.5

The fair value of options is determined using a Black-Scholes options valuation model with the assumptions disclosed in the table above. The dividend yield is based on the expected dividend rate during the expected life of the option. Expected volatility is based on the implied volatility of exchange-traded securities and the historical volatility of the LNC stock price. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of the grant. The expected life of the options granted represents the weighted-average period of time from the grant date to the date of exercise, expiration or cancellation based upon historical behavior.

Generally, stock options have a maximum contractual term of ten years and vest ratably over a three year period based solely on a service condition. Information with respect to our incentive plans involving stock options with service conditions (aggregate intrinsic value shown in millions) was as follows:



						Weighted-
			Weighted-			Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price			Term	Value
Outstanding as of December 31, 2018	2,354,016		$	53.11
Granted – original	678,882			63.01
Exercised (includes shares tendered)	(84,271	)		33.32
Forfeited or expired	(53,971	)		71.16
Outstanding as of December 31, 2019	2,894,656		$	55.67		6.61	$	25

Vested or expected to vest as of December 31, 2019 ⁽¹⁾	2,671,151		$	54.52		6.47	$	25

Exercisable as of December 31, 2019	1,865,223		$	48.94		5.48	$	25

⁽¹⁾Includes estimated forfeitures.

The total fair value of stock options with service conditions that vested during the years ended December 31, 2019, 2018 and 2017 was $7 million, $6 million and $6 million, respectively. The total intrinsic value of such options exercised during the years ended December 31, 2019, 2018 and 2017, was $3 million, $11 million and $23 million, respectively.

We award to certain agents stock options that have a maximum contractual term of five years and generally vest ratably over a two year period depending on the satisfaction of the performance conditions. Information with respect to our incentive plans involving stock options with performance conditions (aggregate intrinsic value shown in millions) was as follows:



						Weighted-
			Weighted-			Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price			Term	Value
Outstanding as of December 31, 2018	228,836		$	59.43
Granted – original	35,878			61.80
Exercised (includes shares tendered)	(41,898	)		50.78
Forfeited or expired	(13,712	)		65.59
Outstanding as of December 31, 2019	209,104		$	61.17		2.07	$	1

Vested or expected to vest as of December 31, 2019 ⁽¹⁾	198,345		$	60.89		1.96	$	1

Exercisable as of December 31, 2019	187,585		$	60.58		1.85	$	1

⁽¹⁾Includes estimated forfeitures.

The total fair value of stock options with performance conditions that vested during the years ended December 31, 2019, 2018 and 2017, was $1 million, $1 million and $2 million, respectively. The total intrinsic value of such options exercised during the years ended December 31, 2019, 2018 and 2017, was less than $1 million, $2 million and $12 million, respectively.

Performance Shares

LNC performance shares vest, if at all, on the third anniversary of the grant date; depending on the achievement level of performance measures pre-determined by the Compensation Committee for the three year performance period, payout could range from zero to 200% of the target award.

Information with respect to our performance shares was as follows:



				Weighted-
				Average
			Grant-Date
	Shares			Fair Value
Nonvested as of December 31, 2018	546,225			$	59.46
Granted	202,484				66.89
Vested	(258,384	)			31.22
Forfeited	(19,254	)			80.53
Nonvested as of December 31, 2019	471,071			$	77.29

SARs

Under our incentive compensation plan, we issue SARs to certain planners and advisers who have full-time contracts with us. The SARs under this plan are rights on our stock that are cash settled and become exercisable in increments of 25% over the four year period following the SARs grant date. SARs are granted with an exercise price equal to the fair market value of our stock at the date of grant and, unless cancelled earlier due to certain terminations of employment, expire five years from the date of grant. Generally, such SARs are transferable only upon death.

We recognize compensation expense for SARs based on the fair value method using the Black-Scholes option-pricing model. Compensation expense and the related liability are recognized on a straight-line basis over the vesting period of the SARs. The SARs liability is marked-to-market through net income, which causes volatility in net income (loss) as a result of changes in the market value of our stock and reported within commissions and other expenses on our Consolidated Statements of Comprehensive Income (Loss). The SARs liability as of December 31, 2019 and 2018, was $1 million and $1 million, respectively, and reported within other liabilities on our Consolidated Balance Sheets.

The option price assumptions used for our SARs were as follows:



	For the Years Ended December 31,
	2019		2018		2017
Weighted-average fair value per SAR granted	$	13.93	$	19.09	$	20.06
Assumptions:
Dividend yield		2.4%		1.6%		1.5%
Expected volatility		28.3%		27.0%		34.4%
Risk-free interest rate		2.5%		2.8%		2.2%
Expected life (in years)		5.0		5.0		5.0

The assumptions above are the same as those discussed for options above, except the dividend yield is based on the current dividend rate at the date of grant, expected volatility is based on the implied volatility of exchange-traded securities and the expected life represents the contractual term.

Information with respect to our SARs plan (aggregate intrinsic value shown in millions) was as follows:



						Weighted-
			Weighted-			Average
			Average		Remaining		Aggregate
			Exercise		Contractual		Intrinsic
	Shares		Price			Term	Value
Outstanding as of December 31, 2018	130,007		$	54.88
Granted – original	23,604			61.80
Exercised (includes shares tendered)	(39,863	)		48.69
Forfeited or expired	(9,317	)		60.75
Outstanding as of December 31, 2019	104,431		$	58.17		2.14	$	-

Vested or expected to vest as of December 31, 2019 ⁽¹⁾	102,944		$	58.20		2.12	$	-

Exercisable as of December 31, 2019	71,375		$	55.26		1.56	$	-

⁽¹⁾Includes estimated forfeitures.

The payment for SARs exercised was $1 million, $1 million and $3 million during the years ended December 31, 2019, 2018 and 2017, respectively.

RSUs

LNC RSUs generally cliff-vest on the third anniversary of the grant date, based solely on a service condition. Information with respect to our RSUs was as follows:



				Weighted-
				Average
			Grant-Date
	Shares			Fair Value
Outstanding as of December 31, 2018	1,692,876			$	60.02
Granted	621,134				62.88
Vested	(680,494	)			38.40
Forfeited	(82,387	)			70.51
Outstanding as of December 31, 2019	1,551,129			$	70.09