Murphy utilizes cash-based and/or share-based incentive awards to supplement normal salaries as compensation for executive management and certain employees. For share-based awards that qualify for equity accounting, costs are recognized as an expense in the Consolidated Statements of Operations using a grant date fair value-based measurement method over the periods that the awards vest. For share-based awards that settle in cash that are required to be accounted for under liability accounting rules, costs are recognized as expense using a fair value-based measurement method over the vesting period, but expense is adjusted as necessary through the date the award value is finally determined. Total expense for liability awards is ultimately adjusted to the final intrinsic value for the award.

The Company currently has outstanding incentive awards issued to certain employees under the 2017 Annual Incentive Plan (2017 AIP), the 2012 Long-Term Incentive Plan (2012 Long-Term Plan), the 2018 Long-Term Incentive Plan (2018 Long-Term Plan) and the 2020 Long-Term Incentive Plan (2020 Long-Term Plan).

The 2017 AIP authorizes the Executive Compensation Committee (the Committee) to establish specific performance goals associated with annual cash awards that may be earned by officers, executives and certain other employees. Cash awards under the 2017 Annual Incentive Plan are determined based on the Company’s actual financial and operating results as measured against the performance goals established by the Committee. the 2017 AIP expired on December 31, 2021 and has been replaced with the 2022 Annual Incentive Plan, effective January 1, 2022.

The 2020 Long-Term Plan authorizes the Committee to make grants of the Company’s Common Stock to employees. These grants may be in the form of stock options (nonqualified or incentive), stock appreciation rights (SAR), restricted stock, restricted stock units (RSU), performance units, performance shares, dividend equivalents and other stock-based incentives. The 2020 Long-Term Plan expires in 2030. A total of 5 million shares are issuable during the life of the 2020 Long-Term Plan. Shares issued pursuant to awards granted under this Plan may be shares that are authorized and unissued or shares that were reacquired by the Company, including shares purchased in the open market. Share awards that have been canceled, expired, forfeited or otherwise not issued under an award shall not count as shares issued under this Plan. Based on awards made to date, 3.48 million shares are available for grant under the 2020 Long-Term Plan at December 31, 2021.

At the Company’s annual stockholders’ meeting held on May 12, 2021, shareholders approved the replacement of the 2018 Stock Plan for Non-Employee Directors (2018 NED Plan) with the 2021 Stock Plan for Non-Employee Directors (2021 NED Plan). The 2021 NED Plan permits the issuance of restricted stock, restricted stock units and stock options or a combination thereof to the Company’s Non-Employee Directors. The Company currently has outstanding incentive awards issued to Directors under the 2021 NED Plan and the 2018 NED Plan. All awards on or after May 12, 2021, were made under the 2021 NED Plan.

As of December 31, 2021, there were $45.8 million in compensation costs to be expensed over approximately the next three years related to unvested share-based compensation arrangements granted by the Company. Employees receive net shares, after applicable withholding obligations, upon each stock option exercise and restricted stock award. Total income tax benefits realized from tax deductions related to stock option exercises under share-based payment arrangements were immaterial for the years ended December 31, 2021, 2020 and 2019.

2018 Long-Term Plan. Each grant will vest if the Company achieves specific performance objectives at the end of the designated performance period. Additional shares may be awarded if performance objectives are exceeded. If performance goals are not met, PSUs will not vest, but recognized compensation cost associated with the stock award would not be reversed. For PSUs, the performance conditions are based on the Company’s total shareholder return (80% weighting), compared to an industry peer group of companies, and the EBITDA divided by Average Capital Employed (ACE) metric (20% weighting) for PSU awards beginning in 2020, over the performance period. During the performance period, PSUs are subject to transfer restrictions and are subject to forfeiture if a grantee terminates for reasons other than retirement, disability or death. Termination for these three reasons will lead to a pro rata award of amounts earned. No dividends are paid nor do voting rights exist on awards of PSUs prior to their settlement.


(Number of stock units)	2021	2020	2019
Outstanding at beginning of year	2,207,429	2,129,733	1,660,417
Granted	1,156,800	999,700	957,600
Vested and issued	(642,473)	(429,194)	(331,917)
Forfeited	(51,000)	(492,810)	(156,367)
Outstanding at end of year	2,670,756	2,207,429	2,129,733

The fair value of the equity-settled performance-based awards granted in each year was estimated on the date of grant using a Monte Carlo valuation model. Expected volatility was based on daily historical volatility of the Company’s stock price compared to a peer group average over a three-year period. The risk-free interest rate is based on the yield curve of three-year U.S. Treasury bonds and the stock beta was calculated using three years of historical averages of daily stock data for Murphy and the peer group. The assumptions used in the valuation of the performance awards granted in 2021, 2020 and 2019 are presented in the following table.


	2021	2020	2019
Fair value per share at grant date	$16.03	$21.51	$28.09
Assumptions
Expected volatility	74.00%	39.00%	46.00%
Risk-free interest rate	0.18%	1.40%	2.50%
Stock beta	1.169	0.864	1.037
Expected life	3.0 years	3.0 years	3.0 years

TIME-BASED RESTRICTED STOCK UNITS – Time-based restricted stock units (RSUs) have been granted to the Company’s Non-Employee Directors (NED) under the 2018 NED Plan and 2021 NED Plan and to certain employees under the 2012 Long-Term Plan, 2018 Long-Term Plan and 2020 Long-Term Plan.


Type of Plan	Valuation Methodology		2021		2020		2019
Non-Employee Directors1, 2	Closing Stock Price at Grant Date	$	13.14 - 23.58	$	22.59	$	21.68
Long-Term Incentive Plan3	Average High/Low Stock Price at Grant Date	$	12.30	$	21.68	$	28.16

3 The RSUs granted under the 2012 Plan will vest on the fifth anniversary of the date of grant. The RSUs granted under the 2018 and 2020 Long-Term Plan generally vest on the third anniversary of the date of grant.


(Number of share units)	2021	2020	2019
Outstanding at beginning of year	1,383,043	1,535,080	1,538,854
Granted	573,907	446,848	409,692
Vested and issued	(476,012)	(271,285)	(275,738)
Forfeited	(29,500)	(327,600)	(137,728)
Outstanding at end of year	1,451,438	1,383,043	1,535,080

Prior to 2018, the Committee fixed the option price of each option granted at no less than fair market value (FMV) on the date of the grant and fixed the option term at no more than seven years from such date. Each option granted to date under the 2012 Long-Term Plan has been nonqualified, with a term of seven years and an option price equal to FMV at date of grant. Under these plans, one-half of each grant is generally exercisable after two years and the remainder after three years. For stock options, the number of shares issued upon exercise is reduced for settlement of applicable statutory income tax withholdings owed by the grantee.

The fair value of each option award was estimated on the date of grant using the Black-Scholes pricing model based on the assumptions noted in the following table. Expected volatility is based on historical volatility of the Company’s stock and implied volatility on publicly traded at-the-money options on the Company’s stock. The Company estimates the expected term of the options granted based on historical option exercise patterns and considers certain groups of employees exhibiting different behavior. The risk-free interest rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.


	Number of Shares	Average Exercise Price
Outstanding at December 31, 2018	3,994,595	$	44.66

Exercised	(57,500)	17.57
Forfeited	(1,016,685)	48.29
Outstanding at December 31, 2019	2,920,410	43.93

Exercised	(47,000)	17.57
Forfeited	(825,010)	54.85
Outstanding at December 31, 2020	2,048,400	40.14

Exercised	(170,000)	17.57
Forfeited	(558,900)	52.61
Outstanding at December 31, 2021	1,319,500	37.77
Exercisable at December 31, 2018	3,182,345	$	49.10
Exercisable at December 31, 2019	2,694,410	43.51
Exercisable at December 31, 2020	2,048,400	37.88
Exercisable at December 31, 2021	1,319,500	34.25


	Options Outstanding				Options Exercisable
Range of Exercise Prices per Option	No. of Options	Avg. Life Remaining in Years	Aggregate Intrinsic Value		No. of Options	Avg. Life Remaining in Years	Aggregate Intrinsic Value
$17.00 to $30.99	773,500	1.6	$	3,097,563	773,500	1.6	$	3,097,563
$31.00 to $50.99	546,000	0.1	—		546,000	0.1	—

	1,319,500	1.0	$	3,097,563	1,319,500	1.0	$	3,097,563

The total intrinsic value of options exercised during 2021 was $1.2 million. Intrinsic value is the excess of the market price of stock at date of exercise over the exercise price received by the Company upon exercise. Aggregate intrinsic value is nil when the exercise price of the stock option exceeds the market price of the Company’s common stock.

The Company has granted phantom stock-based incentive awards to be settled in cash to certain employees in the form of Stock Appreciation Rights (SARs), Performance-based restricted stock units (CPSUs), Time-based restricted stock units (CRSUs) and Phantom units.

SAR awards have terms similar to stock options. CPSU terms are similar to other performance-based restricted stock awards (PSUs). CRSUs generally settle on the third anniversary of the date of grant. Phantom units generally settle three to five years from date of grant. Each award granted is settled, net of applicable income tax withholdings, in cash rather than with Common shares. Total pre-tax expense recorded in the Consolidated Statements of Operations for all cash-settled stock-based awards was $18.2 million in 2021, $1.5 million in 2020 and $16.9 million in 2019.

The Committee also administers the Company’s incentive compensation plans, which provide for annual or periodic cash awards to officers, directors and certain other employees. These cash awards are generally determinable based on the Company achieving specific financial and/or operational objectives. Compensation expense of $29.0 million, $9.8 million and $34.1 million was recorded in 2021, 2020 and 2019, respectively, for these plans.