Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

Share-based Payment Arrangement [Abstract]

The Company’s stock-based compensation includes stock options, restricted stock units (“RSUs”) and grants of contingent shares that are earned based on achieving targeted levels of total shareholder return. All current grants of stock options, RSUs and contingent shares are made under the PPG Industries, Inc. Amended and Restated Omnibus Incentive Plan (“PPG Amended Omnibus Plan”), which was amended and restated effective April 21, 2016.


($ in millions)	2022	2021	2020
Total stock-based compensation	$35	$57	$44
Income tax benefit recognized	$8	$12	$10

Stock Options

PPG has outstanding stock option awards that have been granted under the PPG Amended Omnibus Plan. Under the PPG Amended Omnibus Plan, certain employees of the Company have been granted options to purchase shares of common stock at prices equal to the fair market value of the shares on the date the options were granted. The options are generally exercisable 36 months after being granted and have a maximum term of 10 years. Upon exercise of a stock option, shares of Company stock are issued from treasury stock.

The fair value of stock options issued to employees is measured on the date of grant and is recognized as expense, net of estimated forfeitures, over the requisite service period. PPG estimates the fair value of stock options using the Black-Scholes option pricing model. The risk-free interest rate is determined by using the U.S. Treasury yield curve at the date of the grant and using a maturity equal to the expected life of the option. The expected life of options is calculated using the average of the vesting term and the maximum term, as prescribed by accounting guidance on the use of the simplified method for determining the expected term of an employee share option. The expected dividend yield and volatility are based on historical stock prices and dividend amounts over past time periods equal in length to the expected life of the options. PPG applies an estimated forfeiture rate that is calculated based on historical activity.

The following weighted average assumptions were used to calculate the fair values of stock option grants in each year:


	2022		2021		2020
Weighted average exercise price	$151.87		$136.60		$119.52
Risk-free interest rate	2.0	%	1.0	%	1.6	%
Expected life of option in years	6.5		6.5		6.5
Expected dividend yield	1.6	%	1.6	%	1.5	%
Expected volatility	25.7	%	25.3	%	20.0	%

The weighted average fair value of options granted was $36.52 per share, $29.27 per share and $21.93 per share for the years ended December 31, 2022, 2021, and 2020, respectively.


Stock Options Outstanding and Exercisable	Number of Shares	Weighted Average Exercise Price	Weighted Average Remaining Contractual Life (in years)	Intrinsic Value (in millions)
Outstanding, January 1, 2022	3,340,402	$110.98	6.1
Granted	487,277	$151.87
Exercised	(158,837)	$77.24
Forfeited/Expired	(151,391)	$134.34
Outstanding, December 31, 2022	3,517,451	$117.16	5.7	$47
Vested or expected to vest, December 31, 2022	3,444,650	$116.57	5.6	$47
Exercisable, December 31, 2022	2,039,716	$104.58	4.0	$43

At December 31, 2022, unrecognized compensation cost related to outstanding stock options that have not yet vested totaled $7 million. This cost is expected to be recognized as expense over a weighted average period of 1.4 years.

The following table presents stock option activity for the years ended December 31, 2022, 2021 and 2020:


($ in millions)	2022	2021	2020
Total intrinsic value of stock options exercised	$12	$32	$31
Cash received from stock option exercises	$12	$47	$54
Income tax benefit from the exercise of stock options	$3	$8	$7
Total fair value of stock options vested	$16	$11	$11

Restricted Stock Units (“RSUs”)

Long-term incentive value is delivered to selected key management employees by granting RSUs, which have either time or performance-based vesting features. The fair value of an RSU is equal to the market value of a share of PPG common stock on the date of grant. Time-based RSUs generally vest over the three-year period following the date of grant, unless forfeited, and will be paid out in the form of stock, cash or a combination of both at the Company’s discretion at the end of the three year vesting period. Performance-based RSUs vest based on achieving specific annual performance targets for earnings per share growth and cash flow return on capital over the three calendar year-end periods following the date of grant. Unless forfeited, the performance-based RSUs will be paid out in the form of stock, cash or a combination of both at the Company’s discretion at the end of the three-year performance period if PPG meets the performance targets.

The amount paid upon vesting of performance-based RSUs may range from 0% to 200% of the original grant, based upon the level of earnings per share growth achieved and frequency with which the annual cash flow return on capital performance target is met over the three calendar year periods comprising the vesting period. Performance against the earnings per share growth and the cash flow return on capital goal is calculated annually, and the annual payout for each goal will be weighted equally over the three-year period. The performance-based RSUs granted in 2020 vested at 100%. PPG has assumed that performance-based RSUs granted in 2021 and 2022 will both vest at the 100% level.


RSU Activity	Number of Shares	Weighted Average Grant Date Fair Value
Outstanding, January 1, 2022	622,055	$125.92
Granted	232,050	$147.77

Vested	(199,642)	$147.36
Forfeited	(65,075)	$122.60
Outstanding, December 31, 2022	589,388	$136.99
Vested or expected to vest, December 31, 2022	563,900	$136.67

There was $20 million of total unrecognized compensation cost related to unvested RSUs outstanding as of December 31, 2022. This cost is expected to be recognized as expense over a weighted average period of 1.5 years.

Contingent Share Grants

The Company also provides grants of contingent shares to selected key executives that may be earned based on PPG’s total shareholder return (“TSR”) over the three-year period following the date of grant. Contingent share grants (referred to as “TSR awards”) are made annually and are paid out at the end of each three-year period based on the Company’s performance. Performance is measured by determining the percentile rank of the total shareholder return of PPG common stock in relation to the total shareholder return of the S&P 500 for the three-year period following the date of grant. This comparison group represents the entire S&P 500 Index as it existed at the beginning of the performance period, excluding any companies that have been removed from the index because they ceased to be publicly traded. The payout is based on performance achieved during the three-year period calculated in accordance with the scale set forth in the plan agreement and may range from 0% to 200% of the initial grant. A payout of 100% is earned if the target performance is achieved. Contingent share awards earn dividend equivalents for the award period, which will be paid to participants or credited to the participants’ deferred compensation plan accounts with the award payout at the end of the period based on the actual number of contingent shares earned. Any payments made at the end of the award period may be in the form of stock, cash or a combination of both. The TSR awards are classified as liability awards, and compensation expense is recognized over the three-year award period based on the fair value of the awards (giving consideration to the Company’s percentile rank of total shareholder return) remeasured in each reporting period until settlement of the awards.

The performance period for the TSR shares granted in 2020 ended on December 31, 2022, and PPG’s total shareholder return was measured against that of the S&P 500 over the three‑year period. PPG’s ranking on this performance measure was at the 28th percentile, resulting in no payout.

As of December 31, 2022, there was $2 million of total unrecognized compensation cost related to outstanding TSR awards based on the current estimate of fair value. This cost is expected to be recognized as expense over a weighted average period of 2.0 years.