Stock-Based Compensation (Notes)

12 Months Ended

Dec. 31, 2021

Stock-Based Compensation

We maintain long-term incentive plans for the benefit of certain employees and directors. Our plans consist of the Rent-A-Center, Inc. 2021 Long-Term Incentive Plan (the “2021 Plan”), the Rent-A-Center 2016 Long-Term Incentive Plan (the “2016 Plan”), the Rent-A-Center, Inc. 2006 Long-Term Incentive Plan (the “2006 Plan”), and the Rent-A-Center, Inc. 2006 Equity Incentive Plan (the “Equity Incentive Plan”), which are collectively known as the “Plans.” All Plans prior to the 2021 Plan were previously expired upon approval of the superseding Plan, and any shares available for grant under the respective plans were canceled at the time of expiration.

On June 8, 2021, at the 2021 Annual Meeting of Stockholders, the stockholders approved the 2021 Plan. The 2021 Plan authorizes the issuance of a total of 5,000,000 shares of common stock. Any shares of common stock granted in connection with an award of stock options or stock appreciation rights will be counted against this limit as one share and any shares of common stock granted in connection with awards of restricted stock, restricted stock units, deferred stock or similar forms of stock awards other than stock options and stock appreciation rights will be counted against this limit as two shares of common stock for every one share of common stock granted in connection with such awards. No shares of common stock will be deemed to have been issued if (1) such shares covered by the unexercised portion of an option that terminates, expires, or is cancelled or settled in cash or (2) such shares are forfeited or subject to awards that are forfeited, canceled, terminated or settled in cash. In any calendar year, (1) no employee will be granted options and/or stock appreciation rights for more than 800,000 shares of common stock; (2) no employee will be granted performance-based equity awards under the 2021 Plan (other

than options and stock appreciation rights), covering more than 800,000 shares of common stock. At December 31, 2021, there were 100,822 shares allocated to equity awards outstanding in the 2021 Plan.

Under the previously expired 2016 Plan, there were 2,184,396 and 2,767,703 shares, respectively, allocated to equity awards outstanding as of December 31, 2021 and 2020, respectively, in the 2016 Plan. The 2016 Plan expired on June 8, 2021 upon approval of the 2021 Plan.

Under the previously expired 2006 Plan and Equity Incentive Plan (formerly known as the Rent-Way, Inc. 2006 Equity Incentive Plan) there were 83,757 and 263,657 shares as of December 31, 2021 and 2020, respectively, allocated to outstanding equity awards under the 2006 Plan, and 63,065 and 231,454 shares as of December 31, 2021 and 2020, respectively, allocated to outstanding equity awards under the Equity Incentive Plan. The 2006 Plan and Equity Incentive Plan previously expired in 2016. Outstanding equity awards under these plans represent vested options that will expire at various times through 2026, unless exercised or canceled prior to the expiration date.

Options granted to our employees generally become exercisable over a period of 1 to 4 years from the date of grant and may be exercised up to a maximum of 10 years from the date of grant. Options granted to directors are immediately exercisable.

We grant restricted stock units to certain employees that vest ratably over a three-year service period. We recognize expense for these awards using the straight-line method over the requisite service period based on the number of awards expected to vest. We also grant performance-based restricted stock units that vest between 0% and 200% depending on our stock performance against an index using a total shareholder return formula established at the date of grant for the subsequent three-year period. We record expense for these awards over the requisite service period, net of the expected forfeiture rate, since the employee must maintain employment to vest in the award.

Stock-based compensation expense for the years ended December 31, 2021, 2020 and 2019 is as follows:


	Year Ended December 31,
(In thousands)	2021		2020		2019
Stock options	$	2,001	$	1,878	$	1,273
Restricted share units(1)	145,553		10,406		5,685
Total stock-based compensation expense	147,554		12,284		6,958
Tax benefit recognized in the statements of earnings	58,963		3,062		1,562
Stock-based compensation expense, net of tax	$	88,591	9,222		$	5,396

(1) Includes $127.1 million in stock compensation expense related to 8,096,595 common shares issued to the former owners of Acima, as part of the Aggregate Stock Consideration subject to restricted stock agreements, and recorded to Other charges in our Consolidated Statements of Operations. See Note B and Note N for additional information.

We issue new shares of stock to satisfy option exercises and the vesting of restricted stock units.

The fair value of unvested options that we expect to result in compensation expense was approximately $3.3 million with a weighted average number of years to vesting of 2.27 at December 31, 2021.

Information with respect to stock option activity related to the Plans for the year ended December 31, 2021 follows:


	Equity Awards Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (In thousands)
Balance outstanding at January 1, 2021	1,658,165	$	22.91
Granted	97,250	45.37
Exercised	(476,398)	25.30
Forfeited	(138,237)	31.45
Expired	(19,291)	29.19
Balance outstanding at December 31, 2021	1,121,489	$	22.68	6.70	$	29,691

Exercisable at December 31, 2021	525,801	$	19.65	5.34	$	15,384

The intrinsic value of options exercised during the years ended December 31, 2021, 2020, and 2019 was $14.3 million, $5.8 million, and $5.1 million, respectively, resulting in tax benefits of $5.0 million, $2.0 million, and $1.8 million, respectively, which are reflected as an outflow from operating activities and an inflow from financing activities in the Consolidated Statements of Cash Flows.

The weighted average fair values of the options granted under the Plans were calculated using the Black-Scholes method. The weighted average grant date fair value and weighted average assumptions used in the option pricing models are as follows:


	Year Ended December 31,
	2021			2020			2019
Weighted average grant date fair value	$	14.94		$	7.28		$	8.92
Weighted average risk free interest rate	0.49		%	0.93		%	2.07		%
Weighted average expected dividend yield	2.87		%	4.75		%	1.28		%
Weighted average expected volatility	50.29		%	49.44		%	50.93		%
Weighted average expected life (in years)	4.62			4.62			4.63

Information with respect to non-vested restricted stock unit activity follows:


	Restricted Awards Outstanding	Weighted Average Grant Date Fair Value
Balance outstanding at January 1, 2021	1,383,951	$	20.09
Granted(1)	8,599,682	53.03
Vested	(690,957)	24.12
Forfeited	(83,419)	45.11
Balance outstanding at December 31, 2021	9,209,257	$	50.33

(1) Includes 8,096,595 issued under restricted stock agreements to the former owners of Acima Holdings and valued at $51.14 per share.

Restricted stock units are valued using the closing price reported by the Nasdaq Global Select Market on the trading day immediately preceding the day of the grant. Unrecognized compensation expense for unvested restricted stock units at December 31, 2021, was approximately $317.5 million expected to be recognized over a weighted average period of 2.11 years.