Wyndham Hotels & Resorts, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Stock-Based Compensation

Stock-Based Compensation

9 Months Ended

Sep. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The Company has a stock-based compensation plan available to grant non-qualified stock options, incentive stock options, stock-settled appreciation rights (“SSARs”), RSUs, performance-vesting restricted stock units (“PSUs”) and other stock or cash-based awards to key employees, non-employee directors, advisors and consultants. Under the Wyndham Hotels & Resorts, Inc. 2018 Equity and Incentive Plan, which became effective on May 14, 2018, a maximum of 10.0 million shares of common stock may be awarded. As of September 30, 2018, 7.4 million shares remained available.

Incentive Equity Awards Granted by the Company

On May 17, 2018, Wyndham Hotels’ Board of Directors approved an incentive equity award grant to key employees and senior officers of Wyndham Hotels in the form of RSUs and stock options. Such awards were converted to Wyndham Hotels equity awards on the first day of trading after the Company’s separation from Wyndham Worldwide. The Company granted 0.5 million RSUs and 0.5 million options to key employees during the nine months ended September 30, 2018 that vest ratably over a four-year period.

The activity related to the Company’s incentive equity awards from June 1, 2018 through September 30, 2018 consisted of the following:



	RSUs				Options
	Number of RSUs		Weighted Average Grant Price		Number of Options		Weighted Average Grant Price
Balance as of May 31, 2018	—		$	—	—		$	—
Granted^(a)	0.5		61.40		0.5		61.40
Vested/exercised	—		—		—		—
Balance as of September 30, 2018	0.5	^(b)	$	61.40	0.5	^(c)	$	61.40


(a)	Represents awards granted by the Company primarily on June 1, 2018.


(b)	Approximately 0.5 million RSUs as of September 30, 2018 are expected to vest over time and have an aggregate unrecognized compensation expense of $29 million, which is expected to be recognized over a weighted average period of 3.7 years.


(c)	Approximately 0.5 million options outstanding as of September 30, 2018 are expected to vest over time and have an aggregate unrecognized compensation expense of $6 million, which is expected to be recognized over a weighted average period of 3.7 years.

The fair value of stock options granted by Wyndham Hotels on June 1, 2018 was estimated to be $11.72 per option on the date of the grant using the Black-Scholes option-pricing model with the relevant weighted average assumptions outlined in the table below. Expected volatility is based on both historical and implied volatilities of the stock of comparable companies over the estimated expected life of the options. The expected life represents the period of time the options are expected to be outstanding. The-risk free interest rate is based on yields on U.S. Treasury strips with a maturity similar to the estimated expected life of the options. The projected dividend yield was based on the Company’s anticipated annual dividend divided by the price of the Company’s stock on the date of the grant.



	2018
Grant date strike price		$61.40
Expected volatility		22.72%
Expected life		4.25 years
Risk-free interest rate		2.73%
Projected dividend yield		1.63%

Stock-Based Compensation Expense for Awards Granted by the Company

Stock-based compensation expense for the awards granted in 2018 to employees amounted to $2 million and $3 million for the three and nine months ended September 30, 2018, respectively. The Company also recorded stock-based compensation expense for non-employee directors of $1 million for the three and nine months ended September 30, 2018.

Incentive Equity Awards Granted by Wyndham Worldwide

Wyndham Worldwide maintained a stock-based compensation plan (the “Stock Plan”) for the benefit of its officers, directors and employees. All share-based compensation awards granted under the Stock Plan related to Wyndham Worldwide common stock. As such, all related equity account balances are reflected in Wyndham Worldwide’s Consolidated Statements of Equity and have not been reflected in Wyndham Hotels’ Condensed Consolidated and Combined Financial Statements.

The following disclosures represent stock-based compensation activity attributable to Wyndham Hotels employees under Wyndham Worldwide’s Stock Plan.

Incentive Equity Awards Conversion

Upon the Company’s separation, all outstanding share-based compensation awards granted by Worldwide Worldwide were converted at a ratio of one Wyndham Hotels equity award and one Wyndham Destinations equity award for every one Wyndham Worldwide equity award.

Incentive Equity Award Modification

In August 2017, in conjunction with the anticipated spin-off of Wyndham Hotels, the Wyndham Worldwide board of directors approved certain modifications to the incentive equity awards granted by Wyndham Worldwide. Such modifications were contingent upon the spin-off becoming probable. On May 9, 2018, Wyndham Worldwide’s board of directors approved the spin-off of Wyndham Hotels, resulting in an acceleration of vesting for all outstanding equity awards granted prior to 2018. As a result of this acceleration, 0.1 million RSUs and PSUs vested on June 1, 2018 and 0.3 million RSUs are expected to vest on November 30, 2018. In addition, 0.1 million RSUs not subject to modification will vest in July 2019.

The activity related to RSUs and PSUs granted by Wyndham Worldwide to Wyndham Hotels employees for the nine months ended September 30, 2018 consisted of the following:



	RSUs					PSUs
	Number of RSUs			Weighted Average Grant Price ^(b)		Number of PSUs		Weighted Average Grant Price
Balance as of December 31, 2017	0.3			$	60.80	0.1		$	60.80
Granted^(a)	0.1			64.46		—		—
Transferred from former Parent ^(c)	0.2			61.65		—		—
Vested/canceled	(0.2	)		60.84		(0.1	)	60.80
Balance as of September 30, 2018	0.4		^(d)	$	61.58	—		$	—


(a)	Represents awards granted by Wyndham Worldwide on March 1, 2018.


(b)	Weighted average grant prices were adjusted to reflect changes resulting from the modification and separation from Wyndham Worldwide.


(c)	Represents awards related to employees that transferred from Wyndham Worldwide to Wyndham Hotels upon separation.


(d)	Approximately 0.4 million outstanding RSUs as of September 30, 2018 are expected to vest over time and have an aggregate unrecognized compensation expense of $10 million which is expected to be recognized over a weighted average period of 0.5 years.

Stock-Based Compensation Expense Granted by Wyndham Worldwide

Under the Stock Plan, the Company recorded $10 million and $33 million of stock-based compensation expense for the three and nine months ended September 30, 2018, respectively, for awards granted to Wyndham Hotel employees, of which $10 million and $30 million, respectively, were recorded within separation-related costs on the Condensed Consolidated and Combined Statements of Income. Such separation-related costs included $15 million of expense for the nine months ended September 30, 2018 as a result of the modification of the Stock Plan.