Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2019
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation
14. STOCK-BASED COMPENSATION

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-based awards to key employees, non-employee directors, advisors and consultants. Under the Wyndham Hotels & Resorts, Inc. 2018 Equity and Incentive Plan (“Stock Plan”), which became effective on May 14, 2018, a maximum of 10.0 million shares of common stock may be awarded. As of December 31, 2019, 6.8 million shares remained available.
Incentive equity awards granted by the Company
During 2019, Wyndham Hotels’ Board approved incentive equity award grants to employees of Wyndham Hotels in the form of RSUs, stock options and PSUs.
The activity related to the Company’s incentive equity awards for the year ended December 31, 2019 consisted of the following:
 
RSUs
 
PSUs
 
Number of
RSUs
 
Weighted
Average
Grant Price
 
Number
of
PSUs
 
Weighted
Average
Grant Price
Balance as of December 31, 2018
0.5

 
$
61.31

 
—

 
$
—

Granted (a)
0.6

 
52.19

 
0.1

 
52.44

Vested
(0.1
)
 
61.24

 
—

 
—

Canceled
(0.2
)
 
57.37

 
—

 
—

Balance as of December 31, 2019
0.8

(b) 
$
55.75

 
0.1

(c) 
$
52.44

_____________________
(a)
Represents awards granted by the Company primarily in February 2019.
(b)
RSUs outstanding as of December 31, 2019 are expected to vest over time and have an aggregate unrecognized compensation expense of $34 million, which is expected to be recognized over a weighted average period of 2.9 years.
(c)
PSUs outstanding as of December 31, 2019 are expected to vest over time and have an aggregate unrecognized compensation expense of $2 million, which is expected to be recognized over a weighted average period of 2.3 years.
The activity related to stock options granted by the Company for the year ended December 31, 2019 consisted of the following:
 
Number of Options
 
Weighted Average Exercise Price
 
Weighted Average Remaining Contractual Life (Years)
 
Aggregate Intrinsic Value (in millions)
Outstanding as of December 31, 2018
0.5

 
$
61.40

 
 
 
 
Granted
0.5

 
52.44

 
 
 
 
Exercised
—

 
—

 
 
 
 
Canceled
(0.1
)
 
57.93

 
 
 
 
Expired
—

 
—

 
 
 
 
Outstanding as of December 31, 2019
0.9

 
$
56.96

 
6.8
 
$
5

Unvested as of December 31, 2019
0.8

(a) 
$
56.22

 
7.0
 
$
5

Exercisable as of December 31, 2019
0.1

 
$
61.40

 
5.2
 
$
—

_____________________
(a)
Unvested options as of December 31, 2019 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 2.8 years.
The fair value of stock options granted by Wyndham Hotels during 2019 and 2018 were estimated on the date of the grant using the Black-Scholes option-pricing model with the relevant 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.
 
2019
 
2018
Grant date fair value
$10.46
 
$11.72
Grant date strike price
$52.44
 
$61.40
Expected volatility
22.24%
 
22.72%
Expected life
6.25 years
 
4.25 years
Risk-free interest rate
2.63%
 
2.73%
Projected dividend yield
2.21%
 
1.63%

Incentive equity award modification
In August 2017, in conjunction with the anticipated spin-off of Wyndham Hotels, the Wyndham Worldwide Board 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 approved the spin-off of Wyndham Hotels, resulting in an accelerated vesting of 0.4 million RSUs and 0.1 million PSUs for all outstanding equity awards granted prior to 2018.
Stock-based compensation expense
Stock-based compensation expense was $20 million, $45 million and $11 million for 2019, 2018 and 2017, respectively. For 2019 and 2018, $4 million and $36 million, respectively, was recorded within separation-related costs on the Consolidated and Combined Statements of Income. In 2018, separation-related costs included $15 million of expense as a result of the modification of the Stock Plan. Further, in 2019, $1 million was recorded within restructuring expense on the Consolidated and Combined Statements of Income.