GENWORTH FINANCIAL INCGNW
GENWORTH FINANCIAL INC Stock Compensation Disclosure
(15) Stock-Based Compensation
Prior
to May 2012, we granted share-based awards to employees and directors, including stock options, stock appreciation rights (“SARs”), restricted stock units (“RSUs”), deferred stock units (“DSUs”) and performance stock units (“PSUs”) under the 2004 Genworth Financial, Inc. Omnibus Incentive Plan (the “2004 Omnibus Incentive Plan”). In May 2012, the 2012 Genworth Financial, Inc. Omnibus Incentive Plan (the “2012 Omnibus Incentive Plan”) was approved by stockholders. Under the 2012 Omnibus Incentive Plan, we were authorized to grant 16 million equity awards, plus a number of additional shares not to exceed 25 million underlying awards outstanding under the 2004 Omnibus Incentive Plan. In December 2018, the 2018 Genworth Financial, Inc. Omnibus Incentive Plan (the “2018 Omnibus Incentive Plan”) was approved by stockholders. Under the 2018 Omnibus Incentive Plan, we were authorized to grant 25 million equity awards, plus a number of additional shares not to exceed 20 million underlying awards outstanding under the prior Plans. In May 2021, the
2021 Genworth Financial, Inc. Omnibus Incentive Plan (the “2021 Omnibus Incentive Plan”) was approved by stockholders. Under the 2021 Omnibus Incentive Plan, we are authorized to grant 25 million equity awards, plus a number of additional shares not to exceed 20 million underlying awards outstanding under the prior Plans. The 2004 Omnibus Incentive Plan together with the 2012, 2018 and 2021 Omnibus Incentive Plans are referred to collectively as the “Omnibus Incentive Plans.”
We recorded stock-based compensation expense under the Omnibus Incentive Plans of $27 million, $38 million and $39 million, respectively, for the years ended December 31, 2022, 2021 and 2020. For awards issued prior to January 1, 2006, stock-based compensation expense was recognized on a graded vesting attribution method over the awards’ respective vesting schedule. For awards issued after January 1, 2006, stock-based compensation expense was recognized evenly on a straight-line attribution method over the awards’ respective vesting period.
For purposes of determining the fair value of stock-based payment awards on the date of grant, we have historically used the Black-Scholes Model. However, no SARs or stock options were granted during 2022, 2021 and 2020 and therefore, the Black-Scholes Model was not used in those respective years. The Black-Scholes Model requires the input of certain assumptions that involve judgment. Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies.
During 2022, 2021 and 2020, we issued RSUs with average restriction periods of three years, with a fair value per share of $4.25, $3.31 and $3.53, respectively, which were measured at the market price of a share of our Class A Common Stock on the grant date.
During 2022, 2021 and 2020, we granted PSUs with a fair value per share of $4.47, $3.45 and $3.03, respectively. The PSUs were granted at market price as of the approval date by Genworth Financial’s Board of Directors. PSUs may be earned over a three-year period based upon the achievement of certain performance goals.
The PSUs granted in 2022 have a three-year measurement period starting on January 1, 2022 going through December 31, 2024. The performance metric is based on our Enact segment’s adjusted operating income (loss), consolidated statutory net income of our U.S. life insurance business and Genworth’s total shareholder return over the three-year measurement period compared to certain of its peer companies established as of the grant date. See note 18 for our definition of adjusted operating income. The grant-date fair value for the adjusted operating income (loss) and consolidated statutory net income performance measures was $4.27. The grant-date fair value for the total relative shareholder return performance metric was $5.30, which was calculated using the Monte Carlo simulation.
The PSUs granted in 2021 have a three-year measurement period starting on January 1, 2021 going through December 31, 2023. The performance metric is based on Genworth’s consolidated adjusted operating income and its total shareholder return relative to certain of its peer companies as of the grant date. The grant-date fair value for the adjusted operating income performance measure was $3.31. The grant-date fair value for the total relative shareholder return performance metric was $4.18, which was calculated using the Monte Carlo simulation.
The valuation assumptions used in the Monte Carlo simulation to calculate the total relative shareholder return performance metric for the PSUs granted in 2022 and 2021 were as follows:
2022 |
|
2021 |
||||||
| Valuation-date stock price |
$ | 4.27 | |
$ | 3.31 | |||
| Volatility |
64.6 | % |
|
65.0 | % | |||
| Dividend yield |
— | % |
|
— | % | |||
| Risk-free rate |
1.8 | % |
|
0.3 | % | |||
| Valuation maximum |
800% of grant-date stock price | 800% of grant-date stock price | ||||||
The PSUs granted in 2020 have a three-year measurement period starting on January 1, 2020 going through December 31, 2022. The performance metrics are based on adjusted operating income of our Enact segment and gross incremental annual premiums in our long-term care insurance business, defined as approved weighted-average premium rate increases multiplied by the annualized
in-force
premiums.For all PSU awards granted, the compensation committee of our Board of Directors determines and approves no later than March 15, following the end of the three-year performance period for each applicable performance period, the number of units earned and vested for each distinct performance period.
For the years ended December 31, 2022, 2021 and 2020, we recorded $3 million, $16 million and $18 million, respectively, of expense associated with our PSUs.
In 2022, 2021 and 2020, we granted time-based cash awards with a fair value of $1.00 per award and
tha
vest over three years, with a third of the payout occurring per year as determined by the vesting period, beginning on the first anniversary of the grant date. We also previously granted performance-based cash awards which vested and were paid out in 2021. During 2022, we issued cash settled RSUs with average restriction periods of three years, with a weighted average fair value per share of $4.27, which were measured at the market price of a share of our Class A Common Stock on the grant date. The RSUs will vest as a cash payment equal to one share of our Class A Common Stock using the average closing sales prices on the 20 trading days immediately preceding the vesting date.t
The following table summarizes cash award activity as of December 31, 2022 and 2021:
Performance- |
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Time-based |
based |
|||||||||||||||
Cash settled RSUs |
cash awards |
cash awards |
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Number of |
Weighted-average |
Number of |
Number of |
|||||||||||||
| (Awards in thousands) |
awards |
fair value |
awards |
awards |
||||||||||||
| Balance as of January 1, 2021 |
— | $ | — | 30,429 | 6,938 | |||||||||||
| Granted |
— | $ | — | 15,473 | — | |||||||||||
| Performance adjustment |
— | $ | — | — | 5,838 | |||||||||||
| Vested |
— | $ | — | (14,774 | ) | (12,776 | ) | |||||||||
| Forfeited |
— | $ | — | (3,432 | ) | — | ||||||||||
| |
|
|
|
|
|
|||||||||||
| Balance as of January 1, 2022 |
— | $ | — | 27,696 | — | |||||||||||
| Granted |
2,957 | $ | 4.27 | 208 | — | |||||||||||
| Performance adjustment |
— | $ | — | — | — | |||||||||||
| Vested |
(23 | ) | $ | 4.17 | (13,992 | ) | — | |||||||||
| Forfeited |
(180 | ) | $ | 4.31 | (1,020 | ) | — | |||||||||
| |
|
|
|
|
|
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| Balance as of December 31, 2022 |
2,754 | $ | 4.27 | 12,892 | — | |||||||||||
| |
|
|
|
|
|
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The following tables summarize the status of our other equity-based awards as of December 31, 2022 and 2021:
RSUs |
PSUs |
DSUs |
SARs |
|||||||||||||||||||||||||||||
Weighted- |
Weighted- |
|||||||||||||||||||||||||||||||
average |
Weighted- |
Weighted- |
average |
|||||||||||||||||||||||||||||
Number |
grant |
Number |
average |
Number |
average |
Number |
grant |
|||||||||||||||||||||||||
of |
date fair |
of |
fair |
of |
fair |
of |
date fair |
|||||||||||||||||||||||||
(Awards in thousands) |
awards |
value |
awards |
value |
awards |
value |
awards |
value |
||||||||||||||||||||||||
Balance as of January 1, 2021 |
2,534 | $ | 3.48 | 5,734 | $ | 3.79 | 1,537 | $ | 3.95 | 7,030 | $ | 3.32 | ||||||||||||||||||||
Granted |
1,391 | $ | 3.31 | 2,510 | $ | 3.45 | 315 | $ | 2.52 | — | $ | — | ||||||||||||||||||||
Performance adjustment (1) |
— | $ | — | 626 | $ | 3.58 | — | $ | — | — | $ | — | ||||||||||||||||||||
Exercised |
(1,474 | ) | $ | 3.47 | (1,365 | ) | $ | 3.58 | (15 | ) | $ | 7.46 | — | $ | — | |||||||||||||||||
Terminated |
(134 | ) | $ | 3.53 | — | $ | — | — | $ | — | (835 | ) | $ | 3.04 | ||||||||||||||||||
Balance as of January 1, 2022 |
2,317 | $ | 3.38 | 7,505 | $ | 3.70 | 1,837 | $ | 3.42 | 6,195 | $ | 3.36 | ||||||||||||||||||||
Granted |
1,105 | $ | 4.25 | 2,182 | $ | 4.47 | 281 | $ | 2.51 | — | $ | — | ||||||||||||||||||||
Performance adjustment (1) |
— | $ | — | 2,308 | $ | 4.61 | — | $ | — | — | $ | — | ||||||||||||||||||||
Exercised |
(1,004 | ) | $ | 3.39 | (4,616 | ) | $ | 4.61 | (954 | ) | $ | 4.02 | — | $ | — | |||||||||||||||||
Terminated |
(299 | ) | $ | 3.52 | (718 | ) | $ | 3.55 | — | $ | — | (2,295 | ) | $ | 2.52 | |||||||||||||||||
Balance as of December 31, 2022 |
2,119 | $ | 3.81 | 6,661 | $ | 3.65 | 1,164 | $ | 2.44 | 3,900 | $ | 3.85 | ||||||||||||||||||||
(1) |
The performance adjustment relates to additional awards expected to be earned through the achievement of certain performance metrics . |
As
of December 31, 2022 and 2021, total unrecognized stock-based compensation expense related to
non-vested
non-cash
awards not yet recognized was $
16
million and $
17
million, respectively. This expense is expected to be recognized over a weighted-average period of approximately
two years
.
The actual tax benefit realized for the tax deductions from the exercise of share-based awards was $5 million and $4 million for the years ended December 31, 2022 and 2021,
respectively.
In connection with the minority IPO of Enact Holdings, our indirect subsidiary, Enact Holdings granted equity-based awards to its employees, including RSUs and DSUs. Additionally, in 2021, the Enact Holdings, Inc. 2021 Omnibus Incentive Plan was adopted and approved by Enact Holdings’ shareholders. Under the Enact Holdings, Inc. 2021 Omnibus Incentive Plan, Enact Holdings is authorized to issue up to four million equity awards.
During 2022, Enact Holdings granted PSUs with a fair value of $22.15. The PSUs granted in 2022 have a three-year measurement period starting on January 1, 2022, going through December 31, 2024. The performance metrics are based on the standalone results of Enact Holdings, and are measured by the growth in consolidated book value per share over the three-year measurement period, calculated as the increase in book value divided by the average number of shares outstanding from January 1, 2022 to December 31, 2024. The PSUs were granted at market price as of the approval date by Enact Holdings’ Board of Directors.
For the year ended December 31, 2022, and in accordance with our majority ownership, we recorded $1 million of expense associated with Enact Holdings’ PSUs.
The following table summarizes the status of Enact Holdings’ equity-based awards as of December 31, 2022 and 2021:
RSUs |
DSUs |
PSUs |
||||||||||||||||||||||
Weighted- |
Weighted- |
Weighted- |
||||||||||||||||||||||
Number |
average |
Number |
average |
Number |
average |
|||||||||||||||||||
of |
fair |
of |
fair |
of |
fair |
|||||||||||||||||||
(Awards in thousands) |
awards |
value |
awards |
value |
awards |
value |
||||||||||||||||||
Balance as of January 1, 2021 |
— | $ | — | — | $ | — | — | $ | — | |||||||||||||||
Granted |
628 | $ | 19.02 | 17 | $ | 20.87 | — | $ | — | |||||||||||||||
Dividend equivalents |
36 | $ | 21.25 | — | $ | — | — | $ | — | |||||||||||||||
Vested |
— | $ | — | — | $ | — | — | $ | — | |||||||||||||||
Terminated |
(10 | ) | $ | 19.00 | — | $ | — | — | $ | — | ||||||||||||||
Balance as of January 1, 2022 |
654 | $ | 19.02 | 17 | $ | 20.87 | — | $ | — | |||||||||||||||
Granted |
322 | $ | 22.18 | 78 | $ | 22.02 | 156 | $ | 22.15 | |||||||||||||||
Dividend equivalents |
62 | $ | 24.00 | 5 | $ | 24.00 | 10 | $ | 24.00 | |||||||||||||||
Vested |
(3 | ) | $ | 19.00 | — | $ | — | — | $ | — | ||||||||||||||
Terminated |
(26 | ) | $ | 19.73 | — | $ | — | — | $ | — | ||||||||||||||
Balance as of December 31, 2022 |
1,009 | $ | 20.07 | 100 | $ | 21.81 | 166 | $ | 22.15 | |||||||||||||||
For the years ended December 31, 2022 and 2021, and in accordance with our majority ownership, we recorded $10 million and $2 million, respectively, of stock-based compensation expense and estimate total unrecognized expense of $13 million and $11 million, respectively, related to these awards. This expense is expected to be recognized over a weighted-average period of approximately two years.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2022 | Feb 28, 2023 | Showing above |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 26, 2021 | |
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.