Stock-Based Compensation

12 Months Ended

Dec. 31, 2021

Stock-Based Compensation

Stock-Based Compensation

15.    Stock-Based Compensation

Stock Incentive Plans

We maintain stock incentive plans to attract and retain officers, directors and key employees. Stock awards under these plans include both performance/market and non-performance based stock incentives. As of December 31, 2021, we had outstanding under these plans stock options to acquire 26.7 million shares of our Class A common stock and 1.5 million restricted stock units and awards. Stock options granted on or prior to December 31, 2021 were granted with exercise prices equal to or greater than the market value of our Class A common stock at the date of grant and with a maximum term of approximately ten years. While historically we have issued stock awards subject to vesting, typically at the rate of 20% per year, some stock awards have been granted with immediate vesting and other stock awards vest only upon the achievement of certain company-specific subscriber, operational and/or financial goals. In addition, the Ergen 2020 Performance Award is subject to the achievement of specified stock price targets. As of December 31, 2021, we had 62.2 million shares of our Class A common stock available for future grant under our stock incentive plans.

Exercise prices for stock options outstanding and exercisable as of December 31, 2021 were as follows:

					As of December 31, 2021
					Options Outstanding				Options Exercisable
					Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price
$	10.01	-	$	20.00	206,500	7.22	$	18.70	39,370	7.72	$	18.70
$	20.01	-	$	30.00	12,963,749	9.04	$	27.69	2,667,053	8.95	$	27.61
$	30.01	-	$	40.00	8,293,326	6.71	$	35.39	3,239,177	6.59	$	35.50
$	40.01	-	$	50.00	2,516,602	7.44	$	45.31	860,700	5.40	$	47.35
$	50.01	-	$	60.00	1,798,126	4.53	$	57.60	515,100	3.90	$	57.06
$	60.01	-	$	70.00	924,600	4.41	$	64.26	419,900	4.28	$	64.91
$	10.01	-	$	70.00	26,702,903	7.69	$	34.95	7,741,300	6.97	$	37.04

Stock Award Activity

Our stock option activity was as follows:

	For the Years Ended December 31,
	2021			2020			2019
	Options	Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price
Total options outstanding, beginning of period	27,248,662	$	34.85	13,715,612	$	41.71	14,202,039	$	42.08
Granted (1)	2,005,000	$	39.56	15,410,500	$	28.71	1,538,250	$	33.44
Exercised	(1,316,485)	$	31.49	(714,595)	$	17.44	(714,061)	$	27.46
Forfeited and cancelled	(1,234,274)	$	43.83	(1,162,855)	$	45.17	(1,310,616)	$	43.72
Total options outstanding, end of period	26,702,903	$	34.95	27,248,662	$	34.85	13,715,612	$	41.71
Performance/market based options outstanding, end of period (2)	13,953,818	$	32.89	17,403,339	$	32.59	7,965,501	$	40.10
Exercisable at end of period	7,741,300	$	37.04	5,193,238	$	40.21	2,507,834	$	44.93

(1) Includes the Ergen 2020 Performance Award of 12,500,000 options granted on November 6, 2020.

(2) These stock options are included in the caption “Total options outstanding, end of period.” See discussion of the 2013 LTIP, 2017 LTIP, 2019 LTIP, Ergen 2020 Performance Award and Other Employee Performance Awards below.

We realized tax benefits from stock awards exercised as follows:

	For the Years Ended December 31,
	2021		2020		2019
	(In thousands)
Tax benefit from stock awards exercised	$	4,153	$	7,576	$	1,239

Based on the closing market price of our Class A common stock on December 31, 2021, the aggregate intrinsic value of our stock options was as follows:

	As of December 31, 2021
	Options Outstanding		Options Exercisable
	(In thousands)
Aggregate intrinsic value	$	64,449	$	13,448

Our restricted stock unit and award activity was as follows:

	For the Years Ended December 31,
	2021			2020			2019
	Restricted Stock Units/Awards	Weighted- Average Grant Date Fair Value		Restricted Stock Units/Awards	Weighted- Average Grant Date Fair Value		Restricted Stock Units/Awards	Weighted- Average Grant Date Fair Value
Total restricted stock units/awards outstanding, beginning of period	1,863,110	$	35.04	1,504,370	$	50.81	1,760,225	$	52.15
Granted	79,288	$	42.41	1,696,000	$	33.07	—	$	—
Vested (1)	(28,955)	$	43.26	(916,315)	$	53.82	(11,175)	$	63.49
Forfeited and cancelled	(425,937)	$	33.62	(420,945)	$	42.56	(244,680)	$	59.82
Total restricted stock units/awards outstanding, end of period	1,487,506	$	35.68	1,863,110	$	35.04	1,504,370	$	50.81
Restricted Performance Units/Awards outstanding, end of period (2)	1,330,925	$	35.31	1,755,125	$	34.89	1,483,800	$	50.64

(1) This change resulted from certain Other Employee Performance Awards that vested during the third quarter 2020.

(2) These stock units/awards are included in the caption “Total restricted stock units/awards outstanding, end of period.” See discussion of the 2013 LTIP and Other Employee Performance Awards below.

Long-Term Performance-Based Plans

2013 LTIP. During 2013, we adopted a long-term, performance-based stock incentive plan (the “2013 LTIP”). The 2013 LTIP provides stock options and restricted stock units in combination, which vest based on company-specific subscriber and financial performance conditions. Exercise of the stock awards is contingent on achieving these performance conditions by September 30, 2022.

Although no awards vest until the Company attains the performance goals described above, compensation related to the 2013 LTIP will be recorded based on management’s assessment of the probability of meeting the remaining performance conditions. If the remaining performance conditions are probable of being achieved, we will begin recognizing the associated non-cash, stock-based compensation expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) over the estimated period to achieve the performance condition.

During the years ended December 31, 2015, 2014 and 2013, we determined that 30%, 10% and 20%, respectively, of the 2013 LTIP performance conditions were probable of achievement. During the years ended December 31, 2018, 2017 and 2016, no additional 2013 LTIP performance conditions were deemed probable of achievement. As of December 31, 2018, approximately 20% of the 2013 LTIP awards had vested. During 2018, management determined the 2013 LTIP performance conditions were neither probable nor improbable of achievement. As a result, we no longer recorded non-cash, stock-based compensation expense for the 2013 LTIP. During 2021, management determined the 2013 LTIP performance conditions were not probable of achievement and as a result, we reversed $13 million of non-cash, stock-based compensation expense. In 2020 and 2019, no non-cash, stock-based compensation expense was recognized for the 2013 LTIP. Non-cash, stock-based compensation expense is detailed in the table below titled “Non-Cash, Stock-Based Compensation Expense Recognized.”

2017 LTIP. On December 2, 2016, we adopted a long-term, performance-based stock incentive plan (the “2017 LTIP”). The 2017 LTIP provided stock options, which were subject to vesting based on company-specific subscriber and financial performance conditions. Awards were initially granted under the 2017 LTIP as of January 1, 2017. Exercise of the stock awards was contingent on achieving these performance conditions by December 31, 2020, however, none of the performance conditions were achieved.

During both the years ended December 31, 2018 and 2017, we determined that 75% of the 2017 LTIP performance conditions were probable of achievement. During 2019, management determined the 2017 LTIP performance conditions were not probable of achievement and as a result, we reversed $13 million of non-cash, stock-based compensation expense. In 2021 and 2020, no non-cash, stock-based compensation expense was recognized for the 2017 LTIP. Non-cash, stock-based compensation expense is detailed in the table below titled “Non-Cash, Stock-Based Compensation Expense Recognized.”

2019 LTIP.  On August 17, 2018, we adopted a long-term, performance-based stock incentive plan (the “2019 LTIP”).  The 2019 LTIP provides stock options, which vest based on certain company-specific subscriber, operational and/or financial performance conditions.  Vesting of the stock awards is contingent on achieving these conditions by December 31, 2023. 

Although no awards vest until the Company attains the performance conditions described above, compensation related to the 2019 LTIP will be recorded based on management’s assessment of the probability of meeting the performance conditions. If the performance conditions are probable of being achieved, we will begin recognizing the associated non-cash, stock-based compensation expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) over the estimated period to achieve the performance condition.

During the years ended December 31, 2021, 2020 and 2019, we determined that 90%, 95% and 90%, respectively, of the 2019 LTIP performance conditions were probable of achievement. As a result, non-cash, stock-based compensation expense was recorded for the years ended December 31, 2021, 2020 and 2019, as indicated in the table below titled “Non-Cash, Stock-Based Compensation Expense Recognized.” As of December 31, 2021, approximately 69% of the 2019 LTIP awards had vested.

2022 Incentive Plan. On December 30, 2021, we adopted a performance-based incentive plan (the “2022 Incentive Plan”).  The 2022 Incentive Plan provides stock options, which vest based on certain company-specific operational and/or financial performance conditions. Awards were initially granted under the 2022 Incentive Plan as of February 1, 2022. Exercise of the stock awards is contingent on achieving these conditions by December 31, 2026.

Although no awards vest until the Company attains the performance conditions described above, compensation related to the 2022 Incentive Plan will be recorded based on management’s assessment of the probability of meeting the performance conditions. If the performance conditions are probable of being achieved, we will begin recognizing the associated non-cash, stock-based compensation expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) over the estimated period to achieve the performance condition.

Ergen 2020 Performance Award. On November 4, 2020, our Executive Compensation Committee of the Board of Directors approved an award to Charles W. Ergen, our Chairman, of long-term performance-based options (the “Ergen 2020 Performance Award”) to purchase up to 12,500,000 shares of DISH Network’s Class A common stock.  The award is subject to the achievement of specified stock price targets during the approximate ten-year period following the date of grant.  The award was granted on November 6, 2020 and will expire on February 6, 2031.

Although no awards will vest until the market conditions are satisfied, as of December 31, 2020, we began recording non-cash, stock-based compensation expense for each vesting tranche based on the estimated achievement date of the specified stock price target.  The valuation and probability of achievement for each tranche is determined using a Monte Carlo simulation.  The same Monte Carlo simulation is used as the basis for determining the expected achievement date.  As the probability of achievement is factored in as part of the Monte Carlo simulation, the expense for these tranches will be recognized concurrently over each tranche’s estimated achievement date even if some or all of the options never vest.  If the related milestone for a tranche is achieved earlier than is expected, all unamortized expense for such tranche will be recognized immediately. Non-cash, stock-based compensation expense was recorded for the years ended December 31, 2021 and 2020, as indicated in the table below titled “Non-Cash, Stock-Based Compensation Expense Recognized.” As of December 31, 2021, approximately 20% of the Ergen 2020 Performance Award awards had vested.

Other Employee Performance Awards. In addition to the above long-term, performance stock incentive plans, we have other stock awards that vest based on certain other company-specific subscriber, operational and/or financial performance conditions. Exercise of these stock awards is contingent on achieving certain performance conditions.

Additional compensation related to these awards will be recorded based on management’s assessment of the probability of meeting the remaining performance conditions. If the remaining performance conditions are probable of being achieved, we will begin recognizing the associated non-cash, stock-based compensation expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) over the estimated period to achieve the performance condition. See the table below titled “Estimated Remaining Non-Cash, Stock-Based Compensation Expense.”

Although no awards vest until the performance conditions are attained, we determined that certain performance conditions described above were probable of achievement and, as a result, recorded non-cash, stock-based compensation expense for the years ended December 31, 2021, 2020 and 2019, as indicated in the table below titled “Non-Cash, Stock-Based Compensation Expense Recognized.”

The non-cash, stock-based compensation expense associated with these awards was as follows:

	For the Years Ended December 31,
Non-Cash, Stock-Based Compensation Expense Recognized (1)	2021		2020		2019
	(In thousands)
2019 LTIP	$	489	$	13,088	$	15,300
2017 LTIP		—		—		(13,974)
2013 LTIP		(13,610)		(819)		(1,313)
Ergen 2020 Performance Award		34,513		5,029		—
Other employee performance awards		9,033		29,181		(569)
Total non-cash, stock-based compensation expense recognized for performance based awards	$	30,425	$	46,479	$	(556)

(1) “Non-Cash, Stock-Based Compensation Expense Recognized” includes forfeitures.

Estimated Remaining Non-Cash, Stock-Based Compensation Expense	2019 LTIP		2017 LTIP		2013 LTIP		Ergen 2020 Performance Award		Other Employee Performance Awards
	(In thousands)
Expense estimated to be recognized during 2022	$	1,843	$	—	$	—	$	12,308	$	11,184
Estimated contingent expense subsequent to 2022		6,243		—		39,757		40,037		2,796
Total estimated remaining expense over the term of the plan	$	8,086	$	—	$	39,757	$	52,345	$	13,980

Given the competitive nature of our business, small variations in subscriber churn, gross new subscriber activation rates and certain other factors can significantly impact subscriber growth. Consequently, while it was determined that achievement of certain other company-specific subscriber, operational and/or financial performance conditions were not probable as of December 31, 2021, that assessment could change in the future.

Of the 26.7 million stock options and 1.5 million restricted stock units and awards outstanding under our stock incentive plans as of December 31, 2021, the following awards were outstanding pursuant to our performance-based stock incentive plans:

	As of December 31, 2021
Performance Based Stock Options	Number of Awards	Weighted- Average Grant Price
2019 LTIP	1,363,875	$	34.63
2017 LTIP	1,782,443	$	57.07
2013 LTIP	807,500	$	40.66
Ergen 2020 Performance Award	10,000,000	$	27.71
Total	13,953,818	$	32.89
Restricted Performance Units/Awards
2013 LTIP	403,750
Other employee performance awards	927,175
Total	1,330,925

Stock-Based Compensation

Total non-cash, stock-based compensation expense for all of our employees is shown in the following table for the years ended December 31, 2021, 2020 and 2019 and was allocated to the same expense categories as the base compensation for such employees:

	For the Years Ended December 31,
	2021		2020		2019
	(In thousands)
Cost of services	$	4,365	$	7,419	$	883
Selling, general and administrative		47,315		57,535		13,379
Total non-cash, stock-based compensation	$	51,680	$	64,954	$	14,262

As of December 31, 2021, our total unrecognized compensation cost related to our non-performance based unvested stock awards was $55 million and will be recognized over a weighted-average period of approximately 3.5 years. Share-based compensation expense is recognized based on stock awards ultimately expected to vest.

Valuation

The fair value of each stock option granted (excluding the Ergen 2020 Performance Award) for the years ended December 31, 2021, 2020 and 2019 was estimated at the date of the grant using a Black-Scholes option valuation model with the following assumptions:

	For the Years Ended December 31,
Stock Options	2021							2020							2019
Risk-free interest rate		0.44	%	-		1.02	%		0.17	%	-		1.72	%		1.51	%	-		2.53	%
Volatility factor		40.62	%	-		43.48	%		28.91	%	-		48.08	%		28.86	%	-		32.08	%
Expected term of options in years		5.5		-		5.6			3.3		-		5.5			4.3		-		5.5
Fair value of options granted	$	12.46		-	$	18.23		$	5.50		-	$	12.10		$	7.58		-	$	12.45

While we currently do not intend to declare dividends on our common stock, we may elect to do so from time to time. Accordingly, the dividend yield percentage used in the Black-Scholes option valuation model was set at zero for all periods. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded stock options which have no vesting restrictions and are fully transferable. Consequently, our estimate of fair value may differ from other valuation models. Further, the Black-Scholes option valuation model requires the input of highly subjective assumptions. Changes in these subjective input assumptions can materially affect the fair value estimate.

We will continue to evaluate the assumptions used to derive the estimated fair value of our stock options as new events or changes in circumstances become known.