Stock-Based Compensation

9 Months Ended

Jun. 03, 2023

Share-Based Payment Arrangement [Abstract]

The Company accounts for all stock-based payments in accordance with Accounting Standards Codification Topic 718, “Compensation—Stock Compensation,” as amended. Stock-based compensation expense, net included in Operating expenses for the thirteen- and thirty-nine-week periods ended June 3, 2023 and May 28, 2022 was as follows:


	Thirteen Weeks Ended				Thirty-Nine Weeks Ended
	June 3, 2023		May 28, 2022		June 3, 2023		May 28, 2022
Stock options	$	—	$	214	$	101	$	1,019
Restricted stock units (1)	3,827		3,212		11,495		11,221
Performance share units (1)	760		873		2,800		2,070
Associate Stock Purchase Plan	68		71		228		249
Total	4,655		4,370		14,624		14,559
Deferred income tax benefit	(1,150)		(1,120)		(3,641)		(3,596)
Stock-based compensation expense, net	$	3,505	$	3,250	$	10,983	$	10,963

(1)Includes equity award acceleration costs associated with associate severance and separation.

Stock Options

The Company discontinued its grants of stock options in fiscal year 2020. The fair value of each option grant in previous fiscal years was estimated on the date of grant using the Black-Scholes option pricing model.

A summary of the Company’s stock option activity for the thirty-nine-week period ended June 3, 2023 is as follows:


	Options	Weighted-Average Exercise Price per Share		Weighted-Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value
Outstanding on September 3, 2022	614	$	78.96
Granted	—	—
Exercised	(296)	76.37
Canceled/Forfeited/Expired	(25)	80.40
Outstanding on June 3, 2023	293	$	81.46	1.8	$	3,535
Exercisable on June 3, 2023	293	$	81.46	1.8	$	3,535

The aggregate intrinsic value of options exercised, which represents the difference between the exercise price and the market value of Class A Common Stock measured at each individual exercise date, during the thirty-nine-week periods ended June 3, 2023 and May 28, 2022 was $3,044 and $4,771, respectively. There were no unrecognized stock‑based compensation costs related to stock options at June 3, 2023.

Performance Share Units

In fiscal year 2020, the Company began granting performance share units (“PSUs”) as part of its long-term stock-based compensation program. PSUs cliff vest after a three year performance period based on the achievement of specific performance goals as set forth in the applicable award agreement. Based on the extent to which the performance goals are achieved, vested shares may range from 0% to 200% of the target award amount.

The following table summarizes all transactions related to PSUs under the MSC Industrial Direct Co., Inc. 2015 Omnibus Incentive Plan (the “2015 Omnibus Incentive Plan”) and the MSC Industrial Direct Co., Inc. 2023 Omnibus Incentive Plan (the “2023 Omnibus Incentive Plan”) (based on target award amounts) for the thirty-nine-week period ended June 3, 2023:


	Shares	Weighted-Average Grant Date Fair Value
Non-vested PSUs at September 3, 2022	88	$	80.04
Granted	51	82.16
PSU adjustment (1)	4	76.32
Vested	(26)	76.32
Canceled/Forfeited	(3)	82.95
Non-vested PSUs at June 3, 2023 (2)	114	$	81.83

(1)PSU adjustment represents the net PSUs awarded above or below their target grants resulting from the achievement of performance goals above or below the performance targets established at grant. One grant goal was achieved at 116% of its target based on fiscal year 2020 through fiscal year 2022 financial results.

(2)Excludes approximately 11 shares of accrued incremental dividend equivalent rights on outstanding PSUs granted under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan.

The fair value of each PSU is the closing stock price on the New York Stock Exchange (the “NYSE”) of Class A Common Stock on the date of grant. PSUs are expensed over the three year performance period of each respective grant. Forfeitures of share-based awards are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting PSU forfeitures and records stock-based compensation expense only for PSU awards that are expected to vest. Upon vesting, subject to the achievement of specific performance goals, a portion of the PSU award may be withheld to satisfy the statutory income tax withholding obligation, and the remaining PSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying PSUs (in the form of additional stock units) based on dividends declared on Class A Common Stock and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of Class A Common Stock on the vesting dates of the underlying PSUs, subject to the same performance vesting requirements. The unrecognized stock-based compensation costs related to the PSUs at June 3, 2023 were $5,314, which are expected to be recognized over a weighted-average period of 1.7 years.

Restricted Stock Units

A summary of the Company’s non-vested restricted stock unit (“RSU”) award activity under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan for the thirty-nine-week period ended June 3, 2023 is as follows:


	Shares	Weighted-Average Grant Date Fair Value
Non-vested RSUs at September 3, 2022	448	$	79.71
Granted	215	82.23
Vested	(164)	79.38
Canceled/Forfeited	(16)	81.09
Non-vested RSUs at June 3, 2023 (1)	483	$	80.89

(1)Excludes approximately 46 shares of accrued incremental dividend equivalent rights on outstanding RSUs granted under the 2015 Omnibus Incentive Plan and the 2023 Omnibus Incentive Plan.

The fair value of each RSU is the closing stock price on the NYSE of Class A Common Stock on the date of grant. RSUs are expensed over the vesting period of each respective grant. Forfeitures of share-based awards are estimated at the

time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company uses historical data to estimate pre-vesting RSU forfeitures and records stock-based compensation expense only for RSU awards that are expected to vest. Upon vesting, a portion of the RSU award may be withheld to satisfy the statutory income tax withholding obligation, and the remaining RSUs will be settled in shares of Class A Common Stock. These awards accrue dividend equivalents on the underlying RSUs (in the form of additional stock units) based on dividends declared on Class A Common Stock and these dividend equivalents are paid to the award recipient in the form of unrestricted shares of Class A Common Stock on the vesting dates of the underlying RSUs. The unrecognized stock-based compensation costs related to the RSUs at June 3, 2023 were $28,687, which are expected to be recognized over a weighted-average period of 2.6 years.