Stock Based Compensation

3 Months Ended

Nov. 30, 2022

Share-Based Payment Arrangement [Abstract]

Stock Based Compensation

STOCK-BASED COMPENSATION

We measure compensation expense based on the grant date fair value for all stock-based awards made to our employees and to our non-employee directors ("non-employees") using the Black-Scholes model or the lattice-binomial option-pricing model ("binomial model").

We utilize the Black-Scholes model for new stock option grants and restricted stock units ("RSUs") granted to non-employees and common stock acquired under the FactSet Research Systems Inc. Employee Stock Purchase Plan, as Amended and Restated ("ESPP"). We use the binomial model for new employee stock option grants and employee RSUs and PSUs to estimate the grant-date fair value. We refer to RSUs and PSUs, collectively, as "Restricted Stock Awards."

Both models involve certain estimates and assumptions such as:

•Risk-free interest rate - based on the U.S. Treasury yield curve in effect at the time of grant with maturities equal to the expected terms of the stock-based awards granted.

•Expected life - the weighted average period the stock-based awards are expected to remain outstanding.

•Expected volatility - based on a blend of historical volatility of the stock-based award's useful life and the weighted average implied volatility for call option contracts traded in the 90 days preceding the stock-based award's valuation date.

•Dividend yield - the expectation of dividend payouts based on our history.

Additionally, the binomial model incorporates market conditions, vesting restrictions and exercise patterns.

For Restricted Stock Awards, the grant date fair value is measured by reducing the grant date price of our common stock by the present value of the dividends expected to be paid on the underlying stock during the requisite service period, discounted at the appropriate risk-free interest rate.

For stock-based awards, we use the straight-line method to recognize compensation expense over the requisite service period. The amount of compensation expense that is recognized on any date is at least equal to the vested portion of the award on that date. Compensation expense for PSUs is recognized if the achievement of the performance condition is determined to be probable. We review the PSU performance conditions quarterly to ensure the compensation expense appropriately reflects the Company's expected achievement, as these awards are subject to upward or downward adjustment depending on whether the actual financial performance is above or below target levels, with the PSU payout ranging from 0% to 150% of the number of target shares. Compensation expense for stock-based awards is recorded net of estimated forfeitures, which are based on historical forfeiture rates and are revised if actual forfeitures differ from those estimates.

We recognized total stock-based compensation expense of $12.2 million and $10.4 million during the three months ended November 30, 2022 and November 30, 2021, respectively. As of November 30, 2022, $153.6 million of total unrecognized compensation expense related to non-vested awards is expected to be recognized over a weighted average period of 3.4 years. There was no stock-based compensation capitalized as of November 30, 2022 and November 30, 2021.

Employee Stock Option Awards

Under the FactSet Research Systems Inc. Stock Option and Award Plan, as Amended and Restated (the "LTIP"), we granted the following stock options for the three months ended November 30, 2022 and November 30, 2021, which are valued using the lattice-binomial option-pricing model. As of November 30, 2022, we had 4.2 million stock-based awards available for grant under the LTIP.

	Three Months Ended
	November 30,
	2022		2021
Stock options granted(1)	267,296		299,702
Weighted average exercise price	$	426.25	$	434.82
Weighted average grant date fair value	$	125.59	$	102.40

(1) The majority of the stock options granted relate to the November 1, 2022 and November 1, 2021 annual employee grants that both vest 20% annually on the anniversary date of the grant and are fully vested after five years, expiring ten years from the date of grant.

We granted 266,051 employee stock options as part of the November 1, 2022 annual employee grant. The estimated fair value of this grant leveraged the following assumptions:

November 1, 2022 Annual Employee Grant Details
Risk-free interest rate	3.99% - 4.51%
Expected life (years)	6.62
Expected volatility	24.7%
Dividend yield	0.83%
Estimated fair value	$125.62
Exercise price	$426.25

Employee Restricted Stock Awards

Our LTIP provides for the grant of stock-based awards, including Restricted Stock Awards. The Restricted Stock Awards are subject to continued employment over a specified period. The Restricted Stock Awards granted to employees entitle the holders to shares of common stock as the Restricted Stock Awards vest over time, but not to dividends declared on the underlying shares, while the stock subject to the Restricted Stock Awards is unvested. Vesting of the shares underlying the PSUs are also subject to achieving certain specified performance levels during the measurement period subsequent to the date of grant.

Under the LTIP, we granted the following Restricted Stock Awards with the associated weighted average grant date fair value, assuming a target payout for PSUs, for the three months ended November 30, 2022 and November 30, 2021.

	Three Months Ended
	November 30,
	2022		2021
RSUs Granted(1)	47,038		43,613
PSUs Granted(2)	34,482		30,460
Total Restricted Stock Awards	81,520		74,073
Restricted Stock Awards weighted average grant date fair value	$	415.31	$	424.14

(1) The majority of the RSUs granted relate to the November 1, 2022 and November 1, 2021 annual employee grants that both vest 20% annually on the anniversary date of grant and are fully vested after five years.

(2) The majority of the PSUs granted relate to the November 1, 2022 and November 1, 2021 annual employee grants that both cliff vest on the third anniversary of the grant date, subject to the achievement of certain performance metrics. The ultimate number of common shares that may be earned pursuant to these PSU awards range from 0% to 150% of the number of target shares, depending on the level of the Company's achievement of stated financial performance objectives.

Employee Stock Purchase Plan

Shares of FactSet common stock may be purchased by eligible employees under our ESPP in three-month intervals. The purchase price is equal to 85% of the lesser of the fair market value of our common stock on the first day or the last day of each three-month offering period. Employee purchases may not exceed 10% of their gross compensation, and there is a $25,000 contribution limit per employee during an offering period. Shares purchased through the ESPP cannot be sold or otherwise transferred for 18 months after purchase. Dividends paid on shares held in the ESPP are used to purchase additional ESPP shares at the market price on the dividend payment date.

Stock-based compensation expense related to the ESPP was $0.7 million for the three months ended November 30, 2022 and $0.5 million for the three months ended November 30, 2021. As of November 30, 2022 the ESPP had 93,853 shares reserved for future issuance.