On April 30, 2014, Trex stockholders approved the Trex Company, Inc. 2014 Stock Incentive Plan (Plan), which was previously approved by the Board of Directors on February 19, 2014. The Plan is administered by the Compensation Committee of the Trex Board of Directors. Stock-based compensation is granted to officers, directors and certain key employees in accordance with the provisions of the Plan. The Plan provides for grants of stock options, restricted stock, restricted stock units, stock appreciation rights (SARs), and unrestricted stock. The total aggregate number of shares of the Trex common stock that may be issued under the Plan is 25,680,000 and as of December 31, 2022, the total number of shares available for future issuance was 11,047,894.

The Company recognizes stock-based compensation expense ratably over the period from grant date to the earlier of (1) the vesting date of the award, or (2) the date the grantee is eligible to retire without forfeiting the award. For performance-based restricted stock and performance-based restricted stock units, expense is recognized ratably over the performance and vesting period of each tranche based on management’s judgment of the ultimate award that is probable to be paid out based on the achievement of the predetermined performance measures. For the employee stock purchase plan, compensation expense is recognized related to the discount on purchases. The following table summarizes the Company’s stock-based compensation expense (in thousands):


	Year Ended December 31,
	2022		2021		2020
Time-based restricted stock and restricted stock units	$	3,783	$	2,892	$	3,219
Performance-based restricted stock and restricted stock units		540		4,681		2,881
Stock appreciation rights		792		485		648
Employee stock purchase plan		214		381		383

Total stock-based compensation	$	5,329	$	8,439	$	7,131

Stock-based compensation expense is included in “Selling, general and administrative expenses” in the accompanying Consolidated Statements of Comprehensive Income.

Time-Based Restricted Stock and Time-Based Restricted Stock Units

The fair value of time-based restricted stock and time-based restricted stock units is determined based on the closing price of Trex shares on the grant date. Time-based restricted stock and time-based restricted stock units vest based on the terms of the awards. Unvested time-based restricted stock and unvested time-based restricted stock units are generally forfeitable upon the resignation of employment or termination of employment with cause. The total fair value of vested time-based restricted shares and vested time-based restricted stock units for the years ended December 31, 2022, 2021 and 2020 was $3.7 million, $8.2 million, and $6.1 million, respectively. At December 31, 2022, there was $3.5 million of total compensation expense related to unvested time-based restricted stock and unvested time-based restricted stock units remaining to be recognized over a weighted-average period of approximately 1.6 years.

Time-based restricted stock and restricted stock unit activity under the Plan and all predecessor stock incentive plans is as follows:


	Time-based Restricted Stock and Restricted Stock Unit			Weighted- Average Grant Price Per Share
Nonvested at December 31, 2019		218,466		$	28.75
Granted		54,406		$	53.97
Vested		(111,036	)	$	30.94
Forfeited		(1,114	)	$	40.34

Nonvested at December 31, 2020		160,722		$	35.68
Granted		33,703		$	100.50
Vested		(78,081	)	$	37.81
Forfeited		(4,798	)	$	66.00

Nonvested at December 31, 2021		111,546		$	52.91
Granted		57,094		$	75.06
Vested		(56,719	)	$	58.13
Forfeited		(1,286	)	$	86.84

Nonvested at December 31, 2022		110,635		$	61.28

Performance-based Restricted Stock and Performance-Based Restricted Stock Units

The fair value of performance-based restricted stock and performance-based restricted stock units is determined based on the closing price of Trex shares on the grant date. Unvested performance-based restricted stock and unvested performance-based restricted stock units are generally forfeitable upon the resignation of employment or termination of employment with cause. The performance-based restricted shares and performance-based restricted stock units have a three-year vesting period, vesting

one-third

each year based on target earnings before interest, taxes, depreciation and amortization (EBITDA) for 1 year, cumulative 2 years and cumulative 3 years, respectively. The number of shares that will vest, with respect to each vesting, will be between 0% and 200% of the target number of shares. At December 31, 2022, 2021 and 2020 there was $0.3 million, $2.8 million, and $1.7 million, respectively, of total compensation expense related to unvested performance-based restricted stock and unvested performance-based restricted stock units remaining to be recognized over a weighted-average period of approximately one year.

Performance-based restricted stock activity under the Plan is as follows:


	Performance-based Restricted Stock and Performance-based Restricted Stock Units			Weighted-Average Grant Price Per Share
Nonvested at December 31, 2019		123,656		$	30.67
Granted		78,404		$	39.60
Vested		(128,762	)	$	28.87
Forfeited		(728	)	$	41.12

Nonvested at December 31, 2020		72,570		$	43.42
Granted		36,522		$	86.26
Vested		(45,051	)	$	39.41
Forfeited		(6,273	)	$	65.30

Nonvested at December 31, 2021		57,768		$	71.21
Granted		72,152		$	76.14
Vested		(57,875	)	$	64.43
Forfeited		(562	)	$	82.95

Nonvested at December 31, 2022		71,483		$	81.57

Stock Appreciation Rights

SARs are granted with a grant price equal to the closing market price of the Company’s common stock on the date of grant. These awards expire ten years after the date of grant and vest based on the terms of the individual awards. The SARs are generally forfeitable upon the resignation of employment or termination of employment with cause. The Company recognizes forfeitures as they occur. The Company recognizes compensation cost on a straight-line basis over the vesting period for the award.

As of December 31, 2022, there was $1.1 million of unrecognized compensation cost related to SARs. The fair value of each SAR is estimated on the date of grant using a Black-Scholes option-pricing model. For SARs issued in the years ended December 31, 2022, December 31, 2021 and December 31, 2020, respectively, the assumptions shown in the following table were used:


	Year Ended December 31,
	2022			2021			2020
Dividend yield		0	%		0	%		0	%
Average risk-free interest rate		1.9	%		0.6	%		1.3	%
Expected term (years)		5			5			5
Expected volatility		44.9	%		58.7	%		38.3	%

Dividend Yield.

Trex has never paid cash dividends on its common stock.

Average Risk-Free Interest Rate.

The Company uses the U.S. Treasury rate having a term that most closely resembles the expected term of the option.

Expected Term.

The expected term is the period of time that the SARs granted are expected to remain unexercised. SARs granted during the years ended December 31, 2022, December 31, 2021 and December 31, 2020 had a maximum term of ten years. The Company used historical exercise behavior with further consideration given to the class of employees to whom the equity awards were granted to estimate the expected term of the SAR.

Expected Volatility.

Volatility is a measure of the amount by which a financial variable such as a share price has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. The Company has used the historical volatility over the average expected term of the options granted as the expected volatility.

The weighted-average grant date fair value of SARs granted during the years ended December 31, 2022, December 31, 2021 and December 31, 2020 was $33.90, $51.84, and $17.81, respectively.

SAR activity under the Plan and all predecessor stock incentive plans is as follows:


	SARs			Weighted-Average Grant Price Per Share		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value as of December 31, 2021
Outstanding at December 31, 2019		304,038		$	15.79
Granted		43,830		$	50.39
Exercised		(54,592	)	$	9.41
Canceled		—		$	—

Outstanding at December 31, 2020		293,276		$	22.15
Granted		15,029		$	104.56
Exercised		(102,562	)	$	9.45
Canceled		(4,745	)	$	61.66

Outstanding at December 31, 2021		200,998		$	33.86
Granted		32,971		$	82.01
Exercised		—		$	—
Canceled		—		$	—

Outstanding at December 31, 2022		233,969		$	40.64		5.5	$	2,885,217
Vested at December 31, 2022		184,563		$	30.11		4.6	$	2,885,517
Exercisable at December 31, 2022		184,563		$	30.11		4.6	$	2,885,217

Employee Stock Purchase Plan

The Company has an employee stock purchase plan (ESPP) that permits eligible employees to purchase shares of common stock of the Company at a purchase price which is the lesser of 85% of the market price on either the first day of the calendar quarter or the last day of the calendar quarter. Eligible employees may elect to participate in the plan by authorizing payroll deductions of up to 15% of gross compensation for each payroll period. On the last day of each quarter, each participant’s contribution account is used to purchase the maximum number of whole shares of common stock determined by dividing the contribution account balance by the purchase price. The aggregate number of shares of common stock that may be purchased under the plan is 2,400,000. Through December 31, 2022, employees had purchased approximately 1,870,151 shares under the plan.