Stock-Based Compensation

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

Stock-Based Compensation

Note 10: Stock-Based Compensation

In April 2017, Encore’s Board of Directors (the “Board”) approved the Encore Capital Group, Inc. 2017 Incentive Award Plan (the “2017 Plan”), which was then approved by the Company’s stockholders on June 15, 2017. The 2017 Plan superseded the Company’s 2013 Incentive Compensation Plan (as amended, the “2013 Plan”), which had previously superseded the Company’s 2005 Stock Incentive Plan (“2005 Plan”). Board members, employees, and consultants of Encore and its subsidiaries and affiliates are eligible to receive awards under the 2017 Plan. Subject to certain adjustments, the Company may grant awards for an aggregate of 5,713,571 shares of the Company’s common stock under the 2017 Plan. The aggregate number of shares available for issuance under the 2017 Plan will be reduced by 2.12 shares for each share delivered in settlement of any full value award and by one share for each share delivered in settlement of any stock option or stock appreciation right. If an award under the 2017 Plan or the 2013 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased,

canceled without having been fully exercised or forfeited, the unused shares covered by such award will again become or again be available for award grants under the 2017 Plan. Shares available under the 2017 Plan will be increased by 2.12 shares for each share subject to a full value award and by one share for each share subject to a stock option or a stock appreciation right, in each case, that become or again be available for issuance pursuant to the foregoing share counting provisions. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, dividend equivalent rights, stock appreciation rights, cash awards, performance-based awards and any other types of awards not inconsistent with the 2017 Plan.

Total stock-based compensation expense during the years ended December 31, 2023, 2022, and 2021 was $13.9 million, $15.4 million, and $18.3 million, respectively. The actual tax benefit from stock-based compensation arrangements totaled $1.8 million, $4.2 million, and $2.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.

The Company’s stock-based compensation arrangements are described below:

Stock Options

Under the 2005 Plan, option awards were generally granted with an exercise price equal to the market price of the Company’s stock at the date of issuance. They generally vest over three to five years of continuous service, and have ten-year contractual terms. Other than the Performance Options discussed below, no options have been awarded under the 2013 Plan or 2017 Plan.

There were no options granted during the years ended December 31, 2023, 2022, or 2021. All outstanding stock options previously granted under the 2005 plan have been fully vested and all related compensation expense has been fully recognized prior to December 31, 2022. All exercisable options have been exercised prior to December 31, 2022.

The total intrinsic value of options exercised was $0.2 million during both years ended December 31, 2022 and 2021. Cash received from option exercise under all share-based payment arrangements during the years ended December 31, 2022 and 2021 was negligible.

Performance Stock Options

Under the 2017 Plan and the 2013 Plan, the Company granted performance stock options, with an exercise price equal to the closing price of the Company’s stock at the date of issuance, that vest in equal annual installments over a three year service period but only if, within four years from the date of grant, the 20 trading day average of the closing price of the Company’s stock (subject to dividend-related adjustments) exceeded a target equal to a 25% increase from the closing price on the date of grant. These performance options have a seven-year contractual life.

A summary of the Company’s performance stock option activity as of December 31, 2023, and changes during the year then ended, are presented below:

	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Outstanding and exercisable as of December 31, 2022	79,949	$	30.95
Exercised	(79,949)	$	30.95
Outstanding and exercisable as of December 31, 2023	—	$	—	—	$	—

As of December 31, 2023, all related compensation expense has been fully recognized. No performance stock options were granted during the years ended December 31, 2023, 2022, and 2021. The total intrinsic value of performance options exercised during the year ended December 31, 2023, 2022, and 2021 was $1.3 million, $0.6 million, and $1.1 million, respectively. Cash received from performance option exercise during the years ended December 31, 2023, 2022, and 2021 was $1.7 million, $0.6 million, and $1.6 million, respectively.

Non-Vested Shares

The Company’s 2017 Plan (and previously, the 2013 Plan and 2005 Plan), permits restricted stock units, restricted stock awards, performance stock units, and performance stock awards (collectively “stock awards”). The fair value of non-vested shares with a service condition and/or a performance condition that affect vesting is equal to the closing sale price of the Company’s common stock on the grant date. Compensation expense is recognized only for the awards that ultimately vest. The Company has certain share awards that include market conditions that affect vesting. These shares vest based on the Company’s three-year relative total stockholder return compared to the other companies in the S&P SmallCap 600 Financial Sector Index

as of the date of grant. The fair value of these shares is estimated using a lattice model. For the majority of non-vested shares, shares are issued on the vesting dates net of the number of shares needed to satisfy minimal statutory tax withholding requirements. The tax obligations are then paid by the Company on behalf of the employees.

A summary of the Company’s stock award activities as of December 31, 2023, and changes during the year then ended, is presented below:

	Non-Vested Shares (1)	Weighted Average Grant Date Fair Value
Non-vested as of December 31, 2022	542,935	$	51.31
Awarded	325,765	$	49.97
Vested	(315,153)	$	45.95
Cancelled	(34,834)	$	55.36
Non-vested as of December 31, 2023	518,713	$	53.45

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(1)Certain of the Company’s stock awards have a vesting matrix under which the stock awards can vest at a maximum level that is up to 200% of the shares that would vest for achieving the performance goals at target. The number of shares presented is based on achieving the performance goals at target levels as defined in the stock award agreements. As of December 31, 2023 and 2022, the maximum number of non-vested performance shares that could vest under the provisions of the agreements was 659,343 and 687,320, respectively.

Unrecognized compensation expense related to non-vested shares as of December 31, 2023 was $13.7 million. The weighted-average remaining expense period, based on the unamortized value of these outstanding non-vested shares, was approximately 1.4 years. The fair value of restricted stock units and restricted stock awards vested for the years ended December 31, 2023, 2022, and 2021 was $15.7 million, $26.9 million, and $16.9 million, respectively. The weighted average grant date fair value for stock awards granted during the years ended December 31, 2023, 2022, and 2021 was $49.97, $60.45, and $42.09, respectively.