STOCK-BASED COMPENSATION PLANS

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

The Company’s stock incentive plan permits the granting of incentive stock options or nonqualified stock options; stock appreciation rights; performance awards, which may be cash-or share-based; restricted stock units; restricted stock; and other stock-based awards. We measure and record compensation expense based on the fair value of the Company's common stock on the date of grant for restricted stock and restricted stock units ("RSUs") and the grant date fair value, determined utilizing the Black-Scholes formula, for stock options. We record compensation cost for service-based awards, including graded-vesting awards, on a straight-line basis over the entire vesting period, or for retirement eligible employees over the requisite service period. We account for the forfeiture of awards as they occur.

In connection with the Business Combination, GSAH’s Board adopted the Vertiv Holdings Co 2020 Stock Incentive Plan (the “2020 Plan”), on December 9, 2019 which was approved by GSAH’s stockholders on February 6, 2020, immediately preceding the Business Combination. Under the 2020 Plan, a total aggregate of 33.5 million share awards issuable were authorized and reserved for issuance for the purpose of better motivating our employees, consultants and directors to achieve superior performance measured by both our key financial and operating metrics as well as relative stock price appreciation. The 2020 Plan is administered by the Compensation Committee of our Board and permits the granting of incentive stock options or nonqualified stock options; stock appreciation rights; performance awards, which may be cash-or share-based; restricted stock units; restricted stock; and other stock-based awards. Beginning with the first business day of each calendar year beginning in 2021, the number of shares will increase by the least of (a) 10.5 million shares, (b) 3% of the number of shares outstanding as of the last day of the immediately preceding calendar year, or (c) a lesser number of shares determined by the Compensation Committee.

Stock options

Stock options are generally granted to certain employees and directors to purchase common shares at an exercise price equal to the market price of the Company’s stock at the date of the grant. Option awards generally vest 25% per year over 4 years of continuous service and have 10-year contractual terms.

The Company uses a Black-Scholes option pricing model to estimate the fair value of stock options. The principal significant assumptions utilized in valuing stock options include the expected stock price volatility (based on the most recent historical period equal to the expected life of the option); the expected option life (an estimate based on historical experience); the expected dividend yield; and the risk-free interest rate (an estimate based on the yield of United States Treasury zero coupon with a maturity equal to the expected life of the option). Because the Company only recently became publicly traded, we do not have sufficient historical information on which to base expected volatility. As such, our volatility assumption is based on the historical and implied volatility of similar public companies, which were identified considering factors such as industry, stage of life cycle, size, and financial leverage. Because the Company does not have sufficient historical option exercise experience upon which we can estimate the expected term we estimate the expected term using the average of the vesting period and the contractual period of the award.

A summary of the weighted average assumptions used in determining the fair value of stock options follows:


	Year Ended December 31,
	2023			2022			2021
Expected volatility	37.09		%	37.31		%	30.47		%
Expected option life in years	6.25			6.25			6.25
Expected dividend yield	0.06		%	0.08		%	0.08		%
Risk-free interest rate	4.23		%	2.31		%	0.86		%
Weighted-average fair value of stock options	$	7.26		$	5.04		$	6.53

A summary of the 2023 stock option activity follows:


	Options	Weighted-average exercise price per option		Weighted-average remaining contractual life in years	Aggregate intrinsic value (1)
Outstanding at January 1, 2023	10,612,810	$	13.40
Granted	3,544,623	16.55
Exercised	(2,092,068)	13.26
Forfeited and canceled	(910,008)	14.92
Outstanding at December 31, 2023	11,155,357	$	14.30	7.48	$	376.3
Exercisable at December 31, 2023	3,392,786	$	13.46	6.56	$	117.3

(1)The aggregate intrinsic value in the table above represents the difference between the Company’s stock price on the last trading day of 2023 and the exercise price of each in-the-money option on the last day of the period presented.

For the years ended December 31, 2023, 2022, and 2021 total compensation expense relating to stock options was $14.3, $15.3, and $9.3, respectively. As of December 31, 2023, there was $31.4 of total unrecognized compensation cost related to unvested options. That cost is expected to be recognized over a weighted-average period of 2.38 years.

Restricted stock units

RSUs have been issued to certain employees and directors as of December 31, 2023 and entitle the holder to receive one common share for each RSU upon vesting. RSU shares are accounted for at fair value based upon the closing stock price on the date of grant. The corresponding expense is amortized over the vesting period, generally over seven years. A summary of the 2023 RSU activity follows:


	Restricted stock units	Weighted-average fair value per unit
Outstanding at January 1, 2023	3,038,783	$	15.43
Granted	750,195	18.11
Vested	(621,009)	11.86
Forfeited and canceled	(441,074)	15.89
Outstanding at December 31, 2023	2,726,895	$	16.90

For the year ended December 31, 2023, 2022 and 2021 total compensation expense relating to RSUs was $7.8 and $9.2, and $13.9, respectively. As of December 31, 2023, there was $34.5 of total unrecognized compensation cost related to unvested RSUs. That cost is expected to be recognized over a weighted-average period of 4.47 years.

Performance awards

On November 18, 2022, the Company granted long-term performance awards as a part of its 2020 stock incentive plan to certain executive officers. The performance awards are contingent upon the Company meeting internal company-based metrics, and to the extent earned will be settled in RSUs that must be held until January 1, 2027 to vest into shares of the Company’s common stock.

The performance awards vest after a four-year period and are based on achieving a company-based metric in fiscal year 2023, 2024 and 2025, respectively. To the extent awards are earned based on achieving a company-based metric, the dollar value will convert into RSUs. The RSUs, to the extent earned, vest on January 1, 2027 as shares of the Company’s common stock. The amount of stock distributed will vary based on the company-based metric achieved in each fiscal year and the future price of the shares.

The fair value for all internal company-based metric performance awards is monitored quarterly and if it becomes probable that such goals will not be achieved or will be exceeded, compensation expense recognized will be adjusted and previous surplus compensation expense recognized will be reversed or additional expense will be recognized. For the year ended December 31, 2023 and 2022, total compensation expense relating to the performance awards was $2.9 and $0.2, respectively. For the year ended December 31, 2023 the company-based metric was achieved.