Share-Based Compensation (Notes)

9 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

Share-Based Compensation

12. Share-Based Compensation

We maintain a long-term incentive plan that makes available shares for grants, at the discretion of the Board of Directors or the Compensation and Organizational Development Committee of the Board of Directors, to officers, directors, and key employees in the form of stock options, restricted shares, restricted share units, stock appreciation rights and share grants. We satisfy share award incentives through the issuance of new ordinary shares.

Stock options provide the right to purchase our shares at the market price on the date of grant, or for options granted to employees in fiscal 2019 and thereafter, 110% of the market price on the date of grant, subject to the terms of the plan and agreements. Generally, one-fourth of the stock options granted to employees become exercisable for each full year of employment following the grant date. Stock options granted generally expire 10 years after the grant date, or in some cases earlier if the option holder is no longer employed by us. Restricted shares and restricted share units generally cliff vest after a three or four year period or vest in equal tranches for each year of employment after the grant date. As of December 31, 2023, 2,368,027 ordinary shares remained available for grant under the long-term incentive plan.

The fair value of share-based stock option compensation awards was estimated at their grant date using the Black-Scholes-Merton option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable, characteristics that are not present in our option grants. If the model permitted consideration of the unique characteristics of employee stock options, the resulting estimate of the fair value of the stock options could be different. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service periods, which may be impacted by retirement eligibility, in our Consolidated Statements of Income (Loss). The expense is classified as Cost of revenues or Selling, general and administrative expenses in a manner consistent with the employee’s compensation and benefits.

The following weighted average assumptions were used for options granted during the first nine months of fiscal 2024 and 2023:

	Fiscal 2024		Fiscal 2023
Risk-free interest rate	3.59	%	2.44	%
Expected life of options	6.0 years		5.9 years
Expected dividend yield of stock	1.08	%	0.80	%
Expected volatility of stock	27.92	%	24.49	%

The risk-free interest rate is based upon the U.S. Treasury yield curve. The expected life of options is reflective of historical experience, vesting schedules and contractual terms. The expected dividend yield of stock represents our best estimate of the expected future dividend yield. The expected volatility of stock is derived by referring to our historical stock prices over a time frame similar to that of the expected life of the grant. An estimated forfeiture rate of 2.22% and 2.54% was applied in fiscal 2024 and 2023, respectively. This rate is calculated based upon historical activity and represents an estimate of the granted options not expected to vest. If actual forfeitures differ from this calculated rate, we may be required to make additional adjustments to compensation expense in future periods. The assumptions used above are reviewed at the time of each significant option grant, or at least annually.

A summary of share option activity is as follows:

	Number of Options	Weighted Average Exercise Price Per Share		Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding at March 31, 2023	1,749,729	$	154.60
Granted	253,946	220.24
Exercised	(53,881)	60.54
Forfeited	(3,415)	199.26
Outstanding at December 31, 2023	1,946,379	$	165.69	6.1 years	$	112,785
Exercisable at December 31, 2023	1,343,419	$	139.95	5.1 years	$	109,367

We estimate that 591,310 of the non-vested stock options outstanding at December 31, 2023 will ultimately vest.

The aggregate intrinsic value in the table above represents the total pre-tax difference between the $219.85 closing price of our ordinary shares on December 31, 2023 over the exercise prices of the stock options, multiplied by the number of options outstanding or outstanding and exercisable, as applicable. The aggregate intrinsic value is not recorded for financial accounting purposes, and the value changes daily based on the daily changes in the fair market value of our ordinary shares.

The total intrinsic value of stock options exercised during the first nine months of fiscal 2024 and fiscal 2023 was $8,350 and $4,638, respectively. Net cash proceeds from the exercise of stock options were $3,526 and $1,497 for the first nine months of fiscal 2024 and fiscal 2023, respectively.

The weighted average grant date fair value of stock option grants was $54.60 and $50.72 for the first nine months of fiscal 2024 and fiscal 2023, respectively.

A summary of the non-vested restricted share and share unit activity is presented below:

	Number of Restricted Shares	Number of Restricted Share Units	Weighted Average Grant Date Fair Value
Non-vested at March 31, 2023	450,793	28,542	$	186.60
Granted	173,074	18,344	201.48
Vested	(146,912)	(15,408)	163.81
Forfeited	(13,714)	(1,419)	194.71
Non-vested at December 31, 2023	463,241	30,059	$	199.57

Restricted shares and restricted share unit grants are valued based on the closing stock price at the grant date. The value of restricted shares and units at the time of grant that vested during the first nine months of fiscal 2024 was $26,487.

As of December 31, 2023, there was a total of $68,670 in unrecognized compensation cost related to non-vested share-based compensation granted under our share-based compensation plans. We expect to recognize the cost over a weighted average period of 1.8 years.

Cantel Share Based Compensation Plan

In connection with the acquisition of Cantel, outstanding, non-vested Cantel restricted share units were replaced with STERIS restricted share units.

As of December 31, 2023, there was a total of $16 in unrecognized compensation cost related to non-vested STERIS restricted share units awarded to replace Cantel restricted share units. We expect to recognize the remaining cost by the fourth quarter of fiscal 2024.

A summary of the non-vested restricted share units activity associated with the Cantel share-based compensation plans is presented below:

	Number of Restricted Share Units	Weighted Average Grant Date Fair Value
Non-vested at March 31, 2023	15,670	$	191.18
Vested	(14,358)	191.18
Forfeited	(762)	191.18
Non-vested at December 31, 2023	550	$	191.18