STOCK-BASED COMPENSATION (Notes)

9 Months Ended

Sep. 30, 2022

Share-Based Payment Arrangement [Abstract]

Wesco’s stock-based compensation awards are comprised of stock options, stock-settled stock appreciation rights, restricted stock units and performance-based awards. Compensation cost for all stock-based awards is measured at fair value on the date of grant and compensation cost is recognized, net of estimated forfeitures, over the service period for awards expected to vest. The fair value of stock options and stock-settled stock appreciation rights is determined using the Black-Scholes model. The fair value of restricted stock units and performance-based awards with performance conditions is determined by the grant-date closing price of Wesco’s common stock. The forfeiture assumption is based on Wesco’s historical participant behavior that is reviewed on an annual basis. No dividends are assumed. For stock options and stock-settled stock appreciation rights that are exercised, and for restricted stock units and performance-based awards that vest, shares are issued out of Wesco's outstanding common stock.

Stock options and stock-settled stock appreciation rights vest ratably over a three-year period and terminate on the tenth anniversary of the grant date unless terminated sooner under certain conditions. Restricted stock unit awards granted in February 2020 and prior vest based on a minimum time period of three years. The special award described below vests in tranches. Restricted stock units awarded in 2022 and 2021 vest ratably over a three-year period on each of the first, second and third anniversaries of the grant date. Vesting of performance-based awards is based on a three-year performance period, and the number of shares earned, if any, depends on the attainment of certain performance levels. Outstanding awards would vest upon the consummation of a change in control transaction with performance-based awards vesting at the target level.

On July 2, 2020, a special award of restricted stock units was granted to certain officers of the Company. These awards vest in tranches of 30% on each of the first and second anniversaries of the grant date and 40% on the third anniversary of the grant date, subject, in each case, to continued employment through the applicable anniversary date.

Performance-based awards granted in 2022, 2021 and 2020 are based on two equally-weighted performance measures: the three-year average growth rate of Wesco's net income attributable to common stockholders and the three-year cumulative return on net assets. These awards are accounted for as awards with performance conditions; compensation cost is recognized over the performance period based upon Wesco's determination of whether it is probable that the performance targets will be achieved.

During the three and nine months ended September 30, 2022 and 2021, Wesco granted the following stock options, stock-settled stock appreciation rights, restricted stock units and performance-based awards at the following weighted-average fair values:


	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Stock options granted	3,249		—		92,799		—
Weighted-average fair value	$	54.13	$	—	$	57.15	$	—

Stock-settled stock appreciation rights granted	—		—		—		139,592
Weighted-average fair value	$	—	$	—	$	—	$	33.19

Restricted stock units granted	1,669		6,897		226,615		314,480
Weighted-average fair value	$	112.33	$	108.76	$	122.04	$	77.81

Performance-based awards granted	—		—		83,991		122,812
Weighted-average fair value	$	—	$	—	$	122.09	$	76.76

The fair values of stock options and stock-settled stock appreciation rights, as disclosed in the table above, were estimated using the following weighted-average assumptions in the respective periods:


	Three Months Ended			Nine Months Ended
	September 30, 2022		September 30, 2021	September 30, 2022		September 30, 2021
Risk free interest rate	2.9	%	n/a	2.0	%	0.8	%
Expected life (in years)	7		n/a	7		7
Expected volatility	44	%	n/a	43	%	41	%

The risk-free interest rate is based on the U.S. Treasury Daily Yield Curve as of the grant date. The expected life is based on historical exercise experience and the expected volatility is based on the volatility of the Company's daily stock price over the expected life preceding the grant date of the award.

The following table sets forth a summary of stock options for the nine months ended September 30, 2022:


	Awards	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2021	—	$	—
Granted	92,799	121.58
Exercised	—	—
Forfeited	(5,452)	122.09
Outstanding at September 30, 2022	87,347	$	121.55	9.3	$	39
Exercisable at September 30, 2022	879	$	122.09	0.9	$	—

The following table sets forth a summary of stock-settled stock appreciation rights for the nine months ended September 30, 2022:


	Awards	Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (In years)	Aggregate Intrinsic Value (In thousands)
Outstanding at December 31, 2021	1,370,388	$	62.09
Granted	—	—
Exercised	(101,076)	61.79
Forfeited	(8,891)	73.35
Outstanding at September 30, 2022	1,260,421	$	62.03	5.4	$	72,283
Exercisable at September 30, 2022	1,095,626	$	61.92	5.1	$	62,959

For the nine months ended September 30, 2022, the aggregate intrinsic value of stock-settled stock appreciation rights exercised during such period was $7.3 million.

The following table sets forth a summary of time-based restricted stock units for the nine months ended September 30, 2022:


	Awards	Weighted- Average Fair Value
Unvested at December 31, 2021	974,162	$	53.48
Granted	226,615	122.04
Vested	(382,954)	53.23
Forfeited	(35,118)	62.58
Unvested at September 30, 2022	782,705	$	73.04

The following table sets forth a summary of performance-based awards for the nine months ended September 30, 2022:


	Awards	Weighted- Average Fair Value
Unvested at December 31, 2021	380,819	$	59.23
Granted	83,991	122.09
Vested	(115,394)	54.64
Forfeited	(14,087)	60.75
Unvested at September 30, 2022	335,329	$	75.26

Wesco recognized $9.7 million and $9.6 million of non-cash stock-based compensation expense for the three months ended September 30, 2022 and 2021, respectively, and $34.4 million and $22.8 million for the nine months ended September 30, 2022 and 2021, respectively, which is included in selling, general and administrative expenses for all such periods. As of September 30, 2022, there was $58.2 million of total unrecognized compensation expense related to non-vested stock-based compensation arrangements for all awards previously made of which approximately $10.7 million is expected to be recognized over the remainder of 2022, $30.8 million in 2023, $14.9 million in 2024 and $1.8 million in 2025.