Better Home & Finance Holding CoBETR
Better Home & Finance Holding Co Stock Compensation Disclosure
24. Stock-Based Compensation
Equity Incentive Plans—On November 3, 2016, Better’s board of directors and stockholders adopted the Better 2016 Equity Incentive Plan (the “2016 Plan”), which provides for the grant of non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units (“RSUs”) and deferred stock to eligible employees, directors and consultants of the Company.
On May 15, 2017, Better’s board of directors and stockholders adopted the Better 2017 Equity Incentive Plan (the “2017 Plan”), which provides for the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards and RSUs to eligible employees, directors and consultants of the Company. The 2017 Plan was most recently amended and approved by the stockholders of Better in August 2020.
Upon closing of the Business Combination, the remaining unallocated share reserves under the 2016 Plan and the 2017 Plan were cancelled and no new awards will be granted under either the 2016 Plan or the 2017 Plan. Awards outstanding under the 2016 Plan and the 2017 Plan were assumed by Better Home & Finance upon the closing of the Business Combination and continue to be governed by the terms of the 2016 Plan and the 2017 Plan. In connection with the Business Combination each holder of Better HoldCo options and RSUs received an equivalent award adjusted based on the Exchange Ratio that vests in accordance with the original terms of the award.
In connection with the Business Combination, the Better Home & Finance’s 2023 Equity Incentive Plan (the “2023 Plan”) was adopted and approved by the Company's board of directors on August 22, 2023. The 2023 Plan allows for the issuance of stock options, stock appreciation rights, restricted stock awards, RSUs and other equity and equity-based awards for issuance to Better Home & Finance’s service providers. A total of 1,772,533 shares of Class A common stock were initially reserved for issuance pursuant to the 2023 Plan (the “Initial Share Reserve”). The Initial Share Reserve will automatically increase on January 1 of each year beginning January 1, 2024 and ending in 2033, in an amount equal to the lesser of (i) five percent (5%) of the shares of Class A common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares of Class A common stock as is determined by the Board or committee of the Board; provided, however, that no more than 12,286,879 shares of Class A common stock may be issued upon the exercise of incentive stock options.
On December 7, 2023, the Board determined there would be no such automatic increase to the Initial Share Reserve on January 1, 2024. As of December 31, 2024, 568,973 awards have been granted under the 2023 Plan. As of December 31, 2024 1,622,392 are available for issuance under the 2023 Plan.
In connection with the Business Combination, the Better Home & Finance 2023 Employee Stock Purchase Plan (the “ESPP”) became effective on August 22, 2023, pursuant to which eligible employees may purchase shares of Class A common stock at a discounted rate. A total of 322,279 shares of Class A common stock were initially reserved for issuance pursuant to the ESPP (the “ESPP Share Reserve”). The ESPP Share Reserve will automatically increase on January 1 of each year beginning January 1, 2024 and ending in 2033, in an amount equal to the lesser of (i) one percent (1%) of the shares of Class A common stock outstanding on the last day of the immediately preceding fiscal year and (ii) such smaller number of shares of Class A common stock as is determined by the Board; provided, however, that no more than 2,417,091 shares of Class A common stock may be issued under the ESPP. On December 7, 2023, the Board determined there would be no such automatic increase to the Initial ESPP Share Reserve on January 1, 2024. As of December 31, 2024, no shares have been issued under the ESPP.
The Company no longer allows for the early exercise of awards under the 2016 Plan, 2017 Plan, or the 2023 Plan.
Stock Options—The following is a summary of stock option activity during the year ended December 31, 2024:
| (Amounts in thousands, except options, prices, and averages) | Number of Options | Weighted Average Exercise Price | Intrinsic Value | Weighted Average Remaining Term | |||||||||||||||||||
| Stock Options: | |||||||||||||||||||||||
| Outstanding—January 1, 2024 | 702,128 | $ | 76.86 | $ | 102 | 6.1 | |||||||||||||||||
| Options granted | — | $ | — | ||||||||||||||||||||
| Options exercised | (5,212) | $ | 10.27 | ||||||||||||||||||||
| Options cancelled or forfeited | (2,362) | $ | 84.54 | ||||||||||||||||||||
| Options expired | (38,331) | $ | 76.75 | ||||||||||||||||||||
| Outstanding—December 31, 2024 | 656,223 | $ | 77.37 | $ | 34 | 5.01 | |||||||||||||||||
| Vested and exercisable—December 31, 2024 | 613,774 | $ | 78.27 | $ | 34 | 4.81 | |||||||||||||||||
| Options expected to vest | 42,486 | $ | 64.67 | $ | — | 7.90 | |||||||||||||||||
| December 31, 2024 | 656,260 | $ | 77.39 | $ | 34 | 5.01 | |||||||||||||||||
As of December 31, 2024, total stock-based compensation cost not yet recognized related to unvested stock options was $3.8 million, which is expected to be recognized over a weighted-average period of 1.9 years.
Intrinsic value is calculated by subtracting the exercise price of the stock option from the fair value of the Company’s Common A Stock on December 31, 2024 for in-the-money stock options, multiplied by the number of shares of Common A Stock per each stock option. The total intrinsic value of stock options exercised during the years ended December 31, 2024, and 2023 was $0.09 million, and $0.27 million, respectively.
The weighted average grant-date fair value per share of stock options granted during the years ended December 31, 2024 and 2023 was none, as no options were granted, and $34.00, respectively.
The total grant date fair value of options vested for the years ended December 31, 2024 and 2023 was $10.5 million and $13.7 million, respectively.
The Company previously allowed stock option holders to early exercise in exchange for cash prior to the vesting date. Shares of common stock issued upon early exercise are considered shares restricted until the completion of the original vesting period of the options and are therefore classified to stock options exercised, not vested on the consolidated balance sheets within other liabilities based upon the respective exercise price of the stock option and are not remeasured. Upon the completion of the vesting period, the Company reclassifies the liability to additional paid in capital on the consolidated balance sheets. Included within other liabilities on the consolidated balance sheets as of December 31, 2024 and 2023 was an immaterial amount and $1.5 million, respectively, of stock options exercised, not vested, which represents 365 and 1,739,740, respectively, of restricted shares.
Fair Value of Awards Granted—Prior to the Close of the Business Combination, as Pre-Business Combination Better’s Common O Stock was not publicly traded, the fair value of the shares of Common O Stock was approved by the Better’s Board of Directors as there was no public market for the Better’s common stock as of the date of the awards were granted, which subsequently converted to Class A common stock upon completion of the Business Combination.
In estimating the fair value of the Better’s Common O Stock, management used the assistance of third-party valuation specialist and consider factors management believes are material to the valuation process, including, but not limited to, the price at which equity was issued by Better to independent third parties or transacted between third parties, actual and projected financial results, risks, prospects, and economic and market conditions, among other factors. Management believes the combination of these factors provides an appropriate estimate of the expected fair value and reflects the best estimate of the fair value of the Pre-Business Combination Better’s Common O Stock at each grant date.
The expected volatility was based on the historical and implied volatility of similar companies whose stock or option prices are publicly available, after considering the industry, stage of life cycle, size, market capitalization, and financial leverage of the other companies. The risk-free interest rate assumption was based on observed U.S. Treasury yield curve interest rates in effect at the time of grant appropriate for the expected term of the stock options granted. As permitted under authoritative guidance, due to the limited amount of stock option exercises, Better used the simplified method to compute the expected term for stock options granted to employees in the years ended December 31, 2024 and 2023, respectively.
Awards issued under the 2023 Plan used the fair value of the Company’s Class A common stock as traded on the public market to derive the fair value of the respective award.
The Company estimated the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires estimates of highly subjective assumptions, which affect the fair value of each stock option. The assumptions used to estimate the fair value of stock options granted are as follows:
| Year Ended December 31, | |||||||||||
| 2023 | |||||||||||
| (Amounts in dollars, except percentages) | Range | Weighted Average | |||||||||
| Fair value of Better's Common O Stock1 | $22.30 - $55.8 | $50.50 | |||||||||
| Expected volatility | 76.50% - 77.40% | 76.7 | % | ||||||||
| Expected term (years) | 5.0 - 6.1 | 5.8 | |||||||||
| Risk-free interest rate | 3.60% - 4.20% | 4.00 | % | ||||||||
1.Periods has been adjusted to reflect the 1-for-50 reverse stock split on August 16, 2024. See Note 1 Organization and Nature of the Business - Reverse Stock Split, for additional information.
Restricted Stock Units—RSUs generally vest over four years upon satisfaction of service-based conditions. The following is a summary of RSU activity during the year ended December 31, 2024:
| (Amounts in thousands, except shares and averages) | Number of Shares | Weighted Average Grant Date Fair Value | |||||||||
Unvested—December 31, 2023(1) | 229,530 | $ | 124.49 | ||||||||
RSUs granted(1) | 568,973 | $ | 23.39 | ||||||||
RSUs vested(2) | (231,566) | $ | 71.23 | ||||||||
| RSUs cancelled or forfeited | (78,035) | $ | 53.81 | ||||||||
| Unvested—December 31, 2024 | 488,902 | 43.28 | |||||||||
1.Included in the Unvested balance as of December 31, 2023 are 49,516 Performance Stock Units grant ("PSU"). During the year ended December 31, 2022 the Company’s Board of Directors (the “Board”) approved the Performance Stock Units grant ("PSU") of 49,516 PSUs to an executive employee. The PSUs will be eligible to vest upon the satisfaction of specified market-based conditions tied to the price of the Company's publicly traded shares at three distinct price threshold levels. The PSUs are also subject to the risk of forfeiture until vested by virtue of continued employment or service to the Company through November 1, 2022. As of December 31, 2023, 49,516 PSUs remained outstanding.
2.Included in the Granted balance are 109,356 Performance Stock Units grant ("PSU"). During the year ended December 31, 2024 the Company’s Board of Directors (the “Board”) approved the Performance Stock Units grants ("PSU") of 109,356 PSUs to executive employees. The PSUs will be eligible to vest upon the satisfaction of specified market-based conditions tied to the price of the Company's publicly traded shares at four distinct price threshold levels. As of December 31, 2024, 158,872 PSUs remained outstanding.
The weighted-average grant date fair value of the PSUs granted during 2024 was $5.95. The fair value of this award was estimated using a Monte Carlo simulation to address the path-dependent nature of the market-based vesting conditions. Based on the award term, equity value, expected volatility, risk-free rate, and a series of random variables with a normal distribution, the future equity value was simulated. Each trial within the simulation includes assumptions of achieving a per share valuation level of the Company’s common stock as stipulated in the agreement to determine whether the market-based conditions are met resulting in vesting or not, and the future value of the award. The simulation was run for 50K trials and the mean results from all the trials was taken as an indication of the fair value of each Tranche.
For the year ended December 31, 2024, the Company recorded a total stock‑based compensation expense of $16.3 million related to RSUs awarded to employees and non-employees directors. As of December 31, 2024, total stock-based compensation cost not yet recognized related to unvested RSUs was $14.9 million, which is expected to be recognized over a weighted-average period of 3.91 years.
Stock-Based Compensation Expense—Stock-based compensation expense is included within compensation and benefits in the consolidated statements of operations and comprehensive loss. The Company recognized stock-based compensation expense as follows:
| Year Ended December 31, | |||||||||||
| (Amounts in thousands) | 2024 | 2023 | |||||||||
Total stock-based compensation expense1 | $ | 26,753 | $ | 54,145 | |||||||
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(1)Technology expense excludes $1.8 million and $4.1 million of stock-based compensation expense, which was capitalized (see Note 10) for the years ended December 31, 2024 and 2023, respectively
About Stock Compensation Disclosures
Stock-based compensation disclosures detail the equity awards granted to employees and executives — including stock options, restricted stock units (RSUs), and performance shares — along with the valuation methods and assumptions used to expense them. This section reveals the true cost of talent retention and the alignment between management incentives and shareholder interests.
Key signals: total unrecognized compensation expense and its expected recognition period signal future earnings headwinds from already-granted awards. For stock options, examine Black-Scholes assumptions — expected volatility, risk-free rate, and expected term — as understating any of these reduces reported compensation expense. Compare stock compensation expense as a percentage of revenue against peers to assess dilution cost. Watch vesting schedules for acceleration clauses tied to change-of-control events. Performance-based awards with undemanding targets may indicate weak governance. Add back stock compensation to operating cash flow to calculate a more conservative free cash flow figure.