Babcock & Wilcox Enterprises, Inc.BW
Babcock & Wilcox Enterprises, Inc. Stock Compensation Disclosure
STOCK-BASED COMPENSATION
Stock options
There were no stock options awarded in 2024. As of December 31, 2024, there were 0.1 million shares outstanding and exercisable, at a weighted average exercise price of $70.45 and $70.44, respectively, and a weighted average remaining contractual term of 2.4 years.
Restricted stock units
Non-vested restricted stock units activity for the year ended December 31, 2024 is as follows:
| (share data in thousands) | Number of shares | Weighted-average grant date fair value | ||||||
| Non-vested at beginning of period | 1,332 | $ | 7.64 | |||||
| Granted | 1,659 | 1.21 | ||||||
| Vested | (975) | 5.92 | ||||||
| Cancelled/forfeited | (276) | 8.57 | ||||||
| Non-vested at end of period | 1,740 | $ | 2.33 | |||||
As of December 31, 2024, total compensation expense not yet recognized related to non-vested restricted stock units was $3.5 million and the weighted-average period in which the expense is expected to be recognized is 1.6 years.
Restricted stock units with market conditions
In July 2022, we granted market-based RSUs to certain members of management. The number of market-based RSUs granted was 0.96 million. The RSUs will vest if our closing stock price on the NYSE is equal to or higher than the Stock Price Goal of $12.00 per share during the performance period, which expires on the 5th anniversary of the Grant Date. The $6.70 grant date fair value per market-based RSU was determined using a Monte Carlo simulation approach. Compensation expense for awards with market conditions is recognized over the derived service period using cost of equity as the drift rate in the simulation for estimating the dividend service period and is not reversed if the market condition is not met.
We used the following assumptions to determine the fair value of the restricted stock units with market conditions as of the grant date:
| Risk free interest rate | 2.7 | % | |||
| Volatility | 59.0 | % | |||
| Cost of equity | 17.4 | % | |||
| Performance period | 5 years | ||||
| Derived service period | 0.78 years | ||||
Restricted stock units with market conditions activity for the year ended December 31, 2024 was as follows:
| (share data in thousands) | Number of shares | Weighted-average grant date fair value | |||||||||
| Non-vested at beginning of period | 760 | $ | 6.70 | ||||||||
| Cancelled/forfeited | (165) | 6.70 | |||||||||
| Non-vested at end of period | 595 | $ | 6.70 | ||||||||
Stock Appreciation Rights
In December 2018, we granted stock appreciation rights to certain employees ("Employee SARs") and to a non-employee related party, BRPI Executive Consulting, LLC ("Non-employee SARs"). The Employee SARs and Non-employee SARs both expire ten years after the grant date and primarily vest 100% upon completion after the required years of service. Upon vesting, the Employee SARs and Non-employee SARs may be exercised within 10 business days following the end of any calendar quarter during which the volume weighted average share price is greater than the share price goal. Upon exercise of the SARs, holders receive a cash-settled payment equal to the number of SARs that are being exercised multiplied by the difference between the stock price on the date of exercise minus the SARs base price. Employee SARs were issued under the Fourth Amended and Restated 2015 LTIP, and Non-employee SARs were issued under a Non-employee SARs agreement. The liability method was used to recognize the accrued compensation expense with cumulatively adjusted revaluations to the then current fair value at each reporting date through final settlement.
We used the following assumptions to determine the fair value of the SARs granted to employees and non-employee as of December 31, 2024 and 2023:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Risk-free interest rate | 4.30 | % | 3.80 | % | |||||||
| Expected volatility | 46 | % | 57 | % | |||||||
| Expected life in years | 3.75 | 4.75 | |||||||||
| Suboptimal exercise factor | 2.0x | 2.0x | |||||||||
In making these assumptions, we based estimated volatility on the historical returns of our stock price and selected guideline companies. We based risk-free rates on the corresponding U.S. Treasury spot rates for the expected duration at the date of grant, which we convert to a continuously compounded rate. We relied upon a suboptimal exercise factor, representing the ratio of the base price to the stock price at the time of exercise, to account for potential early exercise prior to the expiration of the contractual term. With consideration to the executive level of the SARs holders, a suboptimal exercise multiple of 2.0x was selected. Subject to vesting conditions, should the stock price achieve a value of 2.0x above the base price, we assume the holders will exercise prior to the expiration of the contractual term of the SARs. The expected term for the SARs is an output of the valuation model in estimating the time period that the SARs are expected to remain unexercised. The valuation model assumes the holders will exercise their SARs prior to the expiration of the contractual term of the SARs.
As of December 31, 2024, the SARs are fully vested and their total intrinsic value is $0.0 million.
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.