CARRIER GLOBAL CorpCARR
CARRIER GLOBAL Corp Stock Compensation Disclosure
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation plans in accordance with ASC 718, Compensation - Stock Compensation, which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured at the date of grant and is generally not adjusted for subsequent changes. The Company's stock-based compensation plans include programs for stock appreciation rights, restricted stock and performance share units.
Stock Options and Appreciation Rights
Eligible participants may receive stock options or stock appreciation rights as part of the Company's long-term incentive program. The fair value of each instrument is determined as of the date of grant using a binomial lattice model and expensed on a straight-line basis over the required service period, which is generally a three-year vesting period. However, in the event of retirement, awards held for at least one year may vest and become exercisable (if applicable), subject to certain terms and conditions.
The following table summarizes fair value information for stock options and stock appreciation rights:
2025 (1) | 2024 (1) | 2023 (1) | ||||||||||||||||||
| Stock options and stock appreciation rights weighted-average fair value per award | $ | 17.79 | $ | 14.84 | $ | 11.64 | ||||||||||||||
| Assumptions: | ||||||||||||||||||||
| Volatility | 31.2% to 33.4% | 30.6% to 31.7% | 30.9% | |||||||||||||||||
| Expected term (in years) | 5.6 | 5.6 to 7.8 | 5.8 | |||||||||||||||||
| Expected dividend yield | 1.3% | 1.8% | 1.8% | |||||||||||||||||
| Range of risk-free rates | 3.7% to 4.3% | 4.0% to 4.3% | 3.6% | |||||||||||||||||
(1) Carrier has limited historical trading data and used peer group data to estimate expected volatility for the 2025, 2024 and 2023 awards.
The Company used historical employee data, including data prior to the Separation and the Distribution, to estimate expected term. The expected dividend yield is consistent with management's expectations. The risk-free rate is based on the term structure of interest rates at the time the awards were granted.
Changes in stock options and stock appreciation rights outstanding were as follows:
| Shares Subject to Option (in thousands) | Weighted-Average Exercise Price | Aggregate Intrinsic Value (in millions) | Weighted- Average Remaining Life (in years) | ||||||||||||||||||||
| As of December 31, 2022 | 30,778 | $ | 24.53 | ||||||||||||||||||||
| Granted | 3,494 | $ | 46.13 | ||||||||||||||||||||
| Exercised | (8,432) | $ | 20.48 | ||||||||||||||||||||
| Cancelled | (769) | $ | 42.94 | ||||||||||||||||||||
| As of December 31, 2023 | 25,071 | $ | 28.34 | ||||||||||||||||||||
| Granted | 4,187 | $ | 56.46 | ||||||||||||||||||||
| Exercised | (8,041) | $ | 23.21 | ||||||||||||||||||||
| Cancelled | (430) | $ | 50.77 | ||||||||||||||||||||
| As of December 31, 2024 | 20,787 | $ | 35.52 | ||||||||||||||||||||
| Granted | 2,072 | $ | 64.99 | ||||||||||||||||||||
| Exercised | (2,785) | $ | 26.20 | ||||||||||||||||||||
| Cancelled | (724) | $ | 54.40 | ||||||||||||||||||||
| Outstanding as of December 31, 2025 | 19,350 | $ | 39.31 | $ | 299 | 5.4 | |||||||||||||||||
| Exercisable as of December 31, 2025 | 11,909 | $ | 28.99 | $ | 285 | 3.7 | |||||||||||||||||
Restricted Stock Units
Eligible participants may receive restricted stock units ("RSU") as part of the Company's long-term incentive program. The fair value of restricted stock units is based on the closing market price of the Company's common stock on the date of grant and expensed on a straight-line basis over the required service period (which is generally a three-year vesting period). However, in the event of retirement, awards held for at least one year may vest and become exercisable (if applicable), subject to certain terms and conditions. Dividends accrue during the vesting period and are paid in shares of the Company's common stock.
Changes in restricted stock units were as follows:
RSUs (in thousands) | Weighted-Average Grant Date Fair Value | ||||||||||
| Outstanding and unvested as of December 31, 2022 | 2,067 | $ | 29.87 | ||||||||
| Granted | 577 | $ | 45.71 | ||||||||
| Vested | (1,140) | $ | 26.09 | ||||||||
| Cancelled | (161) | $ | 35.09 | ||||||||
| Outstanding and unvested as of December 31, 2023 | 1,343 | $ | 39.22 | ||||||||
| Granted | 264 | $ | 59.88 | ||||||||
| Vested | (448) | $ | 38.17 | ||||||||
| Cancelled | (68) | $ | 49.14 | ||||||||
| Outstanding and unvested as of December 31, 2024 | 1,091 | $ | 43.94 | ||||||||
| Granted | 330 | $ | 63.70 | ||||||||
| Vested | (348) | $ | 44.83 | ||||||||
| Cancelled | (92) | $ | 42.88 | ||||||||
| Outstanding and unvested as of December 31, 2025 | 981 | $ | 50.41 | ||||||||
Performance Share Units
The Company has a performance share program for key employees whereby awards are provided in the form of performance share units ("PSU") based on performance against pre-established objectives. The annual target level is expressed as shares of the Company's common stock based on the fair value of its stock on the date of grant. Awards are generally earned over a three-year performance period based equally on a performance condition, measured by the compound annual growth rate of the Company's earnings per share and on a market condition, measured by the Company's relative total shareowner return compared to the total shareowner return of a subset of industrial companies in the S&P 500 Index. The fair value of the market condition is estimated using a Monte Carlo simulation approach. The fair value of the PSU awards is expensed over the required service period, which is generally a three-year vesting period. In the event of retirement, performance share units held for at least one year remain eligible to vest based on actual performance relative to pre-established metrics. Dividends do not accrue on the performance share units during the performance period.
Changes in PSUs were as follows:
PSUs (in thousands) | Weighted-Average Grant Date Fair Value | ||||||||||
Outstanding and unvested as of December 31, 2022 | 1,930 | $ | 35.86 | ||||||||
| Granted | 902 | $ | 47.93 | ||||||||
| Vested | (607) | $ | 18.23 | ||||||||
| Forfeited | (183) | $ | 46.52 | ||||||||
Outstanding and unvested as of December 31, 2023 | 2,042 | $ | 45.47 | ||||||||
| Granted | 1,741 | $ | 50.75 | ||||||||
| Vested | (1,339) | $ | 41.49 | ||||||||
| Forfeited | (121) | $ | 52.56 | ||||||||
Outstanding and unvested as of December 31, 2024 | 2,323 | $ | 51.35 | ||||||||
| Granted | 836 | $ | 57.22 | ||||||||
| Vested | (845) | $ | 46.57 | ||||||||
| Forfeited | (194) | $ | 55.70 | ||||||||
Outstanding and unvested as of December 31, 2025 | 2,120 | $ | 55.17 | ||||||||
Compensation Expense
Stock-based compensation expense, net of estimated forfeitures, is included in Cost of products sold, Selling, general and administrative and Research and development, in the accompanying Consolidated Statement of Operations.
Stock-based compensation cost by award type is as follows:
| (In millions) | 2025 | 2024 | 2023 | ||||||||||||||
| Equity compensation costs - equity settled | $ | 74 | $ | 98 | $ | 81 | |||||||||||
Equity compensation costs - cash settled (1) | (2) | 2 | 3 | ||||||||||||||
| Total stock-based compensation cost | $ | 72 | $ | 100 | $ | 84 | |||||||||||
| Amounts recorded in continuing operations | $ | 72 | $ | 87 | $ | 74 | |||||||||||
| Amounts recorded in discontinued operations | — | 13 | 10 | ||||||||||||||
| Total stock-based compensation cost | $ | 72 | $ | 100 | $ | 84 | |||||||||||
| Income tax benefit | $ | 8 | $ | 13 | $ | 11 | |||||||||||
(1) The cash settled awards are classified as liability awards and are measured at fair value at each balance sheet date.
As of December 31, 2025 and 2024, there were $101 million and $112 million of unrecognized stock-based compensation costs related to non-vested awards granted under the plan, respectively, which will be recognized ratably over the awards weighted-average remaining vesting period of 2 years.
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.