ENCORE CAPITAL GROUP INCECPG
ENCORE CAPITAL GROUP INC Stock Compensation Disclosure
Note 10: Stock-Based Compensation
In April 2017, Encore’s Board of Directors (the “Board”) approved the Encore Capital Group, Inc. 2017 Incentive Award Plan (the “2017 Plan”), which was then approved by the Company’s stockholders on June 15, 2017. Board members, employees, and consultants of Encore and its subsidiaries and affiliates are eligible to receive awards under the 2017 Plan. Subject to certain adjustments, the Company may grant awards for an aggregate of 5,713,571 shares of the Company’s common stock under the 2017 Plan. The aggregate number of shares available for issuance under the 2017 Plan is reduced by 2.12 shares for each share delivered in settlement of any full value award and by one share for each share delivered in settlement of any stock option or stock appreciation right. When an award under the 2017 Plan expires, lapses or is terminated, exchanged for cash, surrendered, repurchased, canceled without having been fully exercised or forfeited, the unused shares covered by such award will again become available for award grants under the 2017 Plan. Shares available under the 2017 Plan will be increased by 2.12 shares for each share subject to a full value award and by one share for each share subject to a stock option or a stock appreciation right, in each case, that become or again be available for issuance pursuant to the foregoing share counting provisions. The 2017 Plan provides for the grant of incentive stock options, nonqualified stock options, restricted stock, restricted stock units, dividend equivalent rights, stock appreciation rights, cash awards, performance-based awards and any other types of awards not inconsistent with the 2017 Plan.
Total stock-based compensation expense during the years ended December 31, 2025, 2024, and 2023 was $18.3 million, $14.0 million, and $13.9 million, respectively. The Company recognized tax benefit on total stock-based compensation expense of $2.5 million, $1.9 million, and $1.6 million for the years ended December 31, 2025, 2024, and 2023, respectively. The tax benefit realized related to awards vested was $1.2 million, $1.2 million, and $1.8 million for the years ended December 31, 2025, 2024, and 2023, respectively.
The Company’s current stock-based awards are primarily restricted stock units. The fair value of restricted stock units with a service condition and/or a performance condition that affect vesting is equal to the closing sale price of the Company’s common stock on the grant date. Compensation expense is recognized only for the awards that ultimately vest. The Company
has certain share awards that include market conditions that affect vesting. These shares vest based on the Company’s three-year relative total stockholder return compared to the other companies in the S&P SmallCap 600 Financial Sector Index as of the date of grant. The fair value of these shares is estimated using a lattice model. For the majority of restricted stock units, shares are issued on the vesting dates net of the number of shares needed to satisfy minimal statutory tax withholding requirements. The tax obligations are then paid by the Company on behalf of the employees.
A summary of the Company’s stock award activities as of December 31, 2025, and changes during the year then ended, is presented below:
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Non-Vested Shares (1) | Weighted Average Grant Date Fair Value | ||||||||||
| Non-vested as of December 31, 2024 | 607,459 | $ | 52.84 | ||||||||
| Awarded | 533,685 | $ | 35.46 | ||||||||
| Vested | (221,224) | $ | 51.30 | ||||||||
| Cancelled | (48,780) | $ | 68.63 | ||||||||
| Non-vested as of December 31, 2025 | 871,140 | $ | 41.70 | ||||||||
(1)Certain of the Company’s stock awards have a vesting matrix under which the stock awards can vest at a maximum level that is up to 200% of the shares that would vest for achieving the performance goals at target. The number of shares presented is based on achieving the performance goals at target levels as defined in the stock award agreements. As of December 31, 2025 and 2024, the maximum number of shares that could vest if non-vested performance shares vested at maximum levels was 1,099,291 and 757,061, respectively.
Unrecognized compensation expense related to restricted stock units as of December 31, 2025 was $20.9 million. The weighted-average remaining expense period, based on the unamortized value of these outstanding non-vested shares, was approximately 1.4 years. The fair value of restricted stock units vested for the years ended December 31, 2025, 2024, and 2023 was $8.0 million, $13.8 million, and $15.7 million, respectively. The weighted average grant date fair value for stock awards granted during the years ended December 31, 2025, 2024, and 2023 was $35.46, $49.73, and $49.97, 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.