ESS Tech, Inc.GWH
ESS Tech, Inc. Stock Compensation Disclosure
STOCK-BASED COMPENSATION
Stock-based compensation expense is allocated on a departmental basis based on the classification of the award holder. The following table presents the amount of stock-based compensation related to stock-based awards issued to
employees on the Company’s statements of operations and comprehensive loss during the years ended December 31, 2024 and 2023 (in thousands):
| 2024 | 2023 | ||||||||||
| Cost of revenue | $ | 2,473 | $ | 1,753 | |||||||
| Research and development | 2,457 | 2,696 | |||||||||
| Sales and marketing | 675 | 816 | |||||||||
| General and administrative | 5,970 | 5,370 | |||||||||
| Total stock-based compensation | $ | 11,575 | $ | 10,635 | |||||||
2021 Equity Incentive Plan
In October 2021, the Board of Directors of the Company adopted the ESS Tech, Inc. 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan became effective upon consummation of the Business Combination. Stock awards under the plan may be issued as Incentive Stock Options (“ISO”), Non-statutory Stock Options (“NSO”), Stock Appreciation Rights, and RSUs. Only employees are eligible to receive ISO awards. Employees, directors, and consultants who provide continuous service to the Company are eligible to receive stock awards other than ISOs. The number of shares available for issuance under the 2021 Plan will be increased on the first day of each fiscal year beginning with the 2022 fiscal year and ending with the 2031 fiscal year, in an amount equal to the lesser of (i) 1,017,333 shares, (ii) five percent (5%) of the outstanding shares on the last day of the immediately preceding fiscal year, or (iii) such number of shares determined by the Company no later than the last day of the immediately preceding fiscal year. As of January 1, 2025, the number of shares available for issuance under the 2021 Plan was increased by 599,325 shares in accordance with the plan and as approved by the Board. Under the 2021 Plan, the Company has been authorized to issue 2,353,325 shares in total of common stock as of December 31, 2024.
Option prices for incentive stock options are set at the fair market value of the Company’s common stock at the date of grant. The fair market value of RSUs is set at the closing sales price of the Company’s common stock at the date of grant. Employee new hire grants generally cliff vest 1/4th at the end of the first year and then vest 1/16th each quarter over the remaining three years. Grants expire 10 years from the date of grant. All other grants vest quarterly over four years.
As of December 31, 2024, there were 326,794 shares available for future grant under the 2021 Plan.
Stock Options and Restricted Stock Units
Stock option and RSU activity, prices, and values during the years ended December 31, 2024 and 2023 are as follows (in thousands, except for share, per share, and contractual term data):
| Options Outstanding | RSUs | ||||||||||||||||||||||||||||||||||
| Number of shares | Weighted average exercise price | Weighted average remaining contractual term (years) | Aggregate intrinsic values ($’000s) | Number of plan shares outstanding | Weighted average grant date fair value per Share | ||||||||||||||||||||||||||||||
Balances as of December 31, 2023 | 173,226 | $ | 19.90 | 6.25 | $ | 1,422 | 877,365 | $ | 41.81 | ||||||||||||||||||||||||||
| Options and RSUs granted | — | — | 850,700 | 13.62 | |||||||||||||||||||||||||||||||
| Options exercised and RSUs released | (17,063) | 5.05 | (330,796) | 30.97 | |||||||||||||||||||||||||||||||
| Options and RSUs forfeited | (4,875) | 6.64 | (273,379) | 25.14 | |||||||||||||||||||||||||||||||
Balances as of December 31, 2024 | 151,288 | $ | 22.00 | 5.09 | $ | 84 | 1,123,890 | $ | 27.72 | ||||||||||||||||||||||||||
Options vested and exercisable - December 31, 2023 | 118,347 | $ | 16.53 | 5.62 | $ | 1,198 | |||||||||||||||||||||||||||||
Options vested and exercisable - December 31, 2024 | 130,876 | $ | 20.64 | 4.59 | $ | 84 | |||||||||||||||||||||||||||||
The aggregate intrinsic value is the fair market value on the reporting date less the exercise price for each option. The aggregate intrinsic value of the options exercised was $45 thousand and $0.9 million during the years ended December 31, 2024 and 2023, respectively.
The fair value of each stock option award is estimated on the date of the grant using the Black-Scholes Merton option-pricing model. No options were granted during the year ended December 31, 2024. For options granted during the year ended December 31, 2023 the weighted average estimated fair value using the Black-Scholes Merton option pricing model was $1.13 per option.
In accordance with ASC 718, the fair value of each option grant has been estimated as of the date of grant using the following weighted average assumptions:
| 2023 | |||||
| Risk-free rate | 4.38 | % | |||
| Expected volatility | 87.08 | % | |||
| Expected term | 6 years | ||||
| Expected dividends | — | ||||
As of December 31, 2024, there was approximately $18.9 million of unamortized stock-based compensation expense related to unvested stock options and RSUs, which is expected to be recognized over a weighted average period of 2.45 years.
Employee Stock Purchase Plan
In May 2022, the Company commenced its first offering period under the ESS Tech, Inc. Employee Stock Purchase Plan (“ESPP”), which assists employees in acquiring a stock ownership interest in the Company. The ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during specified offering periods. No employee may purchase more than $25,000 worth of stock in any calendar year. The price of shares purchased under the ESPP is equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. Total ESPP expense for the years ended December 31, 2024 and 2023 was $0.2 million and $0.3 million, 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.