MERCURY GENERAL CORPMCY
MERCURY GENERAL CORP Stock Compensation Disclosure
Share-Based Compensation
The Company recorded share-based compensation expense of approximately $14.6 million and $4.6 million for the years ended December 31, 2025, and 2024, respectively, associated with the performance-based and restricted PSUs, which are mostly included in other operating expenses in its consolidated statements of operations. The Company recorded approximately $18.5 million and $4.6 million of accrued share-based compensation liability associated with the performance-based and restricted PSUs at December 31, 2025 and 2024, respectively, which are included in other liabilities in its consolidated balance sheets.
In February 2015, the Company adopted the 2015 Incentive Award Plan (the "2015 Plan"). A maximum of 4,900,000 shares of common stock were authorized for issuance under the 2015 Plan. No share-based compensation awards have been granted since March 2018 under the 2015 Plan, which expired in January 2025.
In February 2024, the Board adopted the 2024 Long-Term Incentive Plan (the “LTIP”) to provide certain key employees with the right to receive cash awards providing an opportunity to participate in the appreciation of the Company’s value and in order to retain these key employees and reward them for contributing to the success of the Company. Participants in the LTIP
may be granted a number of notional interests, or phantom stock units ("PSUs"). Each PSU represents the right to receive payment of the value of a share of the Company’s common stock upon vesting. PSUs may be granted subject to vesting conditions, which may include service-based and/or performance-based vesting conditions tied to corporate and/or individual achievement objectives. An employee must remain employed through the date of payment of an award to be eligible for any payout under the LTIP. These PSUs are settled in cash upon vesting and accounted for as liability-based awards.
The following table presents a summary of cash received, compensation costs recognized and excess tax benefit, related to the Company's share-based awards:
| Year Ended December 31, | ||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (Amounts in thousands) | ||||||||||||||||||||
| Cash received from stock option exercises | $ | — | $ | 752 | $ | — | ||||||||||||||
| Compensation cost, all share-based awards | 14,633 | 4,648 | — | |||||||||||||||||
| Excess tax benefit, all share-based awards | — | (87) | — | |||||||||||||||||
Stock Option Awards
In February 2018, the Compensation Committee of the Company's Board of Directors awarded a total of 80,000 stock options to four senior executives under the 2015 Plan, which vested over the four-year requisite service period, except for 10,000 of these stock options that were forfeited. The fair values of these stock options were estimated on the date of grant using a closed-form option valuation model (Black-Scholes).
The following table provides the assumptions used in the calculation of grant-date fair values of these stock options based on the Black-Scholes option pricing model:
| Weighted-average grant-date fair value | $ | 8.09 | |||
| Expected volatility | 33.18 | % | |||
| Risk-free interest rate | 2.62 | % | |||
| Expected dividend yield | 5.40 | % | |||
| Expected term in months | 72 | ||||
The aggregate intrinsic value of stock options exercised (the difference between the Company’s closing stock price and the stock option exercise price, multiplied by the number of in-the-money stock options) was $557,910 for 2024. There were no stock options exercised in 2025 and 2023. There were no stock options outstanding at December 31, 2025 and 2024.
Performance-based PSUs
The Company, at its discretion, grants a "target" number of performance-based PSUs to certain executive officers and other key employees of the Company. The payout value of the performance-based PSUs granted under the LTIP will be determined based on the achievement of specific, pre-established corporate performance objectives, and in part on individual performance, during the applicable three-year performance period (the "Performance Cycle"). The maximum payout level for the performance-based PSUs is 150% of the “target” award.
These performance-based PSUs vest at the end of the Performance Cycle beginning with the year of the grant, and then only if, and to the extent that, the Company’s performance during the Performance Cycle achieves the threshold established by the Compensation Committee of the Board. Each annual performance result is determined based on the average of the Company’s annual market share growth and its annual combined ratio. The vested number of performance-based PSUs for each grantee is based on the average of the Company's three annual performance results combined with the individual's performance during the Performance Cycle. The cash payout amount for each unit of the vested performance-based PSUs is equal to the average closing price per share of the Company’s common stock for the five calendar days preceding the determination of the final number of vested PSUs for each grantee at the end of the Performance Cycle for the 2024 grants, and the average closing price per share of the Company’s common stock for the 30 trading days following the Company’s public release of its financial results for the final calendar year in the Performance Cycle for the 2025 grants.
Liabilities for the expected cash payout and associated compensation expenses are recognized based on management’s
best estimate of the number of the performance-based PSUs expected to be vested resulting from the probable outcome of the performance-based vesting conditions, combined with the market price of the Company's common stock at the end of each reporting period. If the performance-based vesting conditions are not expected to be met for the Performance Cycle, no compensation cost will be recognized and any recognized compensation cost will be reversed.
The following table presents the summary of the performance-based PSU grants as of December 31, 2025:
| Grant year | 2025 | 2024 | ||||||
| Three-year performance period ending December 31, | 2027 | 2026 | ||||||
| Vesting shares, target (net of forfeited) | 166,842 | 183,760 | ||||||
| Vesting shares, maximum (net of forfeited) | 250,263 | 275,640 | ||||||
The following table presents a summary of performance-based PSU awards activity, based on target vesting, during the years indicated:
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||
| Shares | Weighted- Average Fair Value per Share | Shares | Weighted- Average Fair Value per Share | |||||||||||||||||||||||
| Outstanding at January 1 | 197,516 | $ | 66.48 | — | $ | — | ||||||||||||||||||||
| Granted | 171,714 | 45.77 | 200,532 | 39.12 | ||||||||||||||||||||||
| Vested | — | — | — | — | ||||||||||||||||||||||
| Forfeited/Canceled | (18,628) | 54.54 | (3,016) | 59.80 | ||||||||||||||||||||||
| Expired | — | — | — | — | ||||||||||||||||||||||
| Outstanding at December 31 | 350,602 | 90.33 | 197,516 | 66.48 | ||||||||||||||||||||||
Restricted PSUs
The Company, from time to time, grants restricted PSUs to certain key employees, typically to retain such key employees. The restricted PSUs vest in three equal annual installments on each of the first three anniversaries of the grant date. The payout value of the restricted PSUs granted under the LTIP will be determined based on the closing price per share of the Company's common stock at each vesting date. The vested amount of the restricted PSUs is paid at the end of each annual vesting period.
The following table presents a summary of restricted PSU awards activity during the years indicated:
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||
| Shares | Weighted- Average Fair Value per Share | Shares | Weighted- Average Fair Value per Share | |||||||||||||||||||||||
| Outstanding at January 1 | 35,589 | $ | 66.48 | — | $ | — | ||||||||||||||||||||
| Granted | 78,909 | 59.61 | 36,315 | 61.67 | ||||||||||||||||||||||
| Vested | (13,084) | 75.96 | — | — | ||||||||||||||||||||||
| Forfeited/Canceled | (6,207) | 77.20 | (726) | 62.98 | ||||||||||||||||||||||
| Expired | — | — | — | — | ||||||||||||||||||||||
| Outstanding at December 31 | 95,207 | 94.06 | 35,589 | 66.48 | ||||||||||||||||||||||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 17, 2026 | Showing above |
| 2024 | Feb 11, 2025 | |
| 2023 | Feb 13, 2024 | |
| 2022 | Feb 14, 2023 | |
| 2021 | Feb 15, 2022 | |
| 2020 | Feb 16, 2021 | |
| 2019 | Feb 12, 2020 | |
| 2018 | Feb 13, 2019 | |
| 2017 | Feb 8, 2018 | |
| 2016 | Feb 9, 2017 | |
| 2015 | Feb 9, 2016 | |
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.