MDU RESOURCES GROUP INCMDU
MDU RESOURCES GROUP INC Stock Compensation Disclosure
Stock-Based Compensation
The Company has stock-based compensation plans under which it is currently authorized to grant RSUs and other stock awards. As of December 31, 2025, there were 1.7 million remaining shares available to grant under these plans. The Company either purchases shares on the open market or issues new shares of common stock to satisfy the vesting of stock-based awards.
Separations of Knife River and Everus
In connection with the completed separations of Knife River and Everus through spinoffs, the provisions of the existing compensation plans required adjustments to the number and terms of outstanding employee time-vested RSUs and PSAs to preserve the intrinsic value of the awards immediately prior to each separation. The outstanding awards will continue to vest over the original vesting period, which is generally three years from the grant date. The outstanding PSAs in place at the time of the Knife River spinoff were modified to no longer be subject to performance-based vesting conditions. The number of PSAs were first adjusted for performance. The combined performance factors were determined based on the performance of the Company as of December 31, 2022. Outstanding awards at the time of the spinoffs were converted into awards of the holder’s employer following each separation. The Company incurred $1.7 million of incremental compensation expense related to the conversion of the RSUs associated with the Everus spinoff, of which $536,000 and $854,000 were recognized in 2025 and 2024, respectively, and the remainder will be recognized in expense over the remaining service period of the applicable awards.
Total stock-based compensation expense (after tax) was $5.9 million, $7.1 million and $5.1 million in 2025, 2024 and 2023, respectively. The Company uses the straight-line amortization method to recognize compensation expense related to RSUs, which only has a service condition. The Company recognizes compensation expense related to PSAs with market-based and performance metrics on a straight-line basis over the requisite service period. As of December 31, 2025, total remaining unrecognized compensation expense related to stock-based compensation was approximately $8.7 million (before income taxes) which will be amortized over a weighted average period of 1.3 years.
Stock awards
Non-employee directors receive shares of common stock in addition to and in lieu of cash payment for directors' fees. There were 51,651 shares with a fair value of $1.1 million, 46,341 shares with a fair value of $850,000 and 50,717 shares with a fair value of $950,000 issued to non-employee directors during the years ended December 31, 2025, 2024 and 2023, respectively.
Restricted stock units
In February 2025, 2024 and 2023, key employees were granted RSUs under the long-term performance-based incentive plan authorized by the Company's compensation committee. The compensation committee has the authority to select the recipients of awards, determine the type and size of awards, and establish certain terms and conditions of unit award grants. The shares vest over three years, contingent on continued employment. Compensation expense is recognized over the vesting period. Upon vesting, participants receive dividends that accumulate during the vesting period. As previously discussed, adjustments were made to the number of RSUs to preserve the intrinsic value of the awards in connection with the spinoffs of Knife River and Everus and outstanding PSAs in place at the time of the Knife River spinoff were converted to RSUs.
Target grants of RSUs outstanding at December 31, 2025, were as follows:
| Grant Date | Performance Period | Target Grant of Shares | ||||||
| February 2024/ June 2024 | 2024-2026 | 648,885 | ||||||
| February 2025 | 2025-2027 | 126,910 | ||||||
A summary of the status of the RSUs for the year ended December 31, 2025, was as follows:
| RSUs | |||||||||||
Number of Shares | Weighted Average Grant-Date Fair Value | * | |||||||||
| Nonvested at beginning of period | 1,240,517 | $ | 12.56 | ||||||||
Granted | 126,910 | 16.83 | |||||||||
Forfeited | (49,399) | 12.12 | |||||||||
Non-vested | 1,318,028 | ||||||||||
Vested shares | (542,233) | 12.90 | |||||||||
| Nonvested at end of period | 775,795 | $ | 12.89 | ||||||||
* Weighted average grant-date fair values post-separation of Everus reflects incremental fair value related to modifying the awards and the Company's adjusted stock price due to the separation. | |||||||||||
Performance share awards
In February 2025, key employees were granted PSAs under the long-term performance-based incentive plan authorized by the Company's compensation committee. The compensation committee has the authority to select the recipients of awards, determine the type and size of awards, and establish certain terms and conditions of award grants. Upon vesting, participants receive dividends that accumulate during the vesting period. Entitlement to performance shares is established by either the market condition or the performance metrics and service condition relative to the designated awards.
Target grants of PSAs outstanding at December 31, 2025, were as follows:
| Grant Date | Performance Period | Target Grant of Shares | ||||||
| February 2025 | 2025-2027 | 296,128 | ||||||
Under the market condition for these PSAs, participants could earn from zero to 200 percent of the apportioned target grant of shares based on the Company's total stockholder return relative to that of the selected peer group. Compensation expense is based on the grant-date fair value as determined by Monte Carlo simulation. The blended volatility term structure ranges are comprised of 50 percent historical volatility and 50 percent implied volatility. Risk-free interest rates were based on U.S. Treasury security rates in effect as of the grant date. Assumptions used for initial grants applicable to the market condition for certain PSAs issued in 2025 were:
| 2025 | |||||
| Weighted average grant-date fair value | $ | 17.23 | |||
| Blended volatility range | 26.53% - 27.75% | ||||
| Risk-free interest rate range | 4.40% - 4.58% | ||||
| Weighted average discounted dividends per share | $ | 1.30 | |||
Under the performance condition for these PSAs, participants could earn from zero to 200 percent of the apportioned target grant of shares. The performance condition was based on the Company's cumulative earnings per share growth. The weighted average grant-date fair value per share for the PSAs applicable to this performance condition issued in 2025 was $16.83.
A summary of the status of the PSAs for the year ended December 31, 2025, was as follows:
PSAs | ||||||||
Number of Shares | Weighted Average Grant-Date Fair Value | |||||||
| Nonvested at beginning of period | — | $ | — | |||||
Granted | 296,128 | 17.03 | ||||||
Forfeited | — | — | ||||||
Vested shares | — | |||||||
| Nonvested at end of period | 296,128 | $ | 17.03 | |||||
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.