PHINIA INC.PHIN
PHINIA INC. Stock Compensation Disclosure
STOCK-BASED COMPENSATION
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The Company has granted restricted common stock and restricted stock units (collectively, “restricted stock”) and performance stock units as long-term incentive awards to employees and non-employee directors under the PHINIA Inc. 2023 Stock Incentive Plan (2023 Plan). The Company’s Board of Directors adopted the 2023 Plan in July 2023. The 2023 Plan authorizes the issuance of a total of 4.7 million shares. Approximately 3.1 million shares were available for future issuance as of December 31, 2025.
The Former Parent granted restricted stock and performance stock units as long-term incentive awards to employees and non-employee directors under the BorgWarner Inc. 2018 Stock Incentive Plan (2018 Plan). The Former Parent’s Board of Directors adopted the 2018 Plan in February 2018, and the Former Parent stockholders
approved the 2018 Plan at the annual meeting of stockholders on April 25, 2018. As discussed further below, outstanding awards under the 2018 Plan were replaced with PHINIA equity awards.
Stock-based compensation expense within the consolidated financial statements for periods prior to the Spin-Off was allocated to PHINIA based on the awards and terms previously granted to PHINIA employees while part of BorgWarner and includes the cost of PHINIA employees who participated in the 2018 Plan, as well as an allocated portion of the cost of the Former Parent corporate employee awards.
In connection with the Spin-Off, outstanding equity awards to employees under the 2018 Plan were replaced with PHINIA equity awards using a formula designed to maintain the economic value of the awards immediately before and after the Spin-Off. Accordingly, the number of restricted stock underlying each unvested award outstanding as of the date of the Spin-Off was multiplied by a factor of 1.74, which resulted in no increase in the intrinsic value of awards outstanding. The replaced restricted stock awards continue to vest in accordance with their original vesting period. These replacement awards did not result in additional compensation expense to the Company.
Restricted Stock: The value of restricted stock is determined by the market value of the Company’s common stock at the date of grant. In 2025, PHINIA granted restricted stock in the amount of approximately 210 thousand shares and 30 thousand shares to employees and non-employee directors, respectively. The value of the awards is recognized as compensation expense ratably over the restriction periods, generally or three years for employees and one year for non-employee directors. As of December 31, 2025, there was $13 million of unrecognized compensation expense related to restricted stock that will be recognized over a weighted average period of approximately 1.5 years.
Restricted stock compensation expense recorded in the Consolidated Statements of Operations is as follows:
| Year Ended December 31, | |||||||||||||||||
| (in millions, except per share data) | 2025 | 2024 | 2023 | ||||||||||||||
| Restricted stock compensation expense | $ | 12 | $ | 12 | $ | 10 | |||||||||||
| Restricted stock compensation expense, net of tax | $ | 8 | $ | 11 | $ | 8 | |||||||||||
A summary of the status of the Company’s nonvested restricted stock for employees and non-employee directors is as follows:
| Shares subject to restriction (thousands) | Weighted average grant date fair value | ||||||||||
| Nonvested at January 1, 2023 | 330 | $ | 42.91 | ||||||||
| Granted | 505 | $ | 33.99 | ||||||||
| Vested | (222) | $ | 34.03 | ||||||||
| Forfeited | (49) | $ | 45.61 | ||||||||
Converted1 | 513 | $ | — | ||||||||
Nonvested at December 31, 20231 | 1,077 | $ | 20.01 | ||||||||
| Granted | 402 | $ | 33.22 | ||||||||
| Vested | (389) | $ | 41.38 | ||||||||
| Forfeited | (32) | $ | 39.97 | ||||||||
| Nonvested at December 31, 2024 | 1,058 | $ | 16.56 | ||||||||
| Granted | 242 | $ | 49.05 | ||||||||
| Vested | (579) | $ | 27.21 | ||||||||
| Forfeited | (23) | $ | 37.61 | ||||||||
| Nonvested at December 31, 2025 | 698 | $ | 35.38 | ||||||||
1 Reflects the replacement of outstanding equity awards to management under the Former Parent Plan with PHINIA equity awards in conjunction with the Spin-Off. Outstanding equity awards to management were multiplied by the conversion rate of 1.74.
Performance stock units: The Company grants performance stock units to members of senior management that vest at the end of three-year periods based on the following metric:
•Total Stockholder Return: This performance metric is based on the Company’s market performance in terms of total stockholder return relative to a peer group of automotive and industrial companies. Based on the Company’s relative ranking within the performance peer group, it is possible for none of the awards to vest or for a range of up to 200% of the target shares to vest.
The Company recognizes compensation expense relating to these performance stock units ratably over the performance period regardless of whether the market conditions are expected to be achieved. Compensation expense associated with these performance stock units are calculated using a lattice model (Monte Carlo simulation).
As of December 31, 2025, there was $10 million of unrecognized compensation expense related to total stockholder return units that will be recognized over a weighted average period of approximately 1.7 years.
The amounts expensed and common stock issued for performance stock units for the years ended December 31, 2025, 2024 and 2023 were as follows:
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||
| Expense (in millions) | Number of shares issued (in thousands) | Expense (in millions) | Number of shares issued (in thousands) | Expense (in millions) | Number of shares issued (in thousands) | |||||||||||||||||||||
| Total Stockholder Return | $ | 6 | — | $ | 3 | — | $ | — | 8 | |||||||||||||||||
Other performance-based1 | — | — | — | — | 1 | 23 | ||||||||||||||||||||
| Total | $ | 6 | — | $ | 3 | — | $ | 1 | 31 | |||||||||||||||||
1 Other performance-based awards were performance stock units granted by the Former Parent that were scheduled to vest at the end of three-year periods. At Spin-Off, these performance stock units were replaced with PHINIA restricted stock unit awards, based on their target performance, as agreed upon by the BorgWarner Compensation Committee considering performance through the date of the Spin-Off, and then multiplied by the conversion rate of 1.74, as discussed above.
A summary of the status of the Company’s nonvested performance stock units for the years ended December 31, 2025, 2024 and 2023 were as follows:
| Total Stockholder Return | Other Performance-Based | ||||||||||||||||||||||
| Number of shares (in thousands) | Weighted average grant date fair value | Number of shares (in thousands) | Weighted average grant date fair value | ||||||||||||||||||||
| Nonvested at January 1, 2023 | 23 | $ | 54.42 | 68 | $ | 41.53 | |||||||||||||||||
| Granted | 7 | $ | 79.71 | 22 | $ | 48.19 | |||||||||||||||||
| Vested | (10) | $ | 28.55 | (20) | $ | 34.69 | |||||||||||||||||
Converted1 | (20) | $ | — | — | $ | — | |||||||||||||||||
Nonvested at December 31, 20231 | — | $ | — | — | $ | — | |||||||||||||||||
| Granted | 195 | $ | 44.56 | — | $ | — | |||||||||||||||||
| Forfeited | (4) | $ | 44.56 | — | $ | — | |||||||||||||||||
| Nonvested at December 31, 2024 | 191 | $ | 44.56 | — | $ | — | |||||||||||||||||
| Granted | 157 | $ | 66.34 | — | $ | — | |||||||||||||||||
| Nonvested at December 31, 2025 | 348 | $ | 54.40 | — | $ | — | |||||||||||||||||
1 Reflects the conversion of outstanding equity awards to management under the Former Parent Plan into PHINIA equity awards in conjunction with the Spin-Off.
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.