POWER SOLUTIONS INTERNATIONAL, INC.PSIX
POWER SOLUTIONS INTERNATIONAL, INC. Stock Compensation Disclosure
Stock-Based Compensation
The Company has an incentive compensation plan (the “2012 Plan”), which authorizes the granting of a variety of different types of awards including, but not limited to, non-qualified stock options, incentive stock options, Stock Appreciation Rights
(“SARs”), Restricted Stock Awards (“RSAs”), deferred stock and performance units to its executive officers, employees, consultants and Directors. The 2012 Plan is administered by the Compensation Committee of the Board.
Under the 2012 Plan, 830,925 shares were initially made available for awards, with 700,000 additional shares added to the 2012 Plan in 2013. Shares that were not delivered pursuant to forfeited awards are added back to the pool of shares available for future awards.
As of December 31, 2024, the Company had 379,516 shares available for issuance of future awards. To date, the Company’s granted awards have generally been either RSAs or SARs.
SAR awards are typically share settled except for certain executives which are settled in cash. Share settlement entitles the recipients to receive, upon exercise, a number of shares of Common Stock equal to (i) the number of shares for which the SAR is being exercised multiplied by the value of one share of Common Stock on the date of exercise (determined as provided in the SAR award agreement), less (ii) the number of shares for which the SAR is being exercised multiplied by the applicable exercise price, divided by (iii) the value of one share of Common Stock on the date of exercise (determined as provided in the SAR award agreement). The exercised SAR is to be settled only in whole shares of Common Stock, and the value of any fractional share of Common Stock is forfeited. Cash settled awards are recognized in the Consolidated Balance Sheets as a liability and adjusted each reporting period for changes in share value until the settlement of the award.
RSA grants represent Common Stock issued subject to forfeiture or other restrictions that will lapse upon satisfaction of specified conditions.
Both SAR awards and RSA grants are time-based awards that generally vest over a 2 to 3-year vesting schedule (except grants to members of the Board which have a 1-year vesting schedule). SAR awards generally have a term of 10 years. Compensation expense for recipients of these time-based awards is recognized on a straight-line basis over the vesting period from the date of grant. The Company accounts for forfeitures as they occur rather than apply an estimated forfeiture rate. Stock-based compensation expense is primarily recorded in Selling, general and administrative expenses in the Consolidated Statements of Income.
RSAs are valued based on the fair value of the common stock at grant date.
For all SAR award assumptions, the Company used rates on the grant date of zero-coupon government bonds with maturities over periods covering the term of the awards. The Company considered the historical volatility of its stock price over a term similar to the expected life of the awards in determining expected volatility. The expected term is the period that the awards granted are expected to remain outstanding. The Company has never declared or paid a cash dividend on its Common Stock.
The following table represents stock-based compensation expense and the related income tax benefits:
| (in thousands) | For the Year Ended December 31, | |||||||||||||
| 2024 | 2023 | |||||||||||||
| Stock-based compensation expense | $ | 89 | $ | 151 | ||||||||||
| Income tax benefit | $ | — | $ | — | ||||||||||
SAR Awards
The Company did not grant any SAR awards in 2024, and granted 101,663 SAR awards in 2023. The SAR awards granted for the year ended December 31, 2023 were all liability classified awards and remained outstanding. As of December 31, 2024, the weighted-average remaining contractual term for the awards granted in 2023 was 8.32 years, the aggregate intrinsic value was zero and the unrecognized compensation expense was $1.0 million. The assumptions used for determining the fair value of the SARs included the following:
| For the Year Ended December 31, | ||||||||||||||
| 2024 | 2023 | |||||||||||||
| Market closing price of the Common Stock | $ | 29.75 | $ | 2.05 | ||||||||||
| Exercise price | $ | 2.99 | $ | 2.99 | ||||||||||
| Range of risk-free interest rates | 4.4 | % | 3.8 | % | ||||||||||
| Weighted-average volatility | 91.7 | % | 88.5 | % | ||||||||||
| Range of volatilities | 88.8% - 91.7% | 88.5% - 89.4% | ||||||||||||
| Expected term | 5.00 years | 5.00 years | ||||||||||||
| Dividend yield | — | % | — | % | ||||||||||
| Weighted-average grant date fair value | $ | 28.00 | $ | 1.33 | ||||||||||
SAR activity for awards classified in equity consisted of the following:
| Number of Shares under SARs | Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (years) | Aggregate Intrinsic Value (in thousands) | ||||||||||||||||||||||
| Outstanding at December 31, 2022 | 128,112 | $ | 9.78 | 4.49 | $ | — | ||||||||||||||||||||
| Granted | — | — | — | |||||||||||||||||||||||
| Exercised | — | — | — | |||||||||||||||||||||||
| Forfeited | — | — | — | |||||||||||||||||||||||
| Expired | (2,250) | 11.25 | — | |||||||||||||||||||||||
| Outstanding at December 31, 2023 | 125,862 | 6.13 | 6.14 | 3 | ||||||||||||||||||||||
| Granted | — | — | — | |||||||||||||||||||||||
| Exercised | (50,567) | 5.00 | — | |||||||||||||||||||||||
| Forfeited | — | — | — | |||||||||||||||||||||||
| Expired | — | — | — | |||||||||||||||||||||||
| Outstanding at December 31, 2024 | 75,295 | 6.88 | 4.24 | $ | 2 | |||||||||||||||||||||
| Exercisable at December 31, 2023 | 94,914 | $ | 7.04 | 5.45 | 1 | |||||||||||||||||||||
| Exercisable at December 31, 2024 | 60,295 | $ | 8.10 | 3.38 | 1 | |||||||||||||||||||||
The total fair value of SARs that vested during 2024 and 2023 was less than $0.1 million and $0.1 million, respectively. The total aggregate intrinsic value of SARs that vested during both 2024 and 2023 was $0.1 million. Unrecognized compensation expense related to SARs as of both December 31, 2024 and 2023 was $0.1 million. As of December 31, 2024, the weighted-average period over which the unrecognized compensation cost is expected to be recognized was approximately 1.67 years.
Restricted Stock Awards
Restricted stock activity consisted of the following:
| Shares | Weighted-Average Grant Date Fair Value | |||||||||||||
| Balance as of December 31, 2022 | 26,623 | $ | 8.70 | |||||||||||
Granted | 15,000 | 2.27 | ||||||||||||
Forfeited | (7,834) | 3.63 | ||||||||||||
Vested | (18,389) | 9.63 | ||||||||||||
| Balance as of December 31, 2023 | 15,400 | $ | 3.91 | |||||||||||
Granted | 15,000 | 23.44 | ||||||||||||
Forfeited | — | — | ||||||||||||
Vested | (15,400) | 3.91 | ||||||||||||
| Balance as of December 31, 2024 | 15,000 | $ | 23.44 | |||||||||||
The total grant date fair value of restricted stock that vested during both 2024 and 2023 was $0.1 million. The total aggregate fair value of restricted stock that vested during 2024 and 2023 was $0.2 million and less than $0.1 million, respectively. Unrecognized compensation expense related to RSAs as of December 31, 2024 and 2023 was $0.3 million and less than $0.1 million, respectively. As of December 31, 2024, the weighted-average period over which the unrecognized compensation cost is expected to be recognized was approximately 0.52 years.
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.