Rackspace Technology, Inc.RXT
Rackspace Technology, Inc. Stock Compensation Disclosure
Share-Based Compensation and Employee Benefit Plans
Incentive Plans
In April 2017, the Executive Committee of the Board authorized the company to adopt the 2017 Incentive Plan. On July 24, 2020, the Board approved, effective on August 7, 2020, the 2020 Incentive Plan and amendments to the 2017 Incentive Plan which, among other things, resulted in the termination of the 2017 Incentive Plan, except as it relates to outstanding awards, and any remaining shares reserved for future grants under the 2017 Incentive Plan were released.
The 2020 Incentive Plan provides for the grant of stock options, including incentive stock options, and nonqualified stock options, stock appreciation rights, restricted stock, RSUs, other stock-based incentive awards, dividend equivalents and cash-based awards (collectively, "awards"). Incentive stock options may be granted only to our employees or an employee of a parent or subsidiary. All other awards may be granted to employees and consultants of the company and its parents and subsidiaries, as well as all non-employee members of our Board.
For the years ended December 31, 2023, 2024 and 2025, the company granted RSU's (including performance-based RSUs) and restricted stock (collectively "restricted stock") under the Incentive Plans. The company issues new shares of its common stock to satisfy vesting of restricted stock and exercise of stock options under the Incentive Plans. All awards deduct one share from the Incentive Plans shares available for issuance for each share granted. The 2017 Incentive Plan began with 12.2 million shares authorized for grant and contained an evergreen feature whereby shares available increased each grant date based on the quantity of certain types of awards granted. Upon the approval of the 2020 Incentive Plan, the 2017 Incentive Plan was terminated, except as it relates to outstanding awards.
The maximum number of shares of our common stock available for issuance under the 2020 Incentive Plan was originally 25.0 million shares. This amount was subsequently increased to 50.0 million shares in 2022, 57.9 million shares in 2023 and 87.9 million shares in 2024. To the extent awards granted under the 2020 Incentive Plan terminate, expire or lapse, shares subject to such awards generally will again be available for future grant.
As of December 31, 2025, the total number of shares outstanding and the total number of shares available for future grants under the Incentive Plans was 15.7 million and 38.5 million, respectively.
The composition of the equity awards outstanding as of December 31, 2024 and 2025 was as follows:
| December 31, 2024 | December 31, 2025 | ||||||||||
| (In millions) | |||||||||||
| Restricted stock | 25.3 | 13.2 | |||||||||
| Stock options | 3.3 | 2.5 | |||||||||
| Total outstanding awards | 28.6 | 15.7 | |||||||||
Stock Options
Stock options have been granted for a term of 10 years and generally vest ratably over a three-year period, subject to continued service.
In 2021, we shifted away from granting stock options as we had in previous years, to granting restricted stock. As such, there were no stock options granted during the years ended December 31, 2023, 2024 or 2025 under the 2020 Incentive Plan. See “Employment Inducement Awards” discussion below for stock options granted outside of the 2020 Incentive Plan.
The following table summarizes the stock option activity for the year ended December 31, 2025:
| Number of Shares (in millions) | Weighted Average Exercise Price | Weighted Average-Remaining Contractual Life | Aggregate Intrinsic Value (in millions) | ||||||||||||||||||||
Outstanding at December 31, 2024 | 3.3 | $ | 13.05 | 4.08 | $ | — | |||||||||||||||||
| Granted | — | $ | — | ||||||||||||||||||||
| Exercised | — | $ | — | ||||||||||||||||||||
| Forfeited | (0.1) | $ | 12.46 | ||||||||||||||||||||
| Expired | (0.7) | $ | 13.34 | ||||||||||||||||||||
Outstanding at December 31, 2025 | 2.5 | $ | 12.99 | 2.85 | $ | — | |||||||||||||||||
Vested and exercisable at December 31, 2025 | 2.5 | $ | 12.99 | 2.85 | $ | — | |||||||||||||||||
Vested and exercisable at December 31, 2025 and expected to vest thereafter (1) | 2.5 | $ | 12.99 | 2.85 | $ | — | |||||||||||||||||
(1) Forfeitures are recognized as they occur, rather than estimated.
The total pre-tax intrinsic value of the stock options exercised during the years ended December 31, 2023 and 2024 was not material.
Share-based compensation expense is recognized over the awards requisite service period or over our best estimate of the period over which the performance condition will be met, as applicable. As of December 31, 2025 compensation cost related to stock options has been fully recognized.
Restricted Stock
In 2021, we shifted away from granting stock options as we had in previous years, to granting restricted stock. The majority of our restricted stock grants were made as part of our annual compensation award process and vest ratably over a three-year period, subject to continued service. Restricted stock has also been granted to certain executives that vest in part subject to continued service ratably over a or five-year period and in part based upon the attainment of performance and market conditions. The fair value of the service-vesting awards is measured based on the fair value of the underlying common stock on the date of the grant. The fair value of restricted stock with vesting conditions dependent upon market performance is determined using a Monte Carlo simulation. Share-based compensation expense is recognized on a straight-line basis over the service period or over our best estimate of the period over which the performance condition will be met, as applicable.
Certain non-executive board members elected to receive a portion of their annual compensation in the form of restricted stock. The fair value of these service-vesting awards is measured based on the fair value of the underlying common stock on the date of grant, and share-based compensation expense is recognized on a straight-line basis over the one-year service period.
During 2023, 2024 and 2025, we granted 28.5 million, 10.1 million and 11.0 million RSUs, respectively, under the 2020 Incentive Plan with a weighted average grant date fair value of $2.17, $1.89 and $1.43, respectively. The majority of the RSUs were granted as part of our annual compensation award process and vest ratable over a three-year period, subject to continued service. See “Employment Inducement Awards” discussion below for RSUs granted outside of the 2020 Incentive Plan.
In addition, during 2023 and 2024, 2.8 million and 0.6 million PSUs, respectively, were granted under the 2020 Incentive Plan. No PSUs were granted in 2025. The PSUs represent the target amount of grants, and the actual number of shares awarded upon vesting may vary depending upon the achievement of the relevant market condition which is based on Rackspace’s Total Shareholder Return (“TSR”) relative to the TSR of a comparator group of IT and Cloud Services Companies. The awards are eligible to vest in equal annual installments over three years based on the attainment of the market condition and the employee’s continued service through the end of the applicable measurement period and were valued using a Monte Carlo simulation.
Lastly, during 2023, 2024 and 2025, 5.5 million, 32.1 million and 30.2 million long-term incentive cash units (“LTIC units”) were granted under the 2020 Incentive Plan. The LTIC units represent the target amount of grants, and the actual number of units awarded upon vesting may vary depending upon the achievement of the relevant market condition which is based on Rackspace’s TSR relative to the TSR of a comparator group of IT and Cloud Services Companies for LTIC units granted in 2023 and on the performance of our common stock for LTIC units granted in 2024 and 2025.
The awards are eligible to vest in equal annual installments over three years based on the attainment of the market condition and the employee’s continued service through the end of the applicable measurement period and were valued using a Monte Carlo simulation. As of December 31, 2025, the remaining outstanding LTIC units granted in 2023, 2024, and 2025 had a weighted average fair value of $0.00, $0.71 and $0.68, respectively. As the company intends to settle the LTIC units in cash, they are classified as a liability within "Other current liabilities" and "Other non-current liabilities" in the Consolidated Balance Sheets. In 2025 we paid $13.0 million to settle LTIC units granted under the 2020 Incentive Plan.
The following table presents the assumptions used to estimate the fair values of the PSUs granted in the periods presented:
| Year Ended December 31, | |||||||||||
| 2023 | 2024 | ||||||||||
Expected stock volatility (1) | 69% - 72% | 87% | |||||||||
Expected dividend yield (2) | — | % | — | % | |||||||
Risk-free interest rate (3) | 3.76% - 3.78% | 4.35% | |||||||||
(1) Management estimates volatility based on the historical trading volatility of a public company peer group and the implied volatility of our assets and current leverage.
(2) We have not issued dividends to date and do not anticipate issuing dividends.
(3) Based on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.
The following table summarizes our restricted stock activity for the year ended December 31, 2025:
| Number of Units or Shares (in millions) | Weighted Average Grant-Date Fair Value | ||||||||||
Outstanding at December 31, 2024 | 25.3 | $ | 2.77 | ||||||||
| Granted | 11.0 | $ | 1.43 | ||||||||
| Released | (17.2) | $ | 2.86 | ||||||||
| Cancelled | (5.9) | $ | 2.52 | ||||||||
Outstanding at December 31, 2025 | 13.2 | $ | 1.65 | ||||||||
Expected to vest at December 31, 2025 (1) | 13.2 | $ | 1.65 | ||||||||
(1) Forfeitures are recognized as they occur, rather than estimated.
The weighted-average grant-date fair value of restricted stock granted during the years ended December 31, 2023 and 2024 was $2.15 and $1.93, respectively.
The total pre-tax intrinsic value of the restricted stock released during the years ended December 31, 2023, 2024 and 2025 was $9.5 million, $26.9 million and $30.6 million, respectively.
Share-based compensation expense is recognized over the awards requisite service period or over our best estimate of the period over which the performance condition will be met, as applicable. As of December 31, 2025, there was $13.9 million of total unrecognized compensation cost related to restricted stock, which will be recognized over a weighted average period of 1.4 years.
Additionally, as of December 31, 2025 there was $10.3 million of total unrecognized expense related to the LTIC awards, which will be recognized over a weighted average period of 1.5 years. The expense ultimately recognized is dependent on the fair value of the award as of the end of the performance periods.
Employment Inducement Awards
On September 4, 2025, Rackspace registered 10.0 million shares of its common stock for 4.0 million and 6.0 million RSUs and stock options, respectively, granted to our new chief executive officer (collectively, the “Employment Inducement Awards”). The Employment Inducement Awards were granted pursuant to RSU and non-qualified stock option inducement award agreements, outside of the 2020 Incentive Plan. The grant date fair value was $1.30 and $0.93 for RSUs and stock options, respectively, and the Employment Inducement Awards vest ratably over a four-year period, subject to continued service. The fair value of stock options was determined using the Black-Scholes valuation model. The following table presents the assumptions used to estimate the fair value of the stock options granted:
Assumption | Amount | |||||||
Expected stock volatility (1) | 80 | % | ||||||
Expected dividend yield (2) | — | % | ||||||
Risk-free interest rate (3) | 3.73 | % | ||||||
Expected life (4) | 6.25 years | |||||||
(1) Management estimates volatility based on the historical trading volatility of a public company peer group and the implied volatility of our assets and current leverage.
(2) We have not issued dividends to date and do not anticipate issuing dividends.
(3) Based on the implied yield currently available on U.S. Treasury zero-coupon issues with an equivalent expected term.
(4) Represents the period that our share-based awards are expected to be outstanding. Management uses the simplified method for our estimation of the expected life as we do not have adequate historical data.
As of December 31, 2025, there was $9.9 million of total unrecognized compensation cost related to the Employment Inducement Awards, which will recognized over a period of 3.7 years.
Employee Stock Purchase Plan
The ESPP was approved by the Board on July 24, 2020 and became effective on August 7, 2020. Under the ESPP, eligible employees may purchase a limited number of shares of our common stock at the lesser of 85% of the market value on the enrollment date or 85% of the market value on the purchase date. The fair value on each enrollment date is determined using the Black-Scholes option-pricing model. Share-based compensation expense is recognized on a straight-line basis over the offering period. We issued 0.7 million, 0.6 million and 0.5 million shares through the ESPP during the years ended December 31, 2023, 2024 and 2025, respectively. The share-based compensation expense recognized for the ESPP was $0.9 million, $0.8 million and $0.2 million for the years ended December 31, 2023, 2024 and 2025, respectively. As of December 31, 2025, there was no unrecognized compensation cost related to the ESPP. The shares available for issuance under the ESPP is 7.8 million shares as of December 31, 2025.
Share-Based Compensation Expense
In connection with the departure of certain executives during the year ended December 31, 2023, we accelerated vesting of options and restricted stock for awards with service-only vesting conditions and extended the post termination option exercise period. This modification resulted in a reduction in expense of $0.6 million during the year ended December 31, 2023. There were no modifications during the years ended December 31, 2024.
In connection with the departure of our former chief executive officer, we accelerated vesting of all his unvested RSUs and PSUs as outlined in the original employment agreement. In addition, all his unvested LTIC units vested and will be settled in cash per the separation agreement. This accelerated vesting of awards resulted in an increase in expense of $9.6 million during the year ended December 31, 2025.
In connection with the departure of certain other executives during the year ended December 31, 2025, we accelerated vesting of restricted stock for awards with service-only vesting conditions. This modification resulted in a reduction in expense of $0.1 million during the year ended December 31, 2025.
Total share-based compensation expense is comprised of the following equity and liability classified award amounts:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2023 | 2024 | 2025 | ||||||||||||||
Equity classified awards | $ | 64.6 | $ | 48.1 | $ | 28.6 | |||||||||||
Liability classified awards | 0.8 | 15.3 | 16.5 | ||||||||||||||
Total share-based compensation expense | $ | 65.4 | $ | 63.4 | $ | 45.1 | |||||||||||
Share-based compensation expense recognized was as follows:
| Year Ended December 31, | |||||||||||||||||
| (In millions) | 2023 | 2024 | 2025 | ||||||||||||||
| Cost of revenue | $ | 9.1 | $ | 7.6 | $ | 5.1 | |||||||||||
| Selling, general and administrative expenses | 56.3 | 55.8 | 40.0 | ||||||||||||||
| Pre-tax share-based compensation expense | 65.4 | 63.4 | 45.1 | ||||||||||||||
| Less: Income tax benefit | (13.7) | (13.3) | (9.5) | ||||||||||||||
| Total share-based compensation expense, net of tax | $ | 51.7 | $ | 50.1 | $ | 35.6 | |||||||||||
Employee Benefit Plans
We sponsor defined contribution plans whereby employees may elect to contribute a portion of their annual compensation to the plans, after complying with certain limitations. The plans also include a discretionary employer contribution. Contribution expense recognized for these plans was $16.3 million, $14.2 million and $14.2 million for the years ended December 31, 2023, 2024 and 2025, respectively.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 6, 2026 | Showing above |
| 2024 | Mar 21, 2025 | |
| 2023 | Mar 15, 2024 | |
| 2022 | Mar 16, 2023 | |
| 2021 | Mar 1, 2022 | |
| 2020 | Feb 26, 2021 | |
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.