TELEPHONE & DATA SYSTEMS INC /DE/TDS
TELEPHONE & DATA SYSTEMS INC /DE/ Stock Compensation Disclosure
Note 19 Stock-Based Compensation
TDS Consolidated
The following table summarizes stock-based compensation expense for continuing operations recognized during 2025, 2024 and 2023:
| Year Ended December 31, | 2025 | 2024 | 2023 | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Stock option awards | $ | — | $ | 64 | $ | 360 | |||||||||||
| Restricted stock unit awards | 10,883 | 12,917 | 12,898 | ||||||||||||||
| Performance share unit awards | 15,158 | 4,402 | 5,398 | ||||||||||||||
| Deferred compensation bonus and matching stock unit awards | 61 | 64 | 34 | ||||||||||||||
| Awards under Non-Employee Director compensation plan | 1,072 | 888 | 894 | ||||||||||||||
| Total stock-based compensation, before income taxes | 27,174 | 18,335 | 19,584 | ||||||||||||||
| Income tax benefit | (6,703) | (4,523) | (4,851) | ||||||||||||||
| Total stock-based compensation expense, net of income taxes | $ | 20,471 | $ | 13,812 | $ | 14,733 | |||||||||||
At December 31, 2025, unrecognized compensation cost for all stock‑based compensation awards was $22.4 million and is expected to be recognized over a weighted average period of 2.0 years.
The following table provides a summary of the classification of stock-based compensation expense for continuing operations included in the Consolidated Statement of Operations for the years ended:
| December 31, | 2025 | 2024 | 2023 | ||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Selling, general and administrative expense | $ | 27,120 | $ | 18,197 | $ | 19,504 | |||||||||||
| Cost of operations expense | 54 | 138 | 80 | ||||||||||||||
| Total stock-based compensation expense | $ | 27,174 | $ | 18,335 | $ | 19,584 | |||||||||||
TDS’ tax benefits realized from the vesting of awards totaled $21.6 million in 2025.
TDS (Excluding Array)
The information in this section relates to stock‑based compensation plans using the equity instruments of TDS. Participants in these plans are employees of TDS Corporate and TDS Telecom and Non-employee Directors of TDS. Information related to plans using the equity instruments of Array are shown in the Array section following the TDS section.
Under the TDS Long-Term Incentive Plans, TDS may grant fixed and performance-based incentive and non-qualified stock options, restricted stock, restricted stock units, and deferred compensation stock unit awards to key employees.
TDS had reserved 21,501,000 Common Shares at December 31, 2025, for equity awards granted and to be granted under the TDS Long-Term Incentive Plans in effect. At December 31, 2025, the only types of awards outstanding are fixed non-qualified stock option awards, restricted stock unit awards, performance share awards and deferred compensation stock unit awards.
TDS has also established a Non-Employee Directors’ compensation plan under which it has reserved 423,000 TDS Common Shares at December 31, 2025, for issuance as compensation to members of the Board of Directors who are not employees of TDS.
TDS uses treasury stock to satisfy requirements for shares issued pursuant to its various stock-based compensation plans.
Long-Term Incentive Plans – Restricted Stock Units
TDS grants restricted stock unit awards to key employees that vest one-third graded vesting each year. Each outstanding restricted stock unit is convertible into one Common Share Award. The restricted stock unit awards currently outstanding were granted in 2023, 2024 and 2025 and vest in 2026, 2027 and 2028.
TDS estimates the fair value of restricted stock units by reducing the grant-date price of TDS’ shares by the present value of the dividends expected to be paid on the underlying shares during the requisite service period, discounted at the appropriate risk-free interest rate, since employees are not entitled to dividends declared on the underlying shares while the restricted stock is unvested. The fair value is then recognized as compensation cost on a straight-line basis over the requisite service periods of the awards, which is generally the vesting period.
A summary of TDS nonvested restricted stock units and changes during 2025 is presented in the table below:
| Common Restricted Stock Units | Number | Weighted Average Grant Date Fair Value | |||||||||
| Nonvested at December 31, 2024 | 2,676,000 | $ | 11.75 | ||||||||
| Granted | 421,000 | $ | 33.84 | ||||||||
| Vested | (1,513,000) | $ | 11.76 | ||||||||
| Forfeited | (133,000) | $ | 18.80 | ||||||||
| Nonvested at December 31, 2025 | 1,451,000 | $ | 17.50 | ||||||||
The total fair values as of the respective vesting dates of restricted stock units vested during 2025, 2024 and 2023 were $52.8 million, $28.4 million and $3.7 million, respectively. The weighted average grant date fair value per share of the restricted stock units granted in 2025, 2024 and 2023 was $33.84, $20.12 and $5.23, respectively.
Long-Term Incentive Plans – Performance Share Units
TDS grants performance share units to certain TDS employees that generally vest after three years. For the 2023 grants, each recipient may be entitled to shares of TDS common stock equal to 0% to 160% or 0% to 150% of a communicated target award depending on the achievement of predetermined performance-based operating targets over the performance period, which is a one-year period from January 1, 2023 to December 31, 2023, and, for certain grants, a market-based operating target over the performance period, which is a three-year period from January 1, 2023 to December 31, 2025. The performance-based operating targets for the 2023 TDS grants vary by business unit and may include Array's 2023 Performance Award Payout Percentage, TDS Telecom’s 2023 Performance Award Payout Percentage, Total Revenue, Return on Capital and Adjusted EBITDA. The market-based operating target is measured against TDS’ total shareholder return relative to a defined peer group.
For the 2024 TDS grants, each recipient may be entitled to shares of TDS common stock equal to 0% to 192% or 0% to 200% of a communicated target award depending on the achievement of predetermined performance-based operating targets of a communicated target award depending on the achievement of predetermined performance-based operating targets over the performance period, which is a or two-year period from January 1, 2024 to December 31, 2024 or 2025, and, for certain grants, a market-based operating target over the performance period, which is a -year period from January 1, 2024 to December 31, 2026. The performance-based operating targets for the 2024 TDS grants vary by business unit and may include Array’s 2024 Performance Award Payout Percentage, TDS Telecom’s 2024 Performance Award Payout Percentage, Total Revenue, Broadband Net Additions and Adjusted EBITDA. The market-based operating target is measured against TDS’ total shareholder return relative to a defined peer group.
For the 2025 TDS grants, each recipient may be entitled to shares of TDS common stock equal to 24% to 168% or 0% to 150% of a communicated target award depending on the achievement of predetermined performance-based operating targets over the performance period, which is a -year period from January 1, 2025 to December 31, 2025 and, for certain grants, a market-based operating target over the performance period, which is a -year period from January 1, 2025 to December 31, 2027. The performance-based operating targets for the 2025 TDS grants vary by business unit and may include Array’s 2025 Performance Award Payout Percentage, TDS Telecom’s 2025 Performance Award Payout Percentage, Total Revenue, Broadband Net Additions and Adjusted EBITDA. The market-based operating target is measured against TDS’ total shareholder return relative to a defined peer group.
Performance shares accumulate dividend equivalents, which are forfeitable if the performance metrics are not achieved. If the predetermined performance-based and market-based operating targets are met, the units granted in 2023, 2024 and 2025 will vest in 2026, 2027 and 2028, respectively.
TDS estimates fair value of performance-based operating targets using TDS’ closing stock price on the date of grant. An estimate of the number of performance units expected to vest based upon achieving the performance-based operating targets is made and the fair value is expensed on a straight-line basis over the requisite service period. Each reporting period during the performance period these estimates are reviewed and stock compensation expense is adjusted accordingly to reflect the new estimates of total units expected to vest. If any part of the performance share units do not vest as a result of the established performance-based operating targets not being achieved, the related stock compensation expense is reversed.
TDS estimates the market-based operating target’s fair value using an internally developed valuation model. This estimated fair value approximated TDS’ closing stock price at the date of grant for market-based share units granted in 2025, 2024 and 2023. This market-based operating target value determined at the date of grant is expensed on a straight-line basis over the requisite service period and the stock compensation expense is not adjusted during the performance period for the subsequent changes in the value of the market-based unit awards and will not be reversed even if the market-based operating target is not achieved
TDS modified certain performance share unit awards in 2025, which resulted in the recognition of $8.2 million of incremental expense in 2025.
A summary of TDS nonvested performance share units and changes during 2025 is presented in the table below:
| Common Performance Share Units | Number | Weighted Average Grant Date Fair Value | |||||||||
| Nonvested at December 31, 2024 | 2,077,000 | $ | 12.48 | ||||||||
| Granted | 437,000 | $ | 35.97 | ||||||||
| Vested | (439,000) | $ | 27.52 | ||||||||
| Change in units based on approved performance factors | (281,000) | $ | 17.44 | ||||||||
| Forfeited | (193,000) | $ | 16.34 | ||||||||
| Accumulated dividend equivalents | 7,000 | $ | 12.49 | ||||||||
| Nonvested at December 31, 2025 | 1,608,000 | $ | 13.42 | ||||||||
The total fair value of performance share units that vested during 2025, 2024 and 2023 was $16.7 million, $2.9 million and $5.4 million, respectively. The weighted average grant date fair value per share of the performance share units granted in 2025, 2024 and 2023 was $35.97, $20.26 and $7.14, respectively.
Long-Term Incentive Plan – Stock Options
TDS' last stock option grant occurred in 2021. Stock options outstanding at December 31, 2025, expire between 2026 and 2031.
A summary of TDS stock options and changes during 2025 is presented in the tables and narrative below.
Common Share Options | Number of Options | Weighted Average Exercise Prices | Aggregate Intrinsic Value (in thousands) | Weighted Average Remaining Contractual Life (in years) | |||||||||||||||||||
| Outstanding at December 31, 2024 | 1,613,000 | $ | 26.90 | ||||||||||||||||||||
| Exercised | (1,331,000) | $ | 27.50 | ||||||||||||||||||||
| Outstanding at December 31, 2025 | 282,000 | $ | 24.07 | $ | 4,779 | 4.5 | |||||||||||||||||
| (282,000 exercisable) | $ | 24.07 | $ | 4,779 | 4.5 | ||||||||||||||||||
The aggregate intrinsic value at December 31, 2025, presented in the table above represents the total pre-tax intrinsic value (the difference between TDS’ closing stock prices and the exercise price, multiplied by the number of in-the-money options) that would have been received by option holders had all options been exercised on December 31, 2025.
Long-Term Incentive Plans – Deferred Compensation Stock Units
Certain TDS employees may elect to defer receipt of all or a portion of their annual bonuses and to receive a company matching contribution on the amount deferred. All bonus compensation that is deferred by employees electing to participate is immediately vested and is deemed to be invested in TDS Common Share units. Participants receive a 25% stock unit match for amounts deferred up to 50% of their total annual bonus and a 33% match for amounts that exceed 50% of their total annual bonus; such matching contributions also are deemed to be invested in TDS Common Share units and vest over three years.
Compensation of Non-Employee Directors
TDS issued 28,000, 49,000 and 81,000 Common Shares under its Non-Employee Director plan in 2025, 2024 and 2023, respectively.
Dividend Reinvestment Plans
TDS had reserved 2,065,000 Common Shares at December 31, 2025, for issuance under Automatic Dividend Reinvestment and Stock Purchase Plans and 554,000 Series A Common Shares for issuance under the Series A Common Share Automatic Dividend Reinvestment Plan. These plans enable holders of TDS’ Common Shares to reinvest cash dividends in Common Shares and holders of Series A Common Shares to reinvest cash dividends in Series A Common Shares. The purchase price of the shares is 95% of the market value, based on the average of the daily high and low sales prices for TDS’ Common Shares on the New York Stock Exchange for the ten trading days preceding the date on which the purchase is made. These plans are considered non-compensatory plans; therefore, no compensation expense is recognized for stock issued under these plans.
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.