Western Midstream Partners, LPWES
Western Midstream Partners, LP Stock Compensation Disclosure
15. EQUITY-BASED COMPENSATION
The general partner has the authority to grant equity compensation awards to its outside directors, executive officers, and employees under the Western Gas Partners, LP 2017 Long-Term Incentive Plan (the “2017 LTIP”) and the Western Midstream Partners, LP 2021 Long-Term Incentive Plan (the “2021 LTIP”). In connection with the Merger Agreement, all authorized but unused shares that were previously approved for issuance pursuant to the Aris Water Solutions, Inc. 2021 Equity Incentive Plan were adjusted using the applicable exchange ratio for the Merger, assumed by the Partnership, and added to the common unit pool available under the 2021 LTIP. These plans are collectively referred to as the “WES LTIPs.” The 2017 LTIP and the 2021 LTIP permit the issuance of up to 3,431,251 and 14,403,998 units, respectively, of which 737,749 and 11,655,238 units, respectively, remained available for future issuance as of December 31, 2025.
Common units withheld from an award or surrendered by a participant to satisfy tax withholding obligations or to satisfy the payment of any exercise price with respect to an award will not be considered to be common units delivered under the 2021 LTIP for purposes of the 2021 LTIP Limit. If any award is forfeited, canceled, exercised, settled in cash, or otherwise terminates or expires without the actual delivery of common units, the common units subject to such award will again be available for awards under the 2021 LTIP. The 2021 LTIP provides for the grant of unit options, unit appreciation rights, restricted units, phantom units, other unit-based awards, cash awards, and a unit award or a substitute award to employees and directors of the Partnership and its general partner.
The Board awards phantom units (the “Awards”) to certain members of the leadership team of the Partnership under the WES LTIPs. The Awards include (i) an award of time-vested phantom units that vest ratably over a period of three years (“Time-Based Awards”), (ii) a market-based award that vests after a performance period of three years based on the Partnership’s relative total unitholder return as compared to a group of peer companies (“TUR Awards”), and (iii) a performance award that vests based on the Partnership’s average return on assets over a performance period of three years (“ROA Awards”). At vesting, the number of vested units for the TUR Awards and the ROA Awards will be determined in accordance with the terms of the respective award agreements that provide for payout percentages ranging from 0% to 200% based on results achieved over the applicable performance period. At vesting, the Awards generally will be settled in Partnership common units. Prior to vesting, the Awards granted in 2020 paid in-kind distributions in the form of Partnership common units. During the year ended December 31, 2023, the Partnership issued 3,253 common units as in-kind distributions under such Awards. Prior to vesting, the Time-Based Awards granted after 2020 pay distribution equivalents in cash ratably. The TUR and ROA Awards granted after 2020 pay cash distributions at vesting based on actual performance.
In addition, time-vested phantom units may be awarded under the WES LTIPs to non-executive employees and outside directors of the Partnership, which vest ratably over a period of three years and one year from the grant date, respectively. Prior to vesting, the awards to non-executive employees and outside directors pay distribution equivalents in cash.
The equity-based compensation expense attributable to these awards is amortized over the vesting periods applicable to the awards using the straight-line method. Expense is recognized based on the grant-date fair value and recorded, net of actual forfeitures, as General and administrative expense in the consolidated statements of operations. The fair value of the Time-Based Awards and non-executive awards is based on the observable market price of the Partnership’s units on the grant date of the award. The fair value of the TUR Awards is determined using a Monte Carlo simulation at the grant date of the award. The fair value of the ROA Awards is based on the observable market price of the Partnership’s units on the grant date of the award and compensation expense is adjusted quarterly based on the estimated performance rating at vesting. The total fair value of phantom units vested was $54.7 million, $38.2 million, and $23.4 million for the years ended December 31, 2025, 2024, and 2023, respectively, based on the market price at the vesting date. Compensation expense for the WES LTIPs was $50.8 million for the year ended December 31, 2025, of which $7.3 million was related to the Merger Agreement. For the years ended December 31, 2024 and 2023, compensation expense for the WES LTIPs was $38.0 million and $32.0 million, respectively. As of December 31, 2025, the Partnership had $59.0 million of estimated unrecognized compensation expense attributable to the WES LTIPs that will be recognized over a weighted-average period of 0.9 years.
15. EQUITY-BASED COMPENSATION
The following table summarizes time-vested award activity under the WES LTIPs:
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| Weighted-Average Grant-Date Fair Value | Units | Weighted-Average Grant-Date Fair Value | Units | Weighted-Average Grant-Date Fair Value | Units | |||||||||||||||||||||||||||||||||
| Non-vested units at beginning of year | $ | 28.96 | 1,813,764 | $ | 26.24 | 1,736,702 | $ | 21.33 | 1,689,030 | |||||||||||||||||||||||||||||
Granted (1) | 39.52 | 1,379,023 | 29.39 | 1,393,972 | 28.19 | 1,140,789 | ||||||||||||||||||||||||||||||||
| Vested | 30.44 | (1,096,367) | 25.25 | (1,018,247) | 19.66 | (910,062) | ||||||||||||||||||||||||||||||||
| Forfeited | 31.24 | (204,518) | 27.87 | (298,663) | 25.73 | (183,055) | ||||||||||||||||||||||||||||||||
| Non-vested units at end of year | 35.54 | 1,891,902 | 28.96 | 1,813,764 | 26.24 | 1,736,702 | ||||||||||||||||||||||||||||||||
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(1)For the year ended December 31, 2025, includes 513,590 units issued in exchange for Aris equity-based awards.
The following table summarizes TUR Awards activity under the WES LTIPs:
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| Weighted-Average Grant-Date Fair Value | Units | Weighted-Average Grant-Date Fair Value | Units | Weighted-Average Grant-Date Fair Value | Units | |||||||||||||||||||||||||||||||||
| Non-vested units at beginning of year | $ | 38.01 | 422,888 | $ | 32.22 | 463,529 | $ | 24.62 | 388,817 | |||||||||||||||||||||||||||||
| Granted | 53.15 | 181,389 | 36.15 | 360,497 | 40.44 | 231,395 | ||||||||||||||||||||||||||||||||
| Vested | 37.73 | (123,673) | 22.77 | (304,445) | 17.79 | (155,052) | ||||||||||||||||||||||||||||||||
| Forfeited | 37.47 | (22,816) | 37.28 | (96,693) | 40.22 | (1,631) | ||||||||||||||||||||||||||||||||
| Non-vested units at end of year | 42.72 | 457,788 | 38.01 | 422,888 | 32.22 | 463,529 | ||||||||||||||||||||||||||||||||
The following table summarizes ROA Awards activity under the WES LTIPs:
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| Weighted-Average Grant-Date Fair Value | Units | Weighted-Average Grant-Date Fair Value | Units | Weighted-Average Grant-Date Fair Value | Units | |||||||||||||||||||||||||||||||||
| Non-vested units at beginning of year | $ | 27.78 | 422,887 | $ | 22.51 | 463,529 | $ | 18.12 | 388,817 | |||||||||||||||||||||||||||||
| Granted | 41.53 | 211,648 | 27.98 | 407,789 | 28.48 | 245,143 | ||||||||||||||||||||||||||||||||
| Vested | 25.95 | (153,931) | 15.88 | (351,737) | 16.27 | (168,800) | ||||||||||||||||||||||||||||||||
| Forfeited | 28.32 | (22,816) | 28.04 | (96,694) | 28.38 | (1,631) | ||||||||||||||||||||||||||||||||
| Non-vested units at end of year | 32.29 | 457,788 | 27.78 | 422,887 | 22.51 | 463,529 | ||||||||||||||||||||||||||||||||
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.