Xylem Inc.XYL
Xylem Inc. Stock Compensation Disclosure
Share-Based Compensation Plans
Our share-based compensation program is a broad-based program designed to attract and retain employees while also aligning employees’ interests with the interests of our shareholders. In addition, members of our Board of Directors participate in our share-based compensation program in connection with their service on our board. Share-based awards issued to employees include non-qualified stock options, restricted stock units and performance share units. Under the 2011 Omnibus Incentive Plan, the number of shares initially available for awards was 18 million. On May 24, 2023, there were an additional 2.7 million shares registered for issuance. As of December 31, 2025, there were approximately 4.7 million shares of common stock available for future awards.
Total share-based compensation expense recognized for 2025, 2024 and 2023 was $53 million, $56 million, and $60 million, respectively. The unamortized compensation expense at December 31, 2025 related to our stock options, restricted share units and performance share units was $10 million, $36 million and $20 million, respectively, and is expected to be recognized over a weighted average period of 1.9, 1.7 and 1.8 years, respectively. See Note 5, "Restructuring and Asset Impairment Charges," for discussion of certain restructuring charges related to share-based compensation expense in 2023.
The amount of cash received from the exercise of stock options was $20 million, $67 million and $62 million for 2025, 2024 and 2023 with a tax benefit of $9 million, $19 million and $12 million, respectively, realized associated with stock option exercises and vesting of restricted stock units. We classify as an operating activity the cash flows attributable to excess tax benefits arising from stock option exercises and restricted stock unit vestings.
Stock Option Grants
Options are awarded with a contractual term of 10 years, generally vest over a three-year period and are exercisable within the contractual term, except in certain instances of termination due to death, retirement, disability and other limited circumstances in accordance with the terms of the grant agreements. The exercise price per share is the fair market value of the underlying common stock on the date each option is awarded. At December 31, 2025, there were options to purchase an aggregate of 1.1 million shares of common stock outstanding. The following is a summary of the changes in outstanding stock options for 2025:
Share units (in thousands) | Weighted Average Exercise Price / Share | Weighted Average Remaining Contractual Term (Years) | Aggregate Intrinsic Value (in millions) | ||||||||||||||||||||
| Outstanding at January 1, 2025 | 1,182 | $ | 84.76 | 6.3 | $ | 40 | |||||||||||||||||
| Granted | 255 | 129.75 | |||||||||||||||||||||
| Exercised | (262) | 77.24 | |||||||||||||||||||||
| Forfeited and expired | (33) | 112.25 | |||||||||||||||||||||
| Outstanding at December 31, 2025 | 1,142 | $ | 95.75 | 6.4 | $ | 46 | |||||||||||||||||
| Options exercisable at December 31, 2025 | 730 | $ | 78.33 | 5.0 | $ | 42 | |||||||||||||||||
| Vested and non-vested expected to vest as of December 31, 2025 | 1,103 | $ | 94.56 | 6.2 | $ | 46 | |||||||||||||||||
The amount of non-vested options outstanding was 0.4 million, 0.4 million and 0.6 million at a weighted average grant date share price of $126.56, $111.88 and $88.48 as of December 31, 2025, 2024 and 2023, respectively. The total intrinsic value of options exercised (which is the amount by which the stock price exceeded the exercise price of the options on the date of exercise) during 2025, 2024 and 2023 was $15 million, $74 million and $140 million, respectively.
The fair value of each option grant was estimated on the date of grant using the binomial lattice pricing model which incorporates multiple and variable assumptions over time, including assumptions such as employee exercise patterns, stock price volatility and changes in dividends. The following are weighted-average assumptions used for 2025, 2024, and 2023 (excluding the valuation of options granted in conjunction with the Evoqua acquisition):
| 2025 | 2024 | 2023 | |||||||||||||||
| Dividend yield | 1.23 | % | 1.13 | % | 1.31 | % | |||||||||||
| Volatility | 26.70 | % | 26.70 | % | 27.30 | % | |||||||||||
| Risk-free interest rate | 4.10 | % | 4.18 | % | 4.25 | % | |||||||||||
| Expected term (in years) | 5.5 | 5.7 | 5.4 | ||||||||||||||
| Weighted-average fair value per option | $ | 36.93 | $ | 38.04 | $ | 29.06 | |||||||||||
Expected volatility is calculated based on an analysis of historic volatility measures for Xylem. We use historical data to estimate option exercise and employee termination behavior within the valuation model. The expected term represents an estimate of the period of time options are expected to remain outstanding. The risk-free rate is based on the U.S. Treasury yield curve in effect at the time of option grant.
Restricted Stock Unit Grants
Restricted stock units awarded to employees vest over a three-year period. Prior to the time a restricted stock unit becomes fully vested, the awardees cannot transfer, pledge or encumber such units. Prior to the time a restricted stock unit is fully vested, the awardees do not have certain rights of a stockholder, such as the right to vote and receive dividends; however, dividends accrue during the vesting period and are paid upon vesting. If an employee leaves prior to vesting, whether through resignation or termination for cause, the restricted stock unit and related accrued dividends are forfeited. If an employee retires prior to vesting, a pro-rata portion of the restricted stock unit may vest in accordance with the terms of the applicable grant agreements. Restricted stock units awarded to member of our Board become fully vested upon the day prior to the next annual meeting. The fair value of the restricted stock unit awards is determined using the closing price of our common stock on date of grant.
The following is a summary of the changes in outstanding restricted stock units for 2025:
Share Units (in thousands) | Weighted Average Grant Date Fair Value / Share | ||||||||||
| Outstanding at January 1, 2025 | 632 | $ | 111.33 | ||||||||
| Granted | 252 | 130.14 | |||||||||
| Vested | (332) | 106.03 | |||||||||
| Forfeited | (46) | 120.01 | |||||||||
| Outstanding at December 31, 2025 | 506 | $ | 123.27 | ||||||||
Performance Share Units
Performance share units awarded under the long-term incentive plan vest based upon performance by the Company over a three-year period against targets approved by the Leadership Development & Compensation Committee of the Company's Board of Directors prior to the grant date. The performance share units were each awarded at a target of 100% with actual payout for each type of grant contingent upon the achievement of performance targets as follows:
•ROIC performance share units — a pre-set, three-year adjusted ROIC performance target
•EBITDA performance share units — a third-year adjusted EBITDA performance target
•TSR performance share units — a relative TSR performance target
•Revenue performance share units — a pre-set third year revenue target
•EPS performance share units — a cumulative three-year EPS performance target
The calculated compensation cost for ROIC, EBITDA, Revenue and EPS performance share units is adjusted based on an estimate of awards ultimately expected to vest and our assessment of the probable outcome of the performance condition.
ROIC and Adjusted EBITDA Performance Share Unit Grants
The fair value of the ROIC and adjusted EBITDA performance share unit awards is determined using the closing price of our common stock on date of grant.
The following is a summary of the changes in outstanding ROIC and EBITDA performance share units for 2025:
Share units (in thousands) | Weighted Average Grant Date Fair Value / Share | ||||||||||
| Outstanding at January 1, 2025 | 77 | $ | 105.02 | ||||||||
| Granted | — | — | |||||||||
| Adjustment for Performance Condition Achieved (a) | 19 | 86.77 | |||||||||
| Vested | (44) | 86.77 | |||||||||
| Forfeited | (5) | 113.87 | |||||||||
| Outstanding at December 31, 2025 | 47 | $ | 113.89 | ||||||||
(a)Represents an increase in the number of original ROIC performance share units awarded based on the final performance condition achievement at the end of the performance period of such awards.
Revenue Performance Share Unit Grants
The fair value of the Revenue performance share unit awards is determined using the closing price of our common stock on date of grant.
The following is a summary of our Revenue performance share unit grants for 2025:
Share units (in thousands) | Weighted Average Grant Date Fair Value / Share | ||||||||||
| Outstanding at January 1, 2025 | 77 | $ | 105.06 | ||||||||
| Granted | — | — | |||||||||
| Adjustment for Performance Condition Achieved (a) | 19 | 86.77 | |||||||||
| Vested | (44) | 86.77 | |||||||||
| Forfeited | (5) | 113.87 | |||||||||
| Outstanding at December 31, 2025 | 47 | $ | 113.89 | ||||||||
(a)Represents an increase in the number of original revenue performance share units awarded based on the final market condition achievement at the end of the performance period of such awards.
TSR Performance Share Unit Grants
The following is a summary of the changes in outstanding TSR performance share units for 2025:
Share units (in thousands) | Weighted Average Grant Date Fair Value / Share | ||||||||||
| Outstanding at January 1, 2025 | 155 | $ | 125.42 | ||||||||
| Granted | 54 | 180.70 | |||||||||
| Adjustment for Market Condition Achieved (a) | (14) | 71.19 | |||||||||
| Vested | (37) | 71.19 | |||||||||
| Forfeited | (12) | 150.24 | |||||||||
| Outstanding at December 31, 2025 | 146 | $ | 157.41 | ||||||||
(a)Represents an increase in the number of original TSR performance share units awarded based on the final market condition achievement at the end of the performance period of such awards.
The fair value of TSR performance share units were calculated on the date of grant using a Monte Carlo simulation model utilizing several key assumptions, including expected Company and peer company share price volatility, correlation coefficients between peers, the risk-free rate of return, the expected dividend yield and other award design features. The following are weighted-average key assumptions for 2025 grants.
| 2025 | 2024 | 2023 | |||||||||||||||
| Volatility | 25.8 | % | 27.2 | % | 35.9 | % | |||||||||||
| Risk-free interest rate | 4.01 | % | 4.33 | % | 4.66 | % | |||||||||||
EPS Performance Share Unit Grants
The fair value of the earnings per share ("EPS") performance share unit awards is determined using the closing price of our common stock on date of grant.
The following is a summary of the changes in outstanding EPS performance share units for 2025:
Share units (in thousands) | Weighted Average Grant Date Fair Value / Share | ||||||||||
| Outstanding at January 1, 2025 | — | $ | — | ||||||||
| Granted | 54 | 129.81 | |||||||||
| Vested | — | — | |||||||||
| Forfeited | (2) | 129.67 | |||||||||
| Outstanding at December 31, 2025 | 52 | $ | 129.82 | ||||||||
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 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.