Equifax Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

12 Months Ended

Dec. 31, 2023

Share-Based Payment Arrangement [Abstract]

We have two active share-based award plans, the amended and restated 2008 Omnibus Incentive Plan (the "2008 Plan") and the 2023 Omnibus Incentive Plan (the "2023 Plan" and, together with the 2008 Plan, the "Omnibus Plans"). The 2008 Plan was originally approved by our shareholders in 2008 and was amended and restated with shareholder approval in May 2013 to, among other things, increase the reserve for awards under the 2008 Plan by 11 million shares. The 2023 Plan was approved by our shareholders on May 4, 2023, at which time the 2008 Plan was terminated other than with respect to then-outstanding awards under the 2008 Plan. The Omnibus Plans provide our directors, officers and certain key employees (and, in the case of the 2023 Plan, certain consultants and advisors) with stock options, restricted stock units and performance share awards. The Omnibus Plans are described below. We expect to issue common shares held as either treasury stock or new issue shares upon the exercise of stock options or once shares vest pursuant to restricted stock units or performance share awards. Total stock-based compensation expense in our Consolidated Statements of Income during the twelve months ended December 31, 2023, 2022 and 2021, was as follows:


	Twelve Months Ended December 31,
	2023		2022		2021
	(In millions)
Cost of services	$	14.5	$	12.4	$	12.0
Selling, general and administrative expenses	57.3		50.2		42.9
Stock-based compensation expense, before income taxes	$	71.8	$	62.6	$	54.9

The total income tax benefit recognized for stock-based compensation expense was $17.3 million, $14.8 million and $13.0 million for the twelve months ended December 31, 2023, 2022 and 2021, respectively.

Stock Options. The Omnibus Plans provide that qualified and nonqualified stock options may be granted to officers and other employees. The Omnibus Plans require that stock options be granted at exercise prices not less than market value on the date of grant. Generally, stock options are subject to graded vesting for periods of up to three years based on service, with 33.3% vesting for each year of completed service, and expire ten years from the grant date.

We use the binomial model to calculate the fair value of stock options granted. The binomial model incorporates assumptions regarding anticipated employee exercise behavior, expected stock price volatility, dividend yield and risk-free interest rate. Anticipated employee exercise behavior and expected post-vesting cancellations over the contractual term used in the binomial model were primarily based on historical exercise patterns. These historical exercise patterns indicated there was not significantly different exercise behavior between employee groups. For our expected stock price volatility assumption, we weighted historical volatility and implied volatility. We used daily observations for historical volatility, while our implied volatility assumption was based on actively traded options related to our common stock. The expected term is derived from the binomial model based on assumptions incorporated into the binomial model as described above.

The fair value for stock options granted during the twelve months ended December 31, 2023, 2022 and 2021, was estimated at the date of grant, using the binomial model with the following weighted-average assumptions:


	Twelve Months Ended December 31,
	2023			2022			2021
Dividend yield	0.8		%	0.7		%	1.0		%
Expected volatility	33.1		%	31.5		%	28.5		%
Risk-free interest rate	3.9		%	2.4		%	0.5		%
Expected term (in years)	4.8			5.0			4.8
Weighted-average fair value of stock options granted	$	63.70		$	59.70		$	39.63

The following table summarizes changes in outstanding stock options during the twelve months ended December 31, 2023, as well as stock options that are vested and expected to vest and stock options exercisable at December 31, 2023:


	Shares	Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
	(In thousands)			(In years)	(In millions)
Outstanding at December 31, 2022	1,964	$	164.72
Granted (all at market price)	259	$	210.37
Exercised	(218)	$	143.98
Forfeited and canceled	(44)	$	205.81
Outstanding at December 31, 2023	1,961	$	171.93	4.7	$	148.4
Vested and expected to vest at December 31, 2023	1,945	$	171.55	4.7	$	148.0
Exercisable at December 31, 2023	1,326	$	150.58	3.3	$	128.3

The aggregate intrinsic value amounts in the table above represent the difference between the closing price of Equifax’s common stock on December 31, 2023 and the exercise price, multiplied by the number of in-the-money stock options as of the same date. This represents the value that would have been received by the stock option holders if they had all exercised their stock options on December 31, 2023. In future periods, this amount will change depending on fluctuations in Equifax’s stock price. The total intrinsic value of stock options exercised during the twelve months ended December 31, 2023, 2022 and 2021, was $14.0 million, $5.9 million and $41.9 million, respectively. At December 31, 2023, our total unrecognized compensation cost related to stock options was $8.3 million with a weighted-average recognition period of 1.6 years.

The following table summarizes changes in outstanding options and the related weighted-average exercise price per share for the twelve months ended December 31, 2022 and 2021:


	December 31,
	2022			2021
	Shares	Weighted- Average Exercise Price		Shares	Weighted- Average Exercise Price
	(In thousands)			(In thousands)
Outstanding at the beginning of the year	1,710	$	149.67	1,831	$	137.01
Granted (all at market price)	369	$	232.28	314	$	184.03
Exercised	(76)	$	136.84	(341)	$	114.35
Forfeited and canceled	(39)	$	198.34	(94)	$	145.92
Outstanding at the end of the year	1,964	$	164.72	1,710	$	149.67
Exercisable at end of year	1,268	$	141.40	522	$	129.57

Other Stock Awards. The Omnibus Plans also provide for awards of restricted stock units and performance shares or units that are settled in shares of our common stock. Such stock awards are generally subject to cliff vesting over a period between one to three years based on service and may also have vesting conditions based on meeting specified performance goals.

The fair value of these stock awards is based on the fair market value of our common stock on the date of grant and include the right to dividends or dividend equivalents, which are accrued and payable only if and when the underlying stock vests and is payable.

Pursuant to the Omnibus Plans, certain executives have been granted performance shares pursuant to which the number of shares earned is dependent upon the Company’s three-year total shareholder return relative to the three-year total shareholder return of the companies in the S&P 500 stock index, as comprised on the grant date, subject to adjustment. Beginning in 2022, certain executives have been granted performance shares pursuant to which the number of shares earned is dependent upon the Company's adjusted EBITDA growth over the three-year performance period.

The number of shares which could potentially be issued under these performance share awards ranges from zero to 200% of the target award. The grants outstanding subject to market performance as of December 31, 2023 would result in 332,840 shares outstanding at 100% of target and 665,680 at 200% of target at the end of the vesting period. Compensation expense for shares earned based on the Company’s three-year total shareholder return is recognized on a straight-line basis over the measurement period and is based upon the fair market value of the shares estimated to be earned at the date of grant using a Monte-Carlo simulation. Compensation expense for shares earned based on the Company’s adjusted EBITDA is recognized on a straight-line basis over the measurement period and is based upon the fair market value.

The following table summarizes changes in these other stock awards during the twelve months ended December 31, 2023, 2022 and 2021 and the related weighted-average grant date fair value:


	Shares	Weighted-Average Grant Date Fair Value
	(In thousands)
Nonvested at December 31, 2020	927	$	128.04
Granted	396	$	175.51
Vested	(465)	$	130.96
Forfeited	(79)	$	141.73
Nonvested at December 31, 2021	779	$	159.73
Granted	483	$	196.97
Vested	(406)	$	133.26
Forfeited	(72)	$	202.70
Nonvested at December 31, 2022	784	$	192.47
Granted	373	$	205.98
Vested	(215)	$	172.62
Forfeited	(86)	$	194.11
Nonvested at December 31, 2023	856	$	203.17

The total fair value of stock awards that vested during the twelve months ended December 31, 2023, 2022 and 2021, was $43.7 million, $85.9 million and $106.7 million, respectively, based on the weighted-average fair value on the vesting date, and $37.1 million, $54.2 million and $61.0 million, respectively, based on the weighted-average fair value on the date of grant. At December 31, 2023, our total unrecognized compensation cost related to these nonvested stock awards was $53.0 million with a weighted-average recognition period of 1.8 years.

Employee Stock Purchase Plan. Effective July 1, 2020, the Equifax Board of Directors approved the 2020 Employee Stock Purchase Plan (“ESPP”). Under the ESPP, participating employees have the option to withhold 1% to 10% of their annual salary, up to $25,000 annually, to purchase Equifax stock at a 5% discount based on the closing stock price of the final day of the offering period. The ESPP is noncompensatory in nature and is treated as any other sale of the Company's equity instruments.