Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

v3.22.4
Stock-Based Compensation
 12 Months Ended
Dec. 31, 2022
Share-Based Payment Arrangement [Abstract]  
Stock-Based Compensation Stock-Based Compensation
 
On June 22, 2010, the Board of Directors approved the 2010 Long-Term Incentive Plan (“2010 Plan”), effective upon the closing of the Company’s initial public offering. The 2010 Plan provides for the grant of options, stock appreciation rights, Full Value Awards (as defined in the 2010 Plan agreement) and cash incentive awards to employees, consultants and non-employee directors to purchase common stock, which vest over time and have a ten-year contractual term. As approved by the Company’s shareholders, the 2010 Plan has since been amended whereby the maximum number of shares of common stock that may be delivered under the 2010 Plan is 12,375,000. Stock options and stock appreciation rights are granted with an exercise price no less than the fair-market-value price of the common stock at the date of the grant. As of December 31, 2022, the maximum number of options and restricted stock available for future issuance under the Company’s plans is 2,579,021.

As a result of the PIEtech acquisition in 2019, the Company adopted the 2019 Equity Plan in order to make inducement grants to certain PIEtech employees who will join Envestnet | MoneyGuide. Envestnet agreed to grant at future dates, not earlier than the sixty day anniversary of the PIEtech Acquisition, up to 301,469 shares of Envestnet common stock in the form of RSUs and PSUs pursuant to the 2019 Equity Plan. The RSUs vest over time and the PSUs vest upon the achievement of meeting certain performance conditions as well as a subsequent service condition. The Company is recognizing the estimated expense on a graded-vesting method over a requisite service period of three to five years, which is the estimated vesting period. The Company estimates the expected vesting amount and recognizes compensation expense only for those awards expected to vest. This estimate is reassessed by management each reporting period and may change based upon new facts and circumstances. Changes in assumptions impact the total amount of expense and are recognized over the vesting period.
Stock-based compensation expense under the Company's plans was as follows:

  Year Ended December 31,
  2022 2021 2020
(in thousands)
Stock-based compensation expense $ 79,581  $ 67,525  $ 56,292 
Tax effect on stock-based compensation expense (20,293) (17,219) (14,354)
Net effect on income $ 59,288  $ 50,306  $ 41,938 

The tax effect on stock-based compensation expense above was calculated using a blended statutory rate of 25.5% for each of the years ended December 31, 2022, 2021 and 2020 respectively.

Stock Options
 
The following weighted average assumptions were used to value options granted during the periods indicated:

  Year Ended December 31,
  2022 2021 2020
Grant date fair value of options $ —  $ 31.23  $ — 
Volatility —  % 42.1  % —  %
Risk-free interest rate —  % 0.4  % —  %
Dividend yield —  % —  % —  %
Expected term (in years) 0.0 6.5 0.0
 
The following table summarizes option activity under the Company’s plans: 

  Options Weighted-Average Exercise Price Weighted-Average Remaining Contractual Life Aggregate Intrinsic Value
(Years) (in thousands)
Outstanding as of December 31, 2019 1,150,586  $ 25.66  3.4 $ 50,590 
Exercised (705,333) 18.83 
Forfeited (7,213) 48.70 
Outstanding as of December 31, 2020 438,040  36.28  4.1 20,156 
Granted 4,781  74.83 
Exercised (76,303) 27.37 
Forfeited (1,277) 49.02 
Outstanding as of December 31, 2021 365,241  38.61  3.3 14,878 
Exercised (82,802) 31.67 
Forfeited (4,904) 72.96 
Outstanding as of December 31, 2022 277,535  40.07  2.2 6,005 
Options exercisable 277,303  39.69  2.2 6,005 
 
The aggregate intrinsic values in the table below represent the total pre-tax intrinsic value (the aggregate difference between the fair value of the Company’s common stock on December 31, 2022, 2021 and 2020 of $61.70, $79.34 and $82.29, respectively, and the exercise price of in-the-money options) that would have been received by the option holders had all option holders exercised their options as of that date.
 
Other information is as follows: 

  Year Ended December 31,
  2022 2021 2020
(in thousands)
Total intrinsic value of options exercised $ 2,650  $ 3,815  $ 35,687 
Cash received from exercises of stock options 2,620  2,090  10,760 
 
Exercise prices of stock options outstanding as of December 31, 2022 range from $15.34 to $74.83. At December 31, 2022, there was an immaterial amount of unrecognized compensation expense related to unvested stock options.
 
Restricted Stock Units and Performance Stock Units

Periodically, the Company grants restricted stock units and performance-based stock units to employees. Restricted stock units vest one-third on the first anniversary of the grant date and quarterly thereafter. Performance-based restricted units vest upon the achievement of certain pre-established business and financial metrics as well as a subsequent service condition. The business and financial metrics governing the vesting of these performance-based restricted stock units provide thresholds that dictate the number of shares to vest upon each evaluation date, which range from 0% to 150% of the original grant number. If these metrics are achieved, as defined in the individual grant terms, these shares would cliff vest three years from the grant date.

The following is a summary of the activity for unvested restricted stock units granted under the Company’s plans:

RSUs PSUs
  Number of Shares Weighted-Average Grant Date Fair Value per Share Number of Shares Weighted-Average Grant Date Fair Value per Share
Outstanding as of December 31, 2019 1,318,870  $ 58.88  254,118  $ 67.96 
Granted 970,390  74.61  81,689  83.47 
Vested (804,982) 57.77  —  — 
Forfeited (138,931) 62.14  (33,010) 64.70 
Outstanding as of December 31, 2020 1,345,347  70.56  302,797  72.50 
Granted 1,195,313  71.03  129,865  70.92 
Vested (828,942) 69.50  (62,524) 61.53 
Forfeited (204,294) 70.71  (10,954) 78.97 
Outstanding as of December 31, 2021 1,507,424  71.50  359,184  73.64 
Granted 1,401,742  73.13  113,269  68.47 
Vested (908,362) 71.22  (155,417) 66.22 
Forfeited (318,828) 73.16  (57,987) 78.17 
Outstanding as of December 31, 2022 1,681,976  72.69  259,049  74.83 
 
At December 31, 2022, there was $88.2 million of unrecognized compensation expense related to unvested restricted stock units, which the Company expects to recognize over a weighted-average period of 1.8 years. At December 31, 2022, there was $4.8 million of unrecognized compensation expense related to unvested performance-based restricted stock units, which the Company expects to recognize over a weighted-average period of 1.5 years.

In connection with the unexpected death of our former CEO in 2019, the Company modified certain of his outstanding equity awards. The modifications included the extension of exercise periods for his outstanding stock options and the immediate vesting of his outstanding RSUs. All unvested PSUs were forfeited. In 2020, the Company recognized a gain of $2.5 million in other income (expense), net as a result of a fair value adjustment upon settlement of the former CEO’s stock options.
In connection with the PIEtech acquisition the Company also granted membership interests in certain of the Company's equity investments to two legacy PIEtech executives with an estimated grant date fair market value of $8.9 million. These membership interests vested on May 1, 2020 and became exercisable on May 1, 2022, with the option to put the membership interests to the Company. For the years ended December 31, 2022, 2021 and 2020 the Company recorded approximately $0.8 million, $0.5 million and $3.3 million, respectively, as a component of compensation and benefits in the consolidated statements of operations. As of December 31, 2021, the corresponding liability was recorded in accrued expenses and other current liabilities. In July 2022, these executives exercised their respective put options and sold these membership interests to the Company for approximately $10 million.