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Stock-Based Compensation | 12 Months Ended
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Dec. 31, 2023
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | Stock-Based Compensation Equity Plans In May 2013, the Company's stockholders approved the Akamai Technologies, Inc. 2013 Stock Incentive Plan, which was amended with Company shareholder approval in each of 2015, 2017, 2019, 2021, 2022 and 2023 (as amended and restated, the "2013 Plan"). The 2013 Plan replaced the Akamai Technologies, Inc. 2009 Stock Incentive Plan (the "2009 Plan"), which in turn replaced the Akamai Technologies, Inc. 2006 Stock Incentive Plan, the Akamai Technologies, Inc. 2001 Stock Incentive Plan and the Akamai Technologies, Inc. 1998 Stock Incentive Plan (such plans, together with the 2009 Plan, the "Previous Plans"). The Company no longer issues equity awards under the Previous Plans, and there are no outstanding equity awards related to those plans. The 2013 Plan allows for the issuance of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-based awards and cash-based awards for up to 33.8 million shares of common stock, subject to certain adjustments, to employees, officers, directors, consultants and advisers of the Company. There are no shares of common stock that are currently outstanding under the Previous Plans available to grant under the 2013 Plan. As of December 31, 2023, the Company had reserved 7.4 million shares of common stock available for future issuance of equity awards under the 2013 Plan. The Company has assumed certain stock incentive plans and the outstanding stock incentives of companies that it has acquired (“Assumed Plans”). Stock awards outstanding as of the date of acquisition under the Assumed Plans were exchanged for the Company’s stock awards and adjusted to reflect the appropriate conversion ratio as specified by the applicable acquisition agreement, but are otherwise administered in accordance with the terms of the Assumed Plans. Stock awards under the Assumed Plans generally vest over three years to four years, and outstanding stock options under the Assumed Plans expire ten years from the date of grant. Additionally, the Company has the 1999 Employee Stock Purchase Plan ("1999 ESPP") that permits eligible employees to purchase up to 1.5 million shares each June 1 and December 1, provided that the aggregate number of shares issued shall not exceed 20.0 million. The 1999 ESPP allows participants to purchase shares of common stock at a 15% discount from the fair market value of the stock as determined on specific dates at six-month intervals. Stock-Based Compensation Expense Components of total stock-based compensation expense included in the Company’s consolidated statements of income for the years ended December 31, 2023, 2022 and 2021 were as follows (in thousands):
| 2023 |  | 2022 |  | 2021
Cost of revenue | $ | 43,802 |  |  | $ | 28,354 |  |  | $ | 27,143 |
Research and development | 123,896 |  |  | 78,116 |  |  | 65,950 |
Sales and marketing | 66,453 |  |  | 47,789 |  |  | 46,342 |
General and administrative | 94,316 |  |  | 62,926 |  |  | 63,324 |
Total stock-based compensation | 328,467 |  |  | 217,185 |  |  | 202,759 |
Provision for income taxes | (59,359) |  |  | (46,829) |  |  | (56,084) |
Total stock-based compensation, net of taxes | $ | 269,108 |  |  | $ | 170,356 |  |  | $ | 146,675 |
In addition to the amounts of stock-based compensation reported in the table above, the Company’s consolidated statements of income for the years ended December 31, 2023, 2022 and 2021 also include stock-based compensation reflected as a component of amortization primarily consisting of capitalized internal-use software; the additional stock-based compensation was $32.5 million, $31.3 million and $32.4 million, respectively, before taxes. During 2023, the Company redesigned one of its non-executive short-term incentive compensation programs from a cash-based to a stock-based program that vests in one year. The Company also introduced a non-executive incentive program tied to its initiative to migrate certain applications from third-party cloud platforms onto Akamai Connected Cloud that vests over two years. These programs, headcount growth, an increase in equity award sizes to some new hires and existing employees due to market conditions and expected achievement of executive performance-based compensation plans increased stock-based compensation for the year ended December 31, 2023. As of December 31, 2023, total pre-tax unrecognized compensation cost for stock awards was $462.1 million. The expense is expected to be recognized through 2027 over a weighted average period of 1.6 years. Employee Stock Purchase Plan The following summarizes the activity under the 1999 ESPP (in thousands, except per share amounts):
| 2023 |  | 2022 |  | 2021
Shares issued | 797 |  |  | 688 |  |  | 649 |
Weighted average purchase price of shares issued, per share | $ | 78.29 |  |  | $ | 82.83 |  |  | $ | 92.05 |
Issuance of common stock | $ | 62,365 |  |  | $ | 56,570 |  |  | $ | 59,714 |
As of December 31, 2023, $6.3 million had been withheld from employees for future purchases under the 1999 ESPP. The Company uses the Black-Scholes option pricing model to determine the fair value of the stock awards issued under the Company’s 1999 ESPP. This model requires the input of subjective assumptions, including expected stock price volatility and the estimated term of each award. The estimated fair value of the stock awards issued under the Company's 1999 ESPP, less expected forfeitures, is amortized over the stock awards' six-month contribution period on a straight-line basis. Expected volatilities are based on the Company’s historical stock price volatility. The risk-free interest rate for periods commensurate with the expected term of the stock award is based on the U.S. Treasury yield rate in effect at the time of grant. The expected dividend yield is zero, as the Company currently does not pay a dividend and does not anticipate doing so in the future. The grant-date fair values of awards granted under the 1999 ESPP during the years ended December 31, 2023, 2022 and 2021 were estimated using the Black-Scholes option pricing model with the following weighted-average assumptions:
| 2023 |  | 2022 |  | 2021
Expected term (in years) | 0.5 |  | 0.5 |  | 0.5
Risk-free interest rate | 5.2 | % |  | 1.9 | % |  | 0.1 | %
Expected volatility | 29.1 | % |  | 26.0 | % |  | 32.2 | %
Dividend yield | — | % |  | — | % |  | — | %
For the years ended December 31, 2023, 2022 and 2021, the weighted average fair value of awards granted under the 1999 ESPP was $23.12 per share, $33.26 per share and $36.17 per share, respectively. Stock Options As of December 31, 2023 there were no stock options outstanding. The total pre-tax intrinsic value of options exercised during the years ended December 31, 2023 and 2022 was insignificant. The total pre-tax intrinsic value of options exercised during the year ended December 31, 2021 was $0.6 million. No options vested during the years ended December 31, 2023, 2022 and 2021. Restricted Stock Units, Restricted Stock and Deferred Stock Units Restricted stock units ("RSUs") represent the right to receive one share of the Company’s common stock upon vesting, while restricted stock is a grant of one share of the Company's common stock subject to vesting conditions. These awards are granted at the discretion of the board of directors, a committee thereof or, subject to defined limitations, the Chief Executive Officer of the Company, acting as a committee of one director, to whom such authority has been delegated. The Company has issued service-based RSUs and restricted stock that vest based on the passage of time assuming continued service with the Company, market-based RSUs that vest based upon total shareholder return ("TSR") measured against the benchmark TSR of a peer group, and performance-based RSUs that vest only upon the achievement of defined internal performance metrics tied primarily to defined financial metrics. In addition to granting RSUs and restricted stock to its employees, the Company has granted deferred stock units ("DSUs") to non-employee members of its board of directors. These DSUs are granted at the discretion of the board of directors, subject to defined limitations. Each DSU represents the right to receive one share of the Company’s common stock upon vesting. The holder may elect to defer receipt of the vested shares of stock represented by the DSU for a period of at least one year but not more than ten years from the grant date. DSUs vest 100% on the first anniversary of the grant date. If a director has completed one year of service, vesting of 100% of the DSUs held by such director will accelerate at the time of his or her departure from the board. The RSUs, restricted stock and DSUs granted by the Company during the year ended December 31, 2023 were as follows (in thousands):
| December 31, 2023
Service-based (1) | 5,767 |
Market-based | 199 |
Performance-based | 284 |
Total | 6,250 |
(1) Includes DSU grants of 30,953 shares For service-based RSUs, DSUs and restricted stock, the fair value is calculated based upon the Company’s closing stock price on the date of grant, and the stock-based compensation expense is being recognized over the vesting period. The majority of these awards vest over a three- or four-year period following the grant date, with some programs vesting over less time. For market-based RSUs, the Company uses the Monte Carlo simulation model to determine the fair value. This model requires the input of assumptions, including the estimated term of each award, the risk-free interest rate, historical stock price volatility of the Company's shares and historical stock price volatility of peer-company shares. The grant-date fair values of the TSR-based RSUs granted during the years ended December 31, 2023, 2022 and 2021 were estimated using a Monte Carlo simulation model with the following assumptions:
| 2023 |  | 2022 |  | 2021
Expected term (in years) | 3.0 |  | 3.0 |  | 3.0
Risk-free interest rate | 4.5 | % |  | 1.7 | % |  | 0.3 | %
Akamai historical share price volatility | 28.8 | % |  | 30.3 | % |  | 32.7 | %
Average volatility of peer-company share price | 33.6 | % |  | 40.7 | % |  | 39.6 | %
For performance-based RSUs, management measured compensation expense based upon a review of the Company’s expected achievement against specified financial performance targets. Such compensation cost is being recognized using a graded-vesting method for each series of grants of performance-based RSUs, to the extent management has deemed that such awards are probable of vesting based upon the expected achievement against the specified targets. Each reporting period, management reviews the Company’s expected performance and adjusts the compensation cost, if needed, at such time. RSUs, restricted stock and DSUs award activity for the year ended December 31, 2023 was as follows:
| Units (in thousands) |  | Weighted Average Grant Date Fair Value
Outstanding at January 1, 2023 | 5,278 |  |  | $ | 121.92 |
Granted | 6,250 |  |  | 74.89 |
Vested (1) | (2,531) |  |  | 102.70 |
Forfeited | (920) |  |  | 99.07 |
Outstanding at December 31, 2023 | 8,077 |  |  | $ | 83.12 |
(1) Includes DSUs of 24,422 shares which have vested and been distributed. Excludes DSUs which have vested, but have not yet been distributed The pre-tax intrinsic value and fair value of RSUs, restricted stock and DSUs were as follows (in thousands, except per share amounts):
| 2023 |  | 2022 |  | 2021
Pre-tax intrinsic value of awards vested | $ | 254,686 |  |  | $ | 227,143 |  |  | $ | 226,414 |
Fair value of awards vested | $ | 259,919 |  |  | $ | 231,708 |  |  | $ | 233,027 |
Weighted average fair value of awards granted, per share (1) | $ | 74.89 |  |  | $ | 107.17 |  |  | $ | 99.09 |
(1) The grant-date fair value is calculated based upon the Company’s closing stock price on the date of grant. As of December 31, 2023, outstanding and unvested RSUs, restricted stock and DSUs had an aggregate intrinsic valu e of $955.9 million and a weighted average remaining vesting period of approximately 1.6 years. These awards are expected to vest on various dates through 2027. As of December 31, 2023 and 2022, the Company had liability-classified awards outstanding of $16.3 million and $3.0 million, respectively. The liability-classified awards outstanding at December 31, 2023 are expected to vest and be re-classified to equity in less than one year. The liability-classified awards outstanding at December 31, 2022 vested and were re-classified to equity in 2023.

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