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Note 17 - Share Plans

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Share-Based Payment Arrangement [Text Block]

17.

Share Plans

The Company adopted an equity incentive plan (the 2010 Plan) on February 10, 2010 in connection with its initial public offering. The 2010 Plan, as amended, allowed for granting of up to 9.1 million share-based awards to executives, directors and employees. Awards available for grant under the 2010 Plan included stock options, stock appreciation rights, restricted stock, other share-based awards and performance-based compensation awards. New grants under the 2010 Plan ceased in June 2019. Total share-based compensation expense related to the 2010 Plan, net of estimated forfeitures, was $309, $2,379, and $6,249 for the years ended December 31, 2023, 2022 and 2021, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.

On June 13, 2019, the stockholders of Generac Holdings Inc. approved the Company’s 2019 Equity Incentive Plan (the 2019 Plan). The 2019 Plan allows for granting of up to 2.7 million share-based awards to executives, directors and employees. Awards available for grant under the 2019 Plan include stock options, stock appreciation rights, restricted stock, other share-based awards and performance-based compensation awards. Total share-based compensation expense related to the 2019 Plan, net of estimated forfeitures, was $35,183, $27,102, and $17,705 for the years ended December 31, 2023, 2022 and 2021, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.

Stock Options - Stock options granted in 2023 have an exercise price between $110.86 per share and $119.57 per share; stock options granted in 2022 have an exercise price between $103.50 per share and $315.88 per share; and stock options granted in 2021 have an exercise price between $323.66 per share and $438.83 per share. Stock options vest in equal installments over four years, subject to the grantee’s continued employment or service and expire ten years after the date of grant.

Stock option exercises can be net-share settled such that the Company withholds shares with value equivalent to the exercise price of the stock option awards plus the employees’ minimum statutory obligation for the applicable income and other employment taxes. Total shares withheld were 31,030, 17,376, and 8,608 for the years ended December 31, 2023, 2022 and 2021, respectively, and were based on the value of the stock on the exercise dates. The net-share settlement has the effect of share repurchases by the Company as they reduce the number of shares that would have otherwise been issued.

Employees can also utilize a cashless for cash exercise of stock options, such that all exercised shares will be sold in the market immediately. Cash equivalent to the exercise price of the awards plus the employees’ minimum statutory tax obligations is remitted to the Company, with the remaining cash being transferred to the employee. Total net proceeds to the Company from the cashless for cash exercise of stock options were $7,815, $13,786, and $38,787 for the years ended December 31, 2023, 2022 and 2021, respectively, and are reflected as a financing activity in the consolidated statements of cash flows.

Total payments made by the Company to the taxing authorities for the employees’ tax obligations related to stock option exercises were $4,895, $14,089, and $31,680 for the years ended December 31, 2023, 2022 and 2021, respectively, and are reflected as a financing activity in the consolidated statements of cash flows.

The grant-date fair value of each option grant is estimated using the Black-Scholes-Merton option pricing model. The fair value is then amortized on a straight-line basis over the requisite service period of the awards, which is generally the vesting period. Use of a valuation model requires management to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on an analysis of historic volatility of the Company’s stock price. The average expected life is based on the contractual term of the option using the simplified method. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of grant. The compensation expense recognized is net of estimated forfeitures. Forfeitures are estimated based on actual share option forfeiture history and are trued up upon vesting based on actual forfeiture activity.

The weighted-average assumptions used in the Black-Scholes-Merton option pricing model for 2023, 2022 and 2021 are as follows:

		Year Ended December 31,
		2023				2022				2021
Weighted average grant date fair value per share		$	57.73			$	129.38			$	129.47

Assumptions:
Expected stock price volatility			45	%			38	%			37	%
Risk free interest rate			3.64	%			1.54	%			0.45	%
Expected annual dividend per share		$	-			$	-			$	-
Expected life of options (years)			6.25				6.25				6.25

A summary of the Company’s stock option activity and related information for the years ended December 31, 2023, 2022 and 2021 is as follows:

		*Number of Options*				*Weighted-Average Exercise Price*				*Weighted-Average Remaining Contractual Term (in years)*				*Aggregate Intrinsic Value ($ in thousands)*
Outstanding as of December 31, 2020			1,528,690				49.08				6.3			$	272,553
Granted			70,392				335.70
Exercised			(229,921	)			45.95
Forfeited			(27,030	)			63.27
Outstanding as of December 31, 2021			1,342,131				64.29				5.5			$	386,069

Granted			109,266				282.20
Exercised			(137,305	)			36.91
Forfeited			(45,688	)			194.05
Outstanding as of December 31, 2022			1,268,404				81.35				4.9			$	47,764

Granted			208,392				119.31
Exercised			(159,316	)			42.46
Forfeited			(33,144	)			185.81
Outstanding as of December 31, 2023			1,284,336				89.64				5.0			$	75,587

Exercisable as of December 31, 2023			961,340				63.08				3.8			$	72,609

As of December 31, 2023, there was $18,109 of total unrecognized compensation cost, net of expected forfeitures, related to unvested options. The cost is expected to be recognized over the remaining service period, having a weighted-average period of 2.6 years. Total share-based compensation cost related to stock options for the years ended December 31, 2023, 2022 and 2021 was $8,229, $6,911, and $6,462, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.

Restricted Stock – Restricted stock awards vest in equal installments over three years, subject to the grantee’s continued employment or service. Certain restricted stock awards also include performance shares, whereby the number of performance shares that can be earned are contingent upon Company performance measures over a three-year period. Performance measures are based on a weighting of a number of financial metrics, from which grantees may earn from 0% to 200% of their target performance share award. The performance period for the 2021 awards covers the years 2021 through 2023. The performance period for the 2022 awards covers the years 2022 through 2024. The performance period for the 2023 awards covers the years 2023 through 2025. The Company estimates the number of performance shares that will vest based on projected financial performance. The fair value of restricted awards is determined based on the market value of the Company's stock on the grant date. The fair market value of the restricted awards at the time of the grant is amortized to expense over the period of vesting. The compensation expense recognized for restricted share awards is net of estimated forfeitures and is trued up upon vesting based on actual forfeiture activity.

Restricted stock vesting is net-share settled such that, upon vesting, the Company withholds shares with value equivalent to the employees’ minimum statutory tax obligation, and then pays the cash to the taxing authorities on behalf of the employees. In effect, the Company repurchases these shares and classifies them as treasury stock. Total shares withheld were 50,577, 92,008, and 80,583 for the years ended December 31, 2023, 2022 and 2021, respectively, and were based on the value of the stock on the vesting dates. Total payments made by the Company to the taxing authorities for the employees’ tax obligations related to restricted stock vesting were $6,002, $26,834, and $27,223 for the years ended December 31, 2023, 2022 and 2021, respectively, and are reflected as a financing activity within the consolidated statements of cash flows.

A summary of the Company's restricted stock activity for the years ended December 31, 2023, 2022 and 2021 is as follows:

		*Shares*				*Weighted-Average Grant-Date Fair Value*
Non-vested as of December 31, 2020			456,194			$	68.42
Granted			126,339				223.09
Vested			(202,327	)			58.99
Forfeited			(14,241	)			138.64
Non-vested as of December 31, 2021			365,965				124.25

Granted			287,821			$	214.58
Vested			(234,284	)			83.52
Forfeited			(41,204	)			263.47
Non-vested as of December 31, 2022			378,298				203.04

Granted			425,099			$	117.62
Vested			(133,222	)			175.94
Forfeited			(44,789	)			213.80
Non-vested as of December 31, 2023			625,386				153.01

As of December 31, 2023, there was $53,392 of unrecognized compensation cost, net of expected forfeitures, related to non-vested restricted stock awards. That cost is expected to be recognized over the remaining service period, having a weighted-average period of 2.0 years. Total share-based compensation cost related to the restricted stock for the years ended December 31, 2023, 2022 and 2021, inclusive of performance shares, was $27,263, $22,570, and $17,492, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.

During 2023, 2022 and 2021, 16,174, 8,572, and 4,677 shares of stock, respectively, were granted to certain members of the Company’s Board of Directors as a component of their compensation for their service on the Board, all of which were fully vested at time of grant. A non-employee director can elect to receive his or her director fees in the form of deferred stock units, which voluntarily defers the issuance of the related shares granted until the director separates from the Company, or a triggering event occurs. 8,832, 5,008, and 3,160 of deferred stock units are included in the shares of stock granted to certain members of the Company’s Board of Directors for the years 2023, 2022, and 2021, respectively. Total share-based compensation cost for these share grants in 2023, 2022 and 2021 was $1,846, $1,886, and $1,579, respectively, which is recorded in operating expenses in the consolidated statements of comprehensive income.