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Share-Based Compensation | 12 Months Ended
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Dec. 31, 2025
Share-Based Payment Arrangement [Abstract] |
Share-Based Compensation | Share-Based Compensation On May 22, 2007, our stockholders adopted a Long-Term Incentive Plan (as amended, “2007 Plan”) which provided an additional 5.0 million shares that could be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance units, and performance awards. Under the 2007 Plan, the exercise price of shares granted may not be less than 100% of the fair market value at the date of the grant. On May 24, 2016, our stockholders adopted the 2016 Long-Term Incentive Plan (“2016 Plan”) which provides for approximately 13.4 million shares, comprised of 5.1 million new shares provided for under the 2016 Plan, approximately 0.6 million shares that were available for issuance under the previous 2007 Plan that are now authorized for issuance under the 2016 Plan, approximately 3.9 million shares that were approved by the stockholders on May 15, 2018, and an additional 3.8 million shares that were approved by the stockholders on May 12, 2020. On May 21, 2024, our stockholders adopted the 2024 Long-Term Incentive Plan (“2024 Plan”) which provides for approximately 2.7 million new shares and approximately 3.7 million shares that were issued and outstanding under the 2016 Plan (as of May 21, 2024) that are now authorized for issuance under the 2024 Plan. The 3.7 million shares issued and outstanding under the 2016 Plan are only eligible for issuance under the 2024 Plan upon forfeiture, expiration, or cancellation. Under the 2024 Plan and previously under the 2016 Plan (collectively, the “LTIP Plans”), shares can be granted in the form of stock options, stock appreciation rights, restricted stock awards, performance awards, dividend equivalent rights, and other awards. Under the LTIP Plans, the exercise price of shares granted may not be less than 100% of the fair market value at the date of the grant. The LTIP Plans are administered by the Compensation Committee of the Board of Directors or such other committee of the Board of Directors as is designated by the Board of Directors (the “Committee”). Membership on the Committee is limited to independent directors. The Committee may delegate certain duties to one or more officers of the Company as provided in the LTIP Plans. The Committee determines the persons to whom awards are to be made, determines the type, size and terms of awards, interprets the LTIP Plans, establishes and revises rules and regulations relating to the LTIP Plans and makes any other determinations that it believes necessary for the administration of the LTIP Plans. Options The following weighted average assumptions were used to determine the fair value of the stock options granted on the original grant date for expense recognition purposes for options granted during the years ended 2025, 2024, 2023 using a Black Scholes-Merton Model:
| 2025 |  | 2024 |  | 2023 |
Senior Leadership 1: |  |  |  |  |  |
Expected (annual) dividend rate | $0.40 |  | $0.32 |  | $0.32 |
Expected volatility | 39.29% |  | 37.89% |  | 37.89% |
Risk-free interest rate | 3.97% |  | 4.14% |  | 4.39% |
Expected life (in years) | 4.0 |  | 4.0 |  | 4.0 |
Employees: |  |  |  |  |  |
Expected (annual) dividend rate | $0.40 |  | $0.32 |  | $0.32 |
Expected volatility | 42.66% |  | 33.59% |  | 38.25% |
Risk-free interest rate | 3.90% |  | 4.27% |  | 4.41% |
Expected life (in years) | 3.0 |  | 3.0 |  | 3.0 |
1 Senior Leadership Team (“SLT”) consists of officers and key members of management. The expected term of the options is based on evaluations of historical and expected future employee exercise behavior. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date. The following is a summary of stock options vested and exercisable as of December 31, 2025:
Range of Exercise Prices |  | Number of Shares |  | Weighted Average Remaining Contractual Life (in years) |  | Weighted Average Exercise Price |  | Intrinsic Value (in thousands)
13.95 | - | 27.58 |  | 979,853 |  |  | 2.69 |  | $ | 26.14 |  |  | $ | 49,099 |
28.28 | - | 37.07 |  | 614,320 |  |  | 4.82 |  | 31.65 |  |  | 27,399 |
37.09 | - | 140.76 |  | 479,173 |  |  | 6.48 |  | 58.20 |  |  | 9,069 |
|  | Total |  | 2,073,346 |  |  | 4.20 |  | $ | 35.18 |  |  | $ | 85,567 |
A summary of option activity under the plans is as follows:
Stock Options | Shares |  | Weighted Average Exercise Price
Outstanding at Outstanding at December 31, 2024 | 2,957,871 |  |  | $ | 39.83 |
Granted | 472,476 |  |  | 83.63 |
Exercised | (509,996) |  |  | 33.61 |
Forfeited or Expired | (83,238) |  |  | 74.77 |
Outstanding at Outstanding at December 31, 2025 | 2,837,113 |  |  | $ | 47.21 |
Exercisable at Exercisable at December 31, 2025 | 2,073,346 |  |  | $ | 35.18 |
The total pre-tax compensation cost related to unvested stock options not yet recognized as of December 31, 2025, is $11.6 million and is expected to be recognized over a weighted average period of 2.0 years. The total intrinsic value of options exercised during the years ended December 31, 2025, 2024, and 2023 was $32.8 million, $65.1 million, and $39.0 million, respectively. The cash received from options exercised during the year ended December 31, 2025, 2024, and 2023 was $17.1 million, $31.9 million, and $33.3 million, respectively. The impact of these cash receipts is included in financing activities in the accompanying consolidated statements of cash flows. Restricted Stock The fair value of restricted stock awards is based on the fair market value of AAON common stock on the respective grant dates, reduced for the present value of dividends. At December 31, 2025, unrecognized compensation cost related to unvested restricted stock awards was approximately $6.2 million which is expected to be recognized over a weighted average period of 1.8 years. A summary of the unvested restricted stock awards is as follows:
| Shares |  | Weighted Average Grant Date Fair Value
Unvested at Unvested at December 31, 2024 | 144,292 |  |  | $ | 61.01 |
Granted | 88,348 |  |  | 85.82 |
Vested | (83,133) |  |  | 53.03 |
Forfeited | (9,799) |  |  | 76.50 |
Unvested at Unvested at December 31, 2025 | 139,708 |  |  | $ | 80.36 |
PSUs We have awarded PSUs to certain officers and employees under our LTIP Plans. Unlike our restricted stock awards, these PSUs are not considered legally outstanding and do not accrue dividends during the vesting period. These PSUs vest based on the level of achievement with respect to the Company's total shareholder return (“TSR”) benchmarked against similar companies included in the capital goods sector of the S&P Smallcap 600 Index. The TSR measurement period is three years. At the end of the measurement period, each award will be converted into AAON common stock at 0% to 200% of the PSUs held, depending on overall TSR as compared to the S&P SmallCap 600 Index benchmark companies. The total pre-tax compensation cost related to unvested PSUs not yet recognized as of December 31, 2025, is $3.5 million and is expected to be recognized over a weighted average period of approximately 1.5 years. The following weighted average assumptions were used to determine the fair value of the PSUs granted on the original grant date for expense recognition purposes for PSUs granted during the years ended 2025, 2024, 2023, using a Monte Carlo Model:
| 2025 |  | 2024 |  | 2023 |
Expected (annual) dividend rate | $0.40 |  | $0.32 |  | $0.32 |
Expected volatility | 41.91% |  | 33.99% |  | 32.71% |
Risk-free interest rate | 3.92% |  | 4.31% |  | 4.66% |
Expected life (in years) | 2.8 |  | 2.8 |  | 2.8 |
The expected term of the PSUs is based on their remaining performance period. The risk-free interest rate is based on the U.S. Treasury rates at the date of grant with maturity dates approximately equal to the expected life at the grant date. Volatility is based on historical volatility of our stock over time periods equal to the expected life at grant date. A summary of the unvested PSUs is as follows:
| Shares |  | Weighted Average Grant Date Fair Value
Unvested at December 31, 2024 | 169,348 |  |  | $ | 68.12 |
Granted | 48,360 |  |  | 75.90 |
Additional target payout 1 | 66,359 |  |  | 29.83 |
Vested | (135,209) |  |  | 29.83 |
Forfeited | (4,098) |  |  | 89.84 |
Unvested at December 31, 2025 2, 3 | 144,760 |  |  | $ | 88.31 |
1 The additional number of PSUs earned based on a 196.4% achievement at December 31, 2024 for awards vesting in 2025. 2 Consists of 53,657 PSUs cliff vesting in 2025, 44,163 PSUs cliff vesting in 2026, and 46,940 PSUs cliff vesting in 2027. 3 The 53,657 PSUs cliff vesting in 2025 were approved by the Compensation Committee and issued to holders in January 2026. Key Employee Awards As part of the December 2021 acquisition of BASX, the Company granted 39,899 Key Employee Awards. Unlike our restricted stock awards under the LTIP Plans, the Key Employee Awards are not considered legally outstanding and do not accrue dividends during the vesting period. The issuance of the Key Employee Awards was contingent upon BASX meeting certain post-closing earn-out milestones during each of the years ending 2021, 2022 and 2023 as defined by the BASX acquisition membership interest purchase agreement (“MIPA Agreement”) and continued employment with the Company. At the end of the earn-out period, ending December 31, 2023, each eligible Key Employee Award vested and was converted into common stock. The fair value of Key Employee Awards is based on the fair market value of AAON common stock on the grant date. The weighted average grant date fair value of the key awards was $53.45. All pre-tax compensation cost has been recognized as of December 31, 2023. Summary of Share-based Compensation A summary of share-based compensation is as follows:
|  |  |  |  | Years Ended December 31, |
|  |  |  |  | 2025 |  | 2024 |  | 2023 |
Grant date fair value of awards during the period: |  |  |  |  | (in thousands) |
Options |  |  |  |  | $ | 12,845 |  |  | $ | 9,496 |  |  | $ | 5,259 |  |
PSUs |  |  |  |  | 3,671 |  |  | 5,119 |  |  | 4,907 |  |
Restricted tock |  |  |  |  | 7,582 |  |  | 5,157 |  |  | 4,505 |  |
Total |  |  |  |  | $ | 24,098 |  |  | $ | 19,772 |  |  | $ | 14,671 |  |
|  |  |  |  | Years Ended December 31, |
|  |  |  |  | 2025 |  | 2024 |  | 2023 |
Stock-based compensation expense: |  |  |  |  | (in thousands) |
Options |  |  |  |  | $ | 8,183 |  |  | $ | 8,085 |  |  | $ | 8,810 |  |
PSUs |  |  |  |  | 4,461 |  |  | 4,010 |  |  | 2,561 |  |
Restricted tock |  |  |  |  | 5,350 |  |  | 4,634 |  |  | 3,977 |  |
Key employee awards |  |  |  |  | — |  |  | — |  |  | 1,036 |  |
Total |  |  |  |  | $ | 17,994 |  |  | $ | 16,729 |  |  | $ | 16,384 |  |
|  |  |  |  | Years Ended December 31, |
|  |  |  |  | 2025 |  | 2024 |  | 2023 |
Income tax benefit related to share-based compensation |  |  |  |  | (in thousands) |
Options |  |  |  |  | $ | 7,345 |  |  | $ | 14,878 |  |  | $ | 8,138 |  |
PSUs |  |  |  |  | 3,405 |  |  | 169 |  |  | — |  |
Restricted tock |  |  |  |  | 751 |  |  | 1,064 |  |  | 720 |  |
Key employee awards |  |  |  |  | — |  |  | 282 |  |  | — |  |
Total |  |  |  |  | $ | 11,501 |  |  | $ | 16,393 |  |  | $ | 8,858 |  |

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