Stock-based Compensation

12 Months Ended

Aug. 31, 2022

Note 14. Stock-based Compensation

As of August 31, 2022, the Company had one stock incentive plan, the WD-40 Company 2016 Stock Incentive Plan (“2016 Plan”), which was approved by the Company’s shareholders effective as of December 13, 2016. The 2016 Plan permits the granting of various stock-based equity awards, including non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units and other stock-based awards to employees, directors and consultants. To date through August 31, 2022, the Company had granted awards of restricted stock units (“RSUs”), market share units (“MSUs”), deferred performance units (“DPUs”) and performance share units (“PSUs”) under the 2016 Plan. Additionally, as of August 31, 2022, there were still certain outstanding awards which had been granted under the Company’s prior equity incentive plan. The 2016 Plan is administered by the Board of Directors (the “Board”) or the Compensation Committee or other designated committee of the Board (the “Committee”). All stock-based equity awards granted under the 2016 Plan are subject to the specific terms and conditions as determined by the Committee at the time of grant of such awards in accordance with the various terms and conditions specified for each award type per the 2016 Plan. The total number of shares of common stock authorized for issuance pursuant to grants of awards under the 2016 Plan is 1,000,000. As of August 31, 2022, 384,859 shares of common stock remained available for future issuance pursuant to grants of awards under the 2016 Plan. The shares of common stock to be issued pursuant to awards under the 2016 Plan may be authorized shares not previously issued, or treasury shares. The Company has historically issued new authorized shares not previously issued upon the settlement of the various stock-based equity awards under its equity incentive plans.

Vesting of the RSUs granted to directors is immediate, with shares to be issued pursuant to the vested RSUs upon termination of each director’s service as a director of the Company. Vesting of the one-time grant of RSUs granted to certain key executives of the Company in March 2008 in settlement of these key executives’ benefits under the Company’s supplemental employee retirement plan agreements was over a period of three years from the date of grant, with shares to be issued pursuant to the vested RSUs six months following the day after each executive officer’s termination of employment with the Company. Vesting of the RSUs granted to certain high level employees is over a period of three years from the date of grant, subject to potential earlier vesting in the event of retirement of the holder of the award in accordance with the award agreement, with shares to be issued pursuant to the vested RSUs at the time of vest. The director RSU holders and the executive officer March 2008 grant date RSU holders are entitled to receive dividend equivalents with respect to their RSUs, payable in cash as and when dividends are declared by the Company’s Board of Directors.

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Vesting of the MSUs granted to certain high level employees follows a performance measurement period of three fiscal years commencing with the Company’s fiscal year in which the MSU awards are granted (the “Measurement Period”). Shares will be issued pursuant to the vested MSUs following the conclusion of the applicable MSU Measurement Period after the Committee’s certification of achievement of the applicable performance measure for such awards and the vesting of the MSU awards and the applicable percentage of the target number of MSU shares to be issued. The recipient must remain employed with the Company for vesting purposes until the date on which the Committee certifies achievement of the applicable performance measure for the MSU awards, subject to potential pro-rata vesting in the event of earlier retirement of the holder of the award in accordance with the award agreement.

During fiscal year 2021, PSU awards were granted for the first time under the 2016 Plan in October 2021 and granting of new DPUs was discontinued by the Company. No DPUs were granted in fiscal year 2021. Although certain vested DPU awards granted in prior periods remain outstanding due to a deferred settlement feature contained within these award agreements, the expense associated with these awards has been fully recognized in prior periods. Many features of the Company’s PSU award agreements are similar to the discontinued DPU awards with the exception of the timing and terms of issuances. Vested DPUs contain a deferred settlement feature wherein the awards must be held until termination of employment, prior to which the recipients are entitled to dividend equivalents, with vested shares to be issued six months following each such recipient’s termination of employment with the Company. Vested PSUs are issuable prior to termination of employment but contain a period of restriction, wherein the recipient cannot sell or otherwise dispose of the stock until six months following termination of employment with the Company. Vesting of the PSUs granted to certain high level employees follows a performance measurement period of one fiscal year that is the same fiscal year in which the PSU awards are granted (the “Measurement Year”). A number of PSUs equal to the applicable percentage of the maximum number of PSUs awarded will be confirmed as vested and issuable following the conclusion of the applicable PSU Measurement Year after the Committee’s certification of achievement of the applicable performance measure for such awards. The recipient must remain employed with the Company for vesting purposes until August 31 of the Measurement Year, subject to potential pro-rata vesting in the event of earlier retirement of the holder of the award in accordance with the award agreement.

Stock-based compensation expense is amortized on a straight-line basis over the requisite service period for the entire award. Stock-based compensation expense related to the Company’s stock-based equity awards is as follows by award type (in thousands):



	Fiscal Year Ended August 31,
	2022		2021		2020
RSU compensation expense	$	4,153	$	3,656	$	3,325
MSU compensation expense		2,544		2,294		2,033
PSU compensation expense ⁽¹⁾		-		3,605		-
Total	$	6,697	$	9,555	$	5,358

(1)PSU awards, similar to DPU awards that were replaced by PSUs in fiscal year 2021, contain performance conditions for which accrual of expense is based on the probable outcome of the performance conditions. Vesting of DPUs related to the measurement year of 2020 was deemed not probable at the end of the fiscal year. DPUs were then discontinued by the Company beginning in fiscal year 2021. PSUs pertaining to the measurement year of fiscal year 2021 vested at 100% since the performance conditions were fully achieved. PSUs pertaining to the measurement year of fiscal year 2022 was deemed not probable at the end of the fiscal year.

The Company recorded deferred tax assets related to such stock-based compensation of $1.5 million, $2.0 million and $1.2 million for the fiscal years ended August 31, 2022, 2021 and 2020, respectively. As of August 31, 2022, the total unamortized compensation cost related to non-vested stock-based equity awards was $1.4 million and $3.1 million for RSUs and MSUs, respectively, which the Company expects to recognize over remaining weighted-average vesting periods of 1.45 and 1.82 years for RSUs and MSUs, respectively. No unamortized compensation cost for DPUs or PSUs remained as of August 31, 2022.

Restricted Stock Units

The estimated fair value of each of the Company’s RSU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant for those RSUs which are entitled to receive dividend equivalents with respect to the RSUs, or based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for those RSUs which are not entitled to receive dividend equivalents with respect to the RSUs.

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A summary of the Company’s restricted stock unit activity is as follows (in thousands, except share and per share amounts):



			Weighted-Average
			Grant Date
	Number of		Fair Value		Aggregate
Restricted Stock Units	Shares		Per Share		Intrinsic Value
Outstanding at August 31, 2021		69,001	$	$131.88
Granted		23,461	$	$217.03
Converted to common shares		(13,751)	$	$182.72
Forfeited		(107)	$	$224.41
Outstanding at August 31, 2022		78,604	$	$148.28	$	14,869
Vested at August 31, 2022		49,620	$	$116.22	$	9,386

The weighted-average grant date fair value of all RSUs granted during the fiscal years ended August 31, 2022, 2021 and 2020 was $217. 03, $208.29 and $184.43, respectively. The total intrinsic value of all RSUs converted to common shares was $3.0 million, $8.5 million and $5.4 million for the fiscal years ended August 31, 2022, 2021 and 2020, respectively.

The income tax benefits from RSUs converted to common shares totaled $0.6 million, $1.9 million and $1.2 million for the fiscal years ended August 31, 2022, 2021 and 2020, respectively.

Market Share Units

The MSUs are market performance-based awards that vest with respect to the applicable percentage of the target number of MSU shares based on relative total stockholder return (“TSR”) for the Company as compared to the total return for the Russell 2000 Index (“Index”) over the performance Measurement Period. The ultimate number of MSUs that vest may range from 0% to 200% of the original target number of shares depending on the relative achievement of the TSR performance measure at the end of the Measurement Period. The grant date fair value of MSUs are estimated using a Monte Carlo simulation model and are expensed over the requisite service period rendered. Assumptions and estimates utilized in the model include expected volatilities of the Company’s stock and the Index, the Company’s risk-free interest rate and expected dividends. The probabilities of the actual number of MSUs expected to vest and resultant actual number of shares of common stock expected to be awarded are reflected in the grant date fair values of the various MSU awards; therefore, the compensation expense for the MSU awards is not adjusted based on the actual number of such MSU awards to ultimately vest.

The following weighted-average assumptions for MSU grants for the last three fiscal years were used in the Monte Carlo simulation model:



	Fiscal Year Ended August 31,
	2022		2021		2020
Expected volatility		32.7%		28.5%		21.4%
Risk-free interest rate		0.6%		0.2%		1.4%
Expected dividend yield		0.0%		0.0%		0.0%

The expected volatility utilized is based on the historical volatilities of the Company’s common stock and the Index in order to model the stock price movements. The volatility used was calculated over the most recent 2.89-year period for MSUs granted during the fiscal year ended August 31, 2022 and over the most recent 2.88 and 2.90-year periods for MSUs granted during each of the fiscal years ended August 31, 2021 and 2020, respectively, which were the remaining terms of the performance Measurement Period at the dates of grant. The risk-free interest rates used are based on the implied yield available on a U.S. Treasury zero-coupon bill with a remaining term equivalent to the remaining performance Measurement Period. The expected dividend yield of zero was used in the Monte Carlo simulation model for the purposes of computing the relative TSR of the Company compared to the Index since it is the mathematical equivalent to reinvesting dividends in each issuing entity over the performance Measurement Period.

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A summary of the Company’s market share unit activity is as follows (in thousands, except share and per share amounts):



			Weighted-Average
			Grant Date
	Number of		Fair Value		Aggregate
Market Share Units	Shares		Per Share		Intrinsic Value
Outstanding at August 31, 2021		36,594	$	194.83
Granted		13,195	$	232.99
Performance factor adjustments		8,890	$	186.38
Converted to common shares		(20,050)	$	182.13
Forfeited		(1,428)	$	208.74
Outstanding at August 31, 2022 ⁽¹⁾		37,201	$	212.66	$	7,037

(1)This figure represents the total number of shares underlying MSU grants assuming achievement of the target number of shares at 100%. As the ultimate number of shares that vest could be as high as 200% of the target, the Company may be required to issue additional shares to satisfy outstanding MSU award grants.

The weighted-average grant date fair value of all MSUs granted during the fiscal years ended August 31, 2022, 2021 and 2020 was $232.99, $184.96 and $216.77, respectively. The total intrinsic value of all MSUs converted to common shares was $4.4 million, $5.9 million and $4.4 million for the fiscal years ended August 31, 2022, 2021 and 2020, respectively.

The income tax benefits from MSUs converted to common shares totaled $0.9 million for the fiscal year ended August 31, 2022, $1.3 million for the fiscal years ended August 31, 2021 and $0.9 million for the fiscal year ended August 31, 2020.

Deferred Performance Units

During fiscal year 2021, the Company discontinued the granting of new DPU awards. Although certain vested DPU awards granted in prior periods remain outstanding due to the deferred settlement feature contained within these award agreements, the expense associated with these awards has been fully recognized in prior periods. DPU awards converted to common shares issued to recipients following termination of employment from the Company were not material to the Company’s consolidated financial statements and related disclosures during fiscal years 2022, 2021 and 2020 respectively.

Performance Share Units

The PSU awards provide for performance-based vesting over a measurement period of the fiscal year in which the PSU awards are granted. The performance vesting provisions of the PSUs are based on relative achievement within an established performance measure range of the Company’s reported earnings before interest, income taxes, depreciation in operating departments, and amortization computed on a consolidated basis for the Measurement Year, before deduction of the stock-based compensation expense for the Vested PSUs and excluding other non-operating income and expense amounts (“Adjusted Global EBITDA”). The ultimate number of PSUs that vest may range from 0% to 100% of the original maximum number of DPUs awarded depending on the relative achievement of the Adjusted Global EBITDA performance measure at the end of the Measurement Year.

The estimated fair value of each of the Company’s PSU awards was determined on the date of grant based on the closing market price of the Company’s common stock on the date of grant less the grant date present value of expected dividends during the vesting period for the PSUs, which are not entitled to receive dividend equivalents with respect to the unvested PSUs.

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A summary of the Company’s performance share unit activity is as follows (in thousands, except share and per share amounts):



			Weighted-Average
			Grant Date
	Number of		Fair Value		Aggregate
Performance Share Units	Shares		Per Share		Intrinsic Value
Outstanding at August 31, 2021		18,252	$	$197.51
Granted		18,684	$	227.24
Performance factor adjustments		-	$	-
Converted to common shares		(18,252)	$	197.51
Forfeited		(858)	$	227.24
Outstanding at August 31, 2022 ⁽¹⁾		17,826	$	227.24	$	3,371,966

(1)PSUs pertaining to the measurement year of fiscal year 2022 were forfeited in October 2022 since performance conditions were not achieved. Performance is certified annually in October by the Company’s compensation committee subsequent to the Company’s fiscal year end and are forfeited, or vest, depending on performance achievement.

The weighted-average grant date fair value of all PSUs granted during the fiscal years ended August 31, 2022 and 2021 was $227.24 and $197.51, respectively. This form of PSU awards were granted for the first time in October 2021. The total intrinsic value of all PSUs converted to common shares was $4.0 million for the fiscal year ended August 31, 2022.

The income tax benefits from PSUs converted to common shares totaled $0.8 million for the fiscal year ended August 31, 2022. There were no conversions of PSUs to common shares for the fiscal years ended August 31, 2021 and 2020.