Share-Based Compensation

12 Months Ended

Dec. 27, 2023

Share-Based Payment Arrangement [Abstract]

Share-Based Compensation Plans

The Denny’s Corporation 2021 Omnibus Incentive Plan (the “2021 Omnibus Plan”) is used to grant share-based compensation to selected employees, officers and directors of Denny’s and its affiliates. However, we reserve the right to pay discretionary bonuses, or other types of compensation, outside of this plan. At December 27, 2023, there were 1.5 million shares available for grant under the 2021 Omnibus Plan. In addition, we have 0.7 million shares available to be issued outside of the 2021 Omnibus Plan pursuant to the grant or exercise of employment inducement awards of stock options and restricted stock units in accordance with Nasdaq Listing Rule 5635(c)(4).

Share-Based Compensation Expense

Total share-based compensation expense included as a component of net income was as follows:


	Fiscal Year Ended
	December 27, 2023		December 28, 2022		December 29, 2021
	(In thousands)

Employee share awards	$	7,991	$	10,470	$	12,708
Restricted stock units for board members	889		930		894
Total share-based compensation	$	8,880	$	11,400	$	13,602

The income tax benefits recognized as a component of the provision for income taxes in our Consolidated Statements of Income related to share-based compensation expense were $2.3 million, $2.9 million and $3.4 million during the years ended December 27, 2023, December 28, 2022 and December 29, 2021, respectively.

Employee Share Awards

Employee share awards consist of performance share units (“PSUs”) and restricted stock units ("RSUs") (which are equity classified). The number of shares that are ultimately issued is dependent upon the level of obtainment of the market and performance conditions. The following table summarizes the employee share awards activity during the year ended December 27, 2023:


	Units	Weighted Average Grant Date Fair Value
	(In thousands)
Outstanding, beginning of year	1,297	$	18.30
Granted	1,297	$	13.43
Converted	(194)	$	14.41
Forfeited	(410)	$	16.36
Outstanding, end of year	1,990	$	15.90
Convertible, end of year	621	$	18.95

During the year ended December 27, 2023, we granted certain employees 0.3 million performance share units ("PSUs") with a weighted average grant date fair value of $18.39 per share that vest based on the total shareholder return (“TSR”) of our common stock compared to the TSRs of a group of peer companies and 0.3 million PSUs with a weighted average grant date fair value of $11.90 per share that vest based on our Adjusted EPS growth rate versus plan, as defined under the terms of the award. As the TSR based PSUs contain a market condition, a Monte Carlo valuation was used to determine the grant date fair value. The performance period for these PSUs is the three year fiscal period beginning December 29, 2022 and ending December 31, 2025. The PSUs will completely vest and be earned at the end of the performance period at which point the relative TSR and Adjusted EPS growth rate achievement percentages will be applied to the vested units (from 0% to 200% of the target award). We recognize compensation cost associated with 0.5 million of these PSU awards over the entire performance period on a straight-line basis, with compensation cost for the remaining 0.1 million PSU awards recognized on a graded-vesting basis due to the accelerated vesting terms for certain retirement eligible individuals.

We also granted certain employees 0.7 million restricted stock units (“RSUs”) with a weighted average grant date fair value of $11.83 per share. These RSUs generally vest evenly over the three-year fiscal period beginning December 29, 2022 and ending December 31, 2025. We recognize compensation cost associated with these RSU awards on a straight-line basis over the entire performance period of the award.

For 2023, 2022 and 2021, the weighted average grant date fair value of awards granted was $13.43, $16.22 and $21.83, respectively.

The following table presents the weighted-average assumptions used in the Monte Carlo simulations to determine the fair value of PSU awards at the grant date, along with the related weighted-average grant date fair value of PSU awards:


	December 27, 2023	December 28, 2022	December 29, 2021
Risk-free interest rate	3.75%	1.96%	0.18%
Expected term (in years)	3.0	2.8	3.0
Expected volatility	69.7%	66.0%	64.9%
Expected dividend yield	0.0%	0.0%	0.0%
Grant date fair value per unit	$18.39	$21.05	$24.74

The risk-free interest rate was based on U.S. Treasury bond yield with a term equal to the expected life assumed at the date of grant. The expected term represents the period of time the awards are expected to be outstanding. Expected volatility was based on historical volatility of the Company. The expected dividend yield is based on the Company’s history and expectations of dividend payouts at the time of grant.

We made payments of $0.1 million, $0.4 million and $0.2 million during 2023, 2022 and 2021, respectively, related to converted performance and restricted share units. Payments relate to the payment of payroll taxes. The fair value of units

converted was $8.6 million, $13.8 million and $4.3 million during 2023, 2022 and 2021, respectively. As of December 27, 2023, we had $9.6 million of unrecognized compensation cost related to unvested employee share awards, which is expected to be recognized over a weighted average of 1.8 years.

Restricted Stock Units for Board Members

During the year ended December 27, 2023, we granted less than 0.1 million RSUs (which are equity classified) with a weighted average grant date fair value of $10.71 per unit to non-employee members of our Board. The restricted stock units vest after a one year service period. A director may elect to convert these awards into shares of common stock on a specific date in the future (while still serving as a member of our Board), upon termination as a member of our Board or in three equal annual

installments commencing after termination of service as a member of our Board. During the year ended December 27, 2023, 0.2 million restricted stock units were converted into shares of common stock.

There were 0.7 million and 0.8 million RSUs outstanding as of December 27, 2023 and December 28, 2022, respectively. As of December 27, 2023, we had $0.3 million of unrecognized compensation cost related to all unvested RSU awards outstanding, which is expected to be recognized over a weighted average of 0.4 years.

Stock Options

Prior to 2012, stock options were granted that vest evenly over three years, have a 10-year contractual life and are issued at the market value at the date of grant. There were no options granted in 2023, 2022 or 2021. There were no stock options outstanding at December 27, 2023, and there were no stock options exercised for the years ended December 27, 2023 or December 28, 2022. The total intrinsic value of the options exercised was $0.3 million during the year ended December 29, 2021.