Stock-Based Compensation Plans

12 Months Ended

Aug. 31, 2023

Stock-Based Compensation Plans [Abstract]

13. STOCK-BASED COMPENSATION PLANS

Overview

We utilize various stock-based compensation plans as integral components of our overall compensation and associate retention strategy. Our shareholders have approved various stock incentive plans that permit us to grant performance awards, unvested stock awards, stock options, fully vested stock awards, and employee stock purchase plan (ESPP) shares. The Organization and Compensation Committee of the Board of Directors (the Compensation Committee) has responsibility for the approval and oversight of our stock-based compensation plans.

On January 14, 2022, our shareholders approved the Franklin Covey Co. 2022 Omnibus Incentive Plan (the 2022 Plan), which authorized an additional 1,000,000 shares of common stock for issuance as stock-based payments. A more detailed description of the 2022 Plan is set forth in our Definitive Proxy Statement filed with the SEC on December 15, 2021. At August 31, 2023, the 2022 Plan had approximately 594,000 shares available for future grants.

Our ESPP is administered under the terms of the Franklin Covey Co. 2017 Employee Stock Purchase Plan, which was approved by our shareholders at the annual meeting of shareholders held on January 26, 2018. For additional information regarding the Franklin Covey Co. 2017 Employee Stock Purchase Plan, please refer to our definitive Proxy Statement as filed with the SEC on December 22, 2017. At August 31, 2023, we had approximately 733,000 shares available for purchase by plan participants under the terms of the current shareholder approved ESPP.

The total compensation expense of our various stock-based compensation plans was as follows (in thousands):



YEAR ENDED
AUGUST 31,		2023		2022		2021
Performance awards	$	10,767	$	6,133	$	7,298
Strive acquisition compensation		739		1,196		354
Unvested stock awards		700		673		700
Compensation cost of the ESPP		269		239		205
Fully vested stock awards		45		45		60
	$	12,520	$	8,286	$	8,617

No stock-based compensation was capitalized during the fiscal years presented in this report. We recognize forfeitures of stock-based compensation instruments as they occur. During fiscal 2023, we issued 114,214 shares of our common stock from shares held in treasury for various stock-based compensation arrangements, including the ESPP. Our stock-based compensation plans allow shares to be withheld from the award to pay the participants’ statutory income tax liabilities.

We withheld 17,639 shares of our common stock, with a fair value of $0.8 million, for statutory income taxes during fiscal 2023.

At each quarterly or annual reporting date, we evaluate the number and probability of shares expected to vest in each of our performance-based long-term incentive plan (LTIP) awards and adjust our stock-based compensation expense to correspond with the number of shares expected to vest over the anticipated service period. Due to the significant impact of the COVID-19 pandemic on our results of operations in the third quarter of fiscal 2020 and the uncertainties surrounding the recovery of the world’s economies and our business, we determined that nearly all LTIP award tranches based on qualified Adjusted EBITDA for outstanding LTIP awards would not vest before the end of the respective service periods. We therefore reversed the previously recognized stock-based compensation expense associated with these awards during fiscal 2020. On October 2, 2020, the Compensation Committee modified the terms of our performance-based LTIP award tranches to extend the service period of each financial-metric based tranche by two years and increase each qualified Adjusted EBITDA vesting target by $2.0 million. No time-based vesting LTIP tranches were modified. During the periods presented in this report, we reassessed the probability of awards vesting under the modified conditions and have expensed awards based on the new vesting requirements and expected financial results over the revised service periods.

The following is a description of our stock-based compensation plans.

Performance Awards

The Compensation Committee has awarded various performance-based stock compensation awards to members of our senior management as long-term incentive-based compensation. These awards vest to the participants based upon the achievement of specified performance criteria. Compensation expense is recognized as we determine it is probable that the shares will vest. Adjustments to compensation expense to reflect the timing of and the number of shares expected to be awarded are made on a cumulative basis at the date of the adjustment. We reevaluate the likelihood and/or the number of shares expected to vest under performance awards at each reporting date. Based on current estimates and projections, we have $11.1 million of unrecognized compensation expense related to our performance awards at August 31, 2023. The following descriptions of our performance-based awards as of August 31, 2023 were adjusted for forfeitures.

Fiscal 2023 LTIP Award – On October 14, 2022, the Compensation Committee granted a new LTIP award to our executive officers and members of senior management. The fiscal 2023 LTIP award was subsequently expanded with new grants for additional participants, which are expensed based on the market value of our common stock on the date of the grants. The fiscal 2023 LTIP award has two tranches, which consist of: 1) shares that vest after three years of service and 2) shares that vest based on the highest amount of rolling four quarter qualified Adjusted EBITDA earned in the three years ended August 31, 2025. Twenty-five percent of a participant’s award vests after three years of service, and the number of shares awarded in this tranche does not fluctuate based on financial measures. The number of shares granted in this tranche totals 26,682 shares. The number of shares that vest to participants for the amount of qualified Adjusted EBITDA achieved through August 31, 2025 is variable and may be 50 percent of the award or up to 200 percent of the participant’s award depending on the amount of qualified Adjusted EBITDA achieved. The number of shares that may be earned for achieving 100 percent of the performance-based objective totals 80,018 shares. The maximum number of shares that may be awarded in connection with the performance-based tranche of the 2023 LTIP totals 160,036 shares.

Fiscal 2022 LTIP Award – On February 4, 2022, the Compensation Committee granted an LTIP award to our executive officers and members of senior management. The fiscal 2022 LTIP award has two tranches, which consist of: 1) shares that vest after three years of service and 2) shares that vest based on the highest amount of rolling four quarter qualified Adjusted EBITDA in the three years ended August 31, 2024. Twenty-five percent of a participant’s award vests after three years of service, and the number of shares awarded in this tranche does not fluctuate based on financial measures. The number of shares granted in this tranche totals 24,138 shares. The number of shares that vest to participants for the amount of qualified Adjusted EBITDA achieved through August 31, 2024 is variable and may be 50 percent of the award or up to 200 percent of the participant’s award depending on the amount of qualified Adjusted EBITDA achieved. The number of shares that may be earned for achieving 100 percent of the performance-based objective totals 72,397 shares.

The maximum number of shares that may be awarded in connection with the performance-based tranche of the 2022 LTIP totals 144,794 shares.

Fiscal 2021 LTIP Award – On October 2, 2020, the Compensation Committee of the Board of Directors granted an LTIP award to our executive officers and members of senior management. The fiscal 2021 LTIP award had two tranches, which consisted of: 1) shares that vest after three years of service and 2) shares that vest based on the amount of rolling four quarter qualified Adjusted EBITDA achieved in the three-year measurement period ended August 31, 2023. Twenty-five percent of each participant’s award vested on August 31, 2023, after three years of service. We issued a total of 51,617 shares for this tranche of the 2021 LTIP award. We achieved the maximum payout parameter for the qualified Adjusted EBITDA tranche of the fiscal 2021 LTIP award and issued 309,660 shares of our common stock during the first quarter of fiscal 2024 to participants in the fiscal 2021 LTIP.

Fiscal 2020 LTIP Award – On October 18, 2019, the Compensation Committee granted a new LTIP award to our executive officers and members of senior management. The fiscal 2020 LTIP award has three tranches, which consist of the following: 1) shares that vest after three years of service; 2) shares that vest based on the achievement of specified levels of qualified Adjusted EBITDA; and 3) shares that vest based on the achievement of specified levels of subscription service sales. Twenty-five percent of each participant’s award vested on August 31, 2022, after three years of service. We issued a total of 23,701 shares for the time-based tranche of the 2020 LTIP award. The remaining two tranches of the award are based on the highest rolling four-quarter levels of qualified Adjusted EBITDA and subscription service sales achieved in the three-year period which originally ended August 31, 2022. As described above, the qualified Adjusted EBITDA vesting targets for the fiscal 2020 LTIP were increased by $2.0 million and the measurement period of the variable award tranches was extended to August 31, 2024. The number of shares that will vest to participants for these two tranches is variable and may be 50 percent of the award or up to 200 percent of the participant’s award. The number of shares that may be earned for achieving 100 percent of the performance-based objective totals 70,577 shares and the maximum number of shares that may be awarded in connection with these tranches currently totals 141,154 shares.

Fiscal 2019 LTIP Award – On October 1, 2018, the Compensation Committee granted a performance-based LTIP award to our executive officers and members of senior management. The fiscal 2019 LTIP award had three tranches, which consisted of the following: 1) shares that vest after three years of service; 2) shares that vest based on the amount of qualified Adjusted EBITDA achieved in the measurement period; and 3) shares that vest based on the amount of subscription service sales achieved in the measurement period. Twenty-five percent of each participant’s award vested on August 31, 2021, after three years of service. We issued a total of 34,605 shares for the time-based tranche of the 2019 LTIP award. The remaining two tranches of the fiscal 2019 award were based on the highest rolling four-quarter levels of qualified Adjusted EBITDA and subscription service sales achieved in the measurement period that originally ended August 31, 2021. During fiscal 2021, the fiscal 2019 LTIP award was modified by increasing the qualified Adjusted EBITDA vesting targets by $2.0 million and extending the measurement period by two years to August 31, 2023. We achieved the maximum payout parameters for the variable tranches of the fiscal 2019 LTIP award and issued 204,418 shares of our common stock during the first quarter of fiscal 2024 to participants in the 2019 LTIP.

Long-Term Incentive and Retention Equity Awards - On October 14, 2022, the Compensation Committee approved a new long-term incentive award, included in the LTIP award program, for client partners, managing client partners, managing directors, and certain other associates that management believes are critical to our long-term success. For sales-related personnel, their award amounts are based upon meeting minimum sales levels and determining the value of the award based on their total sales performance for the fiscal year. For the other associates, their award amount was approved by the Compensation Committee. One-third of these award shares vest each year over a three-year service period. During fiscal 2023, this award program granted 40,009 shares to eligible associates. These awards are expected to be granted annually by the Compensation Committee to retain these key associates.

Strive Acquisition Compensation – We structured two parts of the consideration for the fiscal 2021 acquisition of Strive (Note 3) as potentially payable in shares of our common stock. Each of the following amounts may be payable in shares of our common stock or cash at our sole discretion:

Contingent Consideration – A maximum of $4.2 million may be earned by the former principal owner of Strive over a five-year period ending in May 2026. The total value of this consideration is contingent upon sales and growth of the All Access Pass subscription and subscription services revenues during the five-year measurement period. We measure the contingent consideration each quarter and divide the total by the average of the closing share price of our common stock on the NYSE over the last 15 trading days of the quarter. Shares are required to be distributed within 45 days following the end of each quarter. Through August 31, 2023, we have recognized $1.5 million of share-based compensation expense for the Strive contingent consideration payments.

Bonus Payments – Approximately $1.0 million was payable 18 months following the Closing Date to stockholders and option holders of Strive who were still employed by us as of the 18-month date, subject to certain exceptions. We expensed these awards evenly over the 18-month service period and recognized $0.8 million of share-based compensation expense for these awards, which were paid in October 2022.

We have reserved 200,000 shares of our common stock from our 2019 Omnibus Plan for payment of this consideration related to the acquisition of Strive.

Unvested Stock Awards

The annual Board of Director unvested stock award, which is administered under the terms of the Franklin Covey Co. Omnibus Incentive Plans, is designed to provide our non-employee directors, who are not eligible to participate in our ESPP, an opportunity to obtain an interest in the Company through the acquisition of shares of our common stock as part of their compensation. For fiscal 2023, each eligible director received a whole-share grant equal to $120,000 with a one-year vesting period. The Board of Director unvested awards are generally granted in January (following the Annual Shareholders’ Meeting) of each year, and shares granted under the terms of this annual award may not be voted or participate in any common stock dividends until they are vested.

We issued 15,882 shares, 13,260 shares, and 28,049 shares of our common stock to eligible members of the Board of Directors during fiscal 2023, fiscal 2022, and fiscal 2021 as unvested stock awards. The fair value of shares awarded to the directors was $0.7 million in each of fiscal 2023, fiscal 2022, and fiscal 2021 as calculated on the grant date of the awards. The corresponding compensation cost of each award is recognized over the service period of the award, which is one year. The cost of the common stock issued from treasury for these awards was $0.3 million in fiscal 2023, $0.2 million in fiscal 2022, and $0.4 million in fiscal 2021. The following information applies to our unvested stock awards for the fiscal year ended August 31, 2023:



			Weighted-
			Average Grant-
			Date Fair
	Number of		Value Per
	Shares		Share
Unvested stock awards at
August 31, 2022	13,260	$	49.78
Granted	15,882		45.34
Forfeited	-		-
Vested	(13,260)		49.78
Unvested stock awards at
August 31, 2023	15,882	$	45.34

At August 31, 2023, there was $0.2 million of unrecognized compensation cost left on our unvested stock awards, which is expected to be recognized over the remaining service period of approximately four months. The total recognized income tax benefit from unvested stock awards totaled $0.2 million for each of the years ended August 31, 2023, 2022, and 2021. The intrinsic value of our unvested stock awards at August 31, 2023 was $0.7 million.

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Stock Options

On January 12, 2021, our Chief Executive Officer (CEO) exercised his remaining stock options, which would have expired on January 14, 2021. After these stock options were exercised, we do not have any remaining stock options outstanding. These stock options were exercised on a net basis, meaning no cash was paid to exercise the options. For the 218,750 options exercised in fiscal 2021, we withheld 51,738 shares of our common stock with a fair value of $1.3 million for income taxes. The intrinsic value of options exercised in fiscal 2021 totaled $2.9 million and we recognized an income tax benefit of $0.7 million, of which $0.5 million was recognized upon the exercise of the options.

Employee Stock Purchase Plan

We have an employee stock purchase plan that offers qualified employees the opportunity to purchase shares of our common stock at a price equal to 85 percent of the average fair market value of our common stock on the last trading day of each quarter. ESPP participants purchased a total of 40,141 shares, 36,960 shares, and 51,581 shares of our common stock during the fiscal years ended August 31, 2023, 2022, and 2021, which had a corresponding cost basis of $0.7 million in fiscal 2023, $0.6 million in fiscal 2022, and $0.8 million in fiscal 2021. We received cash proceeds for these shares from ESPP participants totaling $1.5 million in fiscal 2023; $1.3 million in fiscal 2022; and $1.1 million during fiscal 2021.

Fully Vested Stock Awards

We have a stock-based incentive program that is designed to reward our client partners and training consultants for exceptional long-term performance. The program grants shares of our common stock to client partners who have achieved certain cumulative sales goals and to training consultants who have delivered a specified number of training days during their career. Three individuals qualified for these awards in each of fiscal 2023 and fiscal 2022 and four individuals qualified for these awards in the fiscal year ended August 31, 2021.