Stock-Based Compensation

12 Months Ended

Dec. 31, 2022

Stock-Based Compensation

Stock-Based Compensation

14.    Stock-Based Compensation

Stock Incentive Plans

We maintain stock incentive plans to attract and retain officers, directors and key employees. Stock awards under these plans include both performance/market and non-performance based stock incentives. As of December 31, 2022, we had outstanding under these plans stock options to acquire 29.9 million shares of our Class A common stock and 1.4 million restricted stock units and awards. Stock options granted on or prior to December 31, 2022 were granted with exercise prices equal to or greater than the market value of our Class A common stock at the date of grant and with a maximum term of approximately ten years. We account for forfeitures as they are incurred. While historically we have issued stock awards subject to vesting, typically at the rate of 20% per year, certain stock awards have been granted with immediate vesting and certain other stock awards vest only upon the achievement of certain company-specific subscriber, operational and/or financial goals. In addition, the Ergen 2020 Performance Award is subject to the achievement of specified stock price targets. As of December 31, 2022, we had 52.6 million shares of our Class A common stock available for future grant under our stock incentive plans.

Exchange offer. On June 24, 2022, we commenced a tender offer to eligible employees (which excludes our co-founders and the independent members of our Board of Directors) to exchange eligible stock options (which excludes the Ergen 2020 Performance Award) for new options as detailed in our Schedule TO filed June 23, 2022 with the Securities and Exchange Commission (the “Exchange Offer”), to, among other things, further align employee incentives with the current market. The Exchange Offer expired on July 22, 2022. As a result of the Exchange Offer, the exercise price of approximately 13 million stock options, affecting approximately 700 eligible employees, was adjusted during the third quarter of 2022 to $20.00. The total incremental non-cash stock-based compensation expense resulting from the Exchange Offer is $28 million, which will be recognized over the remaining vesting period of the applicable options. During the year ended December 31, 2022, we recognized $9 million of incremental non-cash, stock-based compensation expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) as a result of the Exchange Offer.

Exercise prices for stock options outstanding and exercisable as of December 31, 2022 were as follows:

					As of December 31, 2022
					Options Outstanding				Options Exercisable
					Number Outstanding	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Remaining Contractual Life	Weighted- Average Exercise Price
$	10.01	-	$	20.00	14,058,700	9.31	$	19.88	3,157,297	9.34	$	19.94
$	20.01	-	$	30.00	12,734,761	8.07	$	27.71	2,622,669	8.01	$	27.68
$	30.01	-	$	40.00	1,387,980	2.40	$	35.74	416,520	4.08	$	34.76
$	40.01	-	$	50.00	88,939	4.01	$	46.60	22,600	2.17	$	46.93
$	50.01	-	$	60.00	1,223,126	3.72	$	57.82	—	—	$	—
$	60.01	-	$	70.00	414,500	3.33	$	63.81	4,000	—	$	63.90
$	10.01	-	$	70.00	29,908,006	8.14	$	26.19	6,223,086	8.40	$	24.32

Stock Award Activity

Our stock option activity was as follows:

	For the Years Ended December 31,
	2022			2021			2020
	Options	Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price		Options	Weighted- Average Exercise Price
Total options outstanding, beginning of period (1)	26,702,903	$	34.95	27,248,662	$	34.85	13,715,612	$	41.71
Granted (2)(3)	18,031,503	$	22.42	2,005,000	$	39.56	15,410,500	$	28.71
Exercised	(27,635)	$	29.61	(1,316,485)	$	31.49	(714,595)	$	17.44
Forfeited and cancelled (3)	(14,798,765)	$	37.40	(1,234,274)	$	43.83	(1,162,855)	$	45.17
Total options outstanding, end of period	29,908,006	$	26.19	26,702,903	$	34.95	27,248,662	$	34.85
Performance/market based options outstanding, end of period (4)	15,060,879	$	30.37	13,953,818	$	32.89	17,403,339	$	32.59
Exercisable at end of period	6,223,086	$	24.32	7,741,300	$	37.04	5,193,238	$	40.21

(1) The beginning of period weighted-average exercise price for the year ended December 31, 2022 of $34.95 does not reflect the Exchange Offer, which occurred subsequent to December 31, 2021.

(2) Includes the Ergen 2020 Performance Award of 12,500,000 options granted on November 6, 2020.

(3) Includes approximately 13 million stock options granted and cancelled in connection with the Exchange Offer.

(4) These stock options are included in the caption “Total options outstanding, end of period.” See discussion of the 2013 LTIP, 2017 LTIP, 2019 LTIP, 2022 Incentive Plan, Ergen 2020 Performance Award and Other Employee Performance Awards below.

We realized tax benefits from stock awards exercised as follows:

	For the Years Ended December 31,
	2022		2021		2020
	(In thousands)
Tax benefit from stock awards exercised	$	573	$	4,153	$	7,576

Based on the closing market price of our Class A common stock on December 31, 2022, the aggregate intrinsic value of our stock options was as follows:

	As of December 31, 2022
	Options Outstanding		Options Exercisable
	(In thousands)
Aggregate intrinsic value	$	36	$	2

Our restricted stock unit and award activity was as follows:

	For the Years Ended December 31,
	2022			2021			2020
	Restricted Stock Units/Awards	Weighted- Average Grant Date Fair Value		Restricted Stock Units/Awards	Weighted- Average Grant Date Fair Value		Restricted Stock Units/Awards	Weighted- Average Grant Date Fair Value
Total restricted stock units/awards outstanding, beginning of period	1,487,506	$	35.68	1,863,110	$	35.04	1,504,370	$	50.81
Granted	262,812	$	31.01	79,288	$	42.41	1,696,000	$	33.07
Vested (1)	(88,386)	$	31.78	(28,955)	$	43.26	(916,315)	$	53.82
Forfeited and cancelled	(228,938)	$	33.28	(425,937)	$	33.62	(420,945)	$	42.56
Total restricted stock units/awards outstanding, end of period	1,432,994	$	35.45	1,487,506	$	35.68	1,863,110	$	35.04
Restricted Performance Units/Awards outstanding, end of period (2)	1,105,650	$	35.75	1,330,925	$	35.31	1,755,125	$	34.89

(1) This change in 2020 resulted from certain Other Employee Performance Awards that vested during the third quarter of 2020.

(2) These stock units/awards are included in the caption “Total restricted stock units/awards outstanding, end of period.” See discussion of the 2013 LTIP and Other Employee Performance Awards below.

Long-Term Performance-Based Plans

2013 LTIP. During 2013, we adopted a long-term, performance-based stock incentive plan (the “2013 LTIP”). The 2013 LTIP provides stock options and restricted stock units in combination, which vest based on certain company-specific subscriber and financial performance conditions. Exercise of the stock awards is contingent on achieving these performance conditions by September 30, 2022. This plan expired on January 1, 2023 which resulted in the cancellation of 783,500 stock options and 391,750 restricted stock units and awards.

2017 LTIP. On December 2, 2016, we adopted a long-term, performance-based stock incentive plan (the “2017 LTIP”). The 2017 LTIP provided stock options, which were subject to vesting based on certain company-specific subscriber and financial performance conditions. Awards were initially granted under the 2017 LTIP as of January 1, 2017. Exercise of the stock awards was contingent on achieving these performance conditions by December 31, 2020, however, none of the performance conditions were achieved. This plan will expire on January 1, 2027 which as of December 31, 2022, would result in the cancellation of 1,689,380 stock options.

2019 LTIP.  On August 17, 2018, we adopted a long-term, performance-based stock incentive plan (the “2019 LTIP”).  The 2019 LTIP provides stock options, which vest based on certain company-specific subscriber, operational and/or financial performance conditions.  Vesting of the stock awards is contingent on achieving these conditions by December 31, 2023. 

Although no awards vest until the Company attains the performance conditions described above, compensation related to the 2019 LTIP will be recorded based on management’s assessment of the probability of meeting the performance conditions. If the performance conditions are probable of being achieved, we will begin recognizing the associated non-cash, stock-based compensation expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) over the estimated period to achieve the performance condition.

During the years ended December 31, 2022, 2021 and 2020, we determined that 89%, 90% and 95%, respectively, of the 2019 LTIP performance conditions were probable of achievement. As a result, non-cash, stock-based compensation expense was recorded for the years ended December 31, 2022, 2021 and 2020, as indicated in the table below titled “Non-Cash, Stock-Based Compensation Expense Recognized.” As of December 31, 2022 and 2021, approximately 75% and 69%, respectively, of the 2019 LTIP awards had vested.

2022 Incentive Plan. On December 30, 2021, we adopted a performance-based incentive plan (the “2022 Incentive Plan”).  The 2022 Incentive Plan provides stock options, which vest based on certain company-specific operational and/or financial performance conditions. Awards were initially granted under the 2022 Incentive Plan as of February 1, 2022. Exercise of the stock awards is contingent on achieving these conditions by December 31, 2026.

Although no awards vest until the Company attains the performance conditions described above, compensation related to the 2022 Incentive Plan will be recorded based on management’s assessment of the probability of meeting the performance conditions. If the performance conditions are probable of being achieved, we will begin recognizing the associated non-cash, stock-based compensation expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) over the estimated period to achieve the performance condition.

During the year ended December 31, 2022, we determined that 100% of the 2022 Incentive Plan performance conditions were probable of achievement. As a result, non-cash, stock-based compensation expense was recorded for the years ended December 31, 2022 as indicated in the table below titled “Non-Cash, Stock-Based Compensation Expense Recognized.” As of December 31, 2022, approximately 33% of the 2022 Incentive Plan awards had vested.

Ergen 2020 Performance Award. On November 4, 2020, our Executive Compensation Committee of the Board of Directors approved an award to Charles W. Ergen, our Chairman, of long-term performance-based options (the “Ergen 2020 Performance Award”) to purchase up to 12,500,000 shares of DISH Network’s Class A common stock.  The award is subject to the achievement of specified DISH Network Class A common stock price targets during the approximate ten-year period following the date of grant.  The award was granted on November 6, 2020 and will expire on February 6, 2031.

Although no awards will vest until the market conditions are satisfied, as of December 31, 2020, we began recording non-cash, stock-based compensation expense for each vesting tranche based on the estimated achievement date of the specified stock price target.  The valuation and probability of achievement for each tranche is determined using a Monte Carlo simulation.  The same Monte Carlo simulation is used as the basis for determining the expected achievement date.  As the probability of achievement is factored in as part of the Monte Carlo simulation, the expense for these tranches will be recognized concurrently over each tranche’s estimated achievement date even if some or all of the options never vest.  If the related milestone for a tranche is achieved earlier than is expected, all unamortized expense for such tranche will be recognized immediately. Non-cash, stock-based compensation expense was recorded for the years ended December 31, 2022, 2021 and 2020, as indicated in the table below titled “Non-Cash, Stock-Based Compensation Expense Recognized.” As of December 31, 2022 and 2021, approximately 20% of the Ergen 2020 Performance Award awards had vested.

Other Employee Performance Awards. In addition to the above long-term, performance stock incentive plans, we have other stock awards that vest based on certain other company-specific subscriber, operational and/or financial performance conditions. Exercise of these stock awards is contingent on achieving certain performance conditions.

Additional compensation related to these awards will be recorded based on management’s assessment of the probability of meeting the remaining performance conditions. If the remaining performance conditions are probable of being achieved, we will begin recognizing the associated non-cash, stock-based compensation expense on our Consolidated Statements of Operations and Comprehensive Income (Loss) over the estimated period to achieve the performance condition. See the table below titled “Estimated Remaining Non-Cash, Stock-Based Compensation Expense.”

Although no awards vest until the performance conditions are attained, we determined that certain performance conditions described above were probable of achievement and, as a result, recorded non-cash, stock-based compensation expense for the years ended December 31, 2022, 2021 and 2020, as indicated in the table below titled “Non-Cash, Stock-Based Compensation Expense Recognized.”

The non-cash, stock-based compensation expense associated with these awards was as follows:

	For the Years Ended December 31,
Non-Cash, Stock-Based Compensation Expense Recognized (1)	2022		2021		2020
	(In thousands)
2022 Incentive Plan	$	19,088	$	—	$	—
2019 LTIP		(97)		489		13,088
2013 LTIP		—		(13,610)		(819)
Ergen 2020 Performance Award		12,308		34,513		5,029
Other employee performance awards		4,502		9,033		29,181
Total non-cash, stock-based compensation expense recognized for performance based awards	$	35,801	$	30,425	$	46,479

(1)“Non-Cash, Stock-Based Compensation Expense Recognized” includes actual forfeitures.

Estimated Remaining Non-Cash, Stock-Based Compensation Expense	2022 Incentive Plan		2019 LTIP		Ergen 2020 Performance Award		Other Employee Performance Awards
	(In thousands)
Expense estimated to be recognized during 2023	$	8,155	$	1,930	$	12,308	$	2,460
Estimated contingent expense subsequent to 2023		6,008		6,199		27,730		—
Total estimated remaining expense over the term of the plan	$	14,163	$	8,129	$	40,038	$	2,460

Given the competitive nature of our business, small variations in subscriber churn, gross new subscriber activation rates and certain other factors can significantly impact subscriber growth. Consequently, while it was determined that achievement of certain other company-specific subscriber, operational and/or financial performance conditions were not probable as of December 31, 2022, that assessment could change in the future.

Of the 29.9 million stock options and 1.4 million restricted stock units and awards outstanding under our stock incentive plans as of December 31, 2022, the following awards were outstanding pursuant to our performance-based stock incentive plans:

	As of December 31, 2022
Performance Based Stock Options	Number of Awards	Weighted- Average Grant Price
2022 Incentive Plan	1,603,391	$	19.71
2019 LTIP	984,608	$	20.84
2017 LTIP	1,689,380	$	56.95
2013 LTIP (1)	783,500	$	40.77
Ergen 2020 Performance Award	10,000,000	$	27.71
Total	15,060,879	$	30.37
Restricted Performance Units/Awards
2013 LTIP (1)	391,750
Other employee performance awards	713,900
Total	1,105,650

(1) This plan expired on January 1, 2023.

Stock-Based Compensation

Total non-cash, stock-based compensation expense for all of our employees is shown in the following table for the years ended December 31, 2022, 2021 and 2020 and was allocated to the same expense categories as the base compensation for such employees:

	For the Years Ended December 31,
	2022		2021		2020
	(In thousands)
Cost of services	$	6,511	$	4,365	$	7,419
Selling, general and administrative		64,939		47,315		57,535
Total non-cash, stock-based compensation	$	71,450	$	51,680	$	64,954

As of December 31, 2022, our total unrecognized compensation cost related to our non-performance based unvested stock awards was $77 million and will be recognized over a weighted-average period of approximately 4.3 years. Share-based compensation expense is recognized based on stock awards ultimately expected to vest.

Valuation

The fair value of each stock option granted (excluding the Ergen 2020 Performance Award and the Exchange Offer) for the years ended December 31, 2022, 2021 and 2020 was estimated at the date of the grant using a Black-Scholes option valuation model with the following assumptions:

	For the Years Ended December 31,
Stock Options	2022							2021							2020
Risk-free interest rate		0.91	%	-		4.06	%		0.44	%	-		1.02	%		0.17	%	-		1.72	%
Volatility factor		44.00	%	-		53.60	%		40.62	%	-		43.48	%		28.91	%	-		48.08	%
Expected term of options in years		2.8		-		5.6			5.5		-		5.6			3.3		-		5.5
Fair value of options granted	$	6.53		-	$	14.17		$	12.46		-	$	18.23		$	5.50		-	$	12.10

While we currently do not intend to declare dividends on our Class A common stock, we may elect to do so from time to time. Accordingly, the dividend yield percentage used in the Black-Scholes option valuation model was set at zero for all periods. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded stock options which have no vesting restrictions and are fully transferable. Consequently, our estimate of fair value may differ from other valuation models. Further, the Black-Scholes option valuation model requires the input of highly subjective assumptions. Changes in these subjective input assumptions can materially affect the fair value estimate.

We will continue to evaluate the assumptions used to derive the estimated fair value of our stock options as new events or changes in circumstances become known.