Incentive Plans

12 Months Ended

Dec. 31, 2023

Incentive Plans

Incentive Plans

16. Incentive Plans

2014 Incentive Award Plan

The Company provides incentive awards in the form of common stock or awards convertible into common stock pursuant to the Digital Realty Trust, Inc., Digital Services, Inc. and Digital Realty Trust, L.P. 2014 Incentive Award Plan, as amended (the “Incentive Plan”). The major categories of awards that can be issued under the Incentive Plan include:

Long-Term Incentive Units (“LTIP Units”): LTIP Units, in the form of profits interest units of the Operating Partnership, may be issued to eligible participants for the performance of services to or for the benefit of the Operating Partnership. LTIP Units (other than Class D units), whether vested or not, receive the same quarterly per-unit distributions as Operating Partnership common units. Initially, LTIP Units do not have full parity with common units with respect to liquidating distributions. However, if such parity is reached, vested LTIP Units may be converted into an equal number of common units of the Operating Partnership at any time. The awards generally vest over periods between two and four years.

Service-Based Restricted Stock Units: Service-based restricted stock units covering shares of Digital Realty Trust, Inc. common stock (“Restricted Stock Units”), which vest over periods between two and four years, convert to shares of Digital Realty Trust, Inc.’s common stock upon vesting.

Performance-Based Awards (“the Performance Awards”): Performance-based Class D units of the Operating Partnership and performance-based Restricted Stock Units may be issued to officers and employees of the Company. The Performance Awards include performance-based and time-based vesting criteria. Depending on the type of award, the total number of units that qualify to fully vest is determined based on either a market performance criterion (“Market-Based Performance Awards”) or financial performance criterion (“Financial-Based Performance Awards”), in each case, subject to time-based vesting.

Market-Based Performance Awards.

The market performance criterion compares Digital Realty Trust, Inc.’s total stockholder return (“TSR”) relative to the MSCI US REIT Index (“RMS”) over a three-year performance period (“Market Performance Period”), subject to continued service, in order to determine the percentage of the total eligible pool of units that qualifies to be awarded. Following the completion of the Market Performance Period, the awards then have a time-based vesting element pursuant to which 50% of the performance-vested units will fully vest in the February immediately following the end of the Market Performance Period and 50% of the performance-vested units will fully vest in the subsequent February.

Vesting with respect to the market condition is measured based on the difference between Digital Realty Trust, Inc.’s TSR percentage and the TSR percentage of the RMS as is shown in the subsequent table (the “RMS Relative Market Performance”).

		Market
		Performance
	RMS Relative	Vesting
Level	Market Performance	Percentage
Below Threshold Level	≤ -500 basis points	0	%
Threshold Level	-500 basis points	25	%
Target Level	0 basis points	50	%
High Level	≥ 500 basis points	100	%

If the RMS Relative Market Performance falls between the levels specified in the above table, the percentage of the award that will vest with respect to the market condition will be determined using straight-line linear interpolation between such levels.

Following the completion of the applicable Market Performance Period, the Compensation Committee made the following determinations regarding the vesting of these awards.

2021 Awards

● In January 2024, the RMS Relative Market Performance fell between the threshold and target level for the 2021 awards and accordingly, 71,926 Class D units and 7,066 Restricted Stock Units performance vested and qualified for time-based vesting.

● The Class D units included 5,131 distribution equivalent units that immediately vested on December 31, 2023.

● On February 27, 2024, 50% of the 2021 awards will vest and the remaining 50% will vest on February 27, 2025, subject to continued employment through the applicable vesting date.

2020 Awards

● In January 2023, the RMS Relative Market Performance fell between the threshold and target levels for the 2020 awards and accordingly, 72,230 Class D units and 7,083 Restricted Stock Units performance vested and qualified for time-based vesting.

● The Class D units included 5,841 distribution equivalent units that immediately vested on December 31, 2022.

● On February 27, 2023, 50% of the 2020 awards vested and the remaining 50% will vest on February 27, 2024, subject to continued employment through the applicable vesting date.

2019 Awards

● In January 2022, the RMS Relative Market Performance fell between the target and high level for the 2019 awards and accordingly, 239,436 Class D units and 70,721 Restricted Stock Units performance vested and qualified for time-based vesting.

● The Class D units included 18,966 distribution equivalent units that immediately vested on December 31, 2021.

● On February 27, 2022, 50% of the 2019 awards vested and the remaining 50% vested on February 27, 2023, subject to continued employment through the applicable vesting date.

Financial-Based Performance Awards.

On April 8, 2023, the Company granted Financial-Based Performance Awards, which vest based on growth in same-store cash net operating income during the three-year period commencing on January 1, 2023. The awards have a time-based vesting element consistent with the Market-Based Performance Awards discussed above. For these awards, fair value is based on market value on the date of grant and compensation cost is recognized based on the probable achievement of the performance condition at each reporting period. The grant date fair value of these awards was $8.1 million, based on Digital Realty Trust, Inc.’s closing stock price at the grant date.

On March 4, 2022, the Company granted Financial-Based Performance Awards, which vest based on the growth in core funds from operation (“Core FFO”) during the three-year period commencing on January 1, 2022. The awards have a time-based vesting element consistent with the Market-Based Performance Awards discussed above. For these awards, fair value is based on market value on the date of grant and compensation cost is recognized based on the probable achievement of the performance condition at each reporting period. The grant date fair value of these awards was $12.3 million, based on Digital Realty Trust, Inc.’s closing stock price at the grant date.

Fair Value of Market Performance-Based Awards

The fair values of the Performance Awards granted were measured using a Monte Carlo simulation to estimate the probability of the market vesting condition being satisfied. The Monte Carlo simulation is a probabilistic technique based on the underlying theory of the Black-Scholes formula, which was run for 100,000 trials to determine the fair value of the awards. For each trial, the payoff to an award is calculated at the settlement date and is then discounted to the grant date at a risk-free interest rate. The total expected value of the awards on the grant date was determined by multiplying the average value per award over all trials by the number of awards granted. Assumptions used in the valuations are summarized as follows:

	Expected Stock Price		Risk-Free Interest
Award Date	Volatility		rate
January 1, 2021	27	%	0.17	%
February 25, 2021	26	%	0.31	%
January 1, 2022	26	%	0.97	%
January 1, 2023	32	%	4.18	%

The expected stock price volatility assumption is calculated based on our historical volatility, which is calculated over a period of time commensurate with the expected term of the awards being valued. The expected dividend yield assumption used in the Monte Carlo simulation represents the percent of return to a stock that is available to the holder of an award. Because the holders of the awards receive dividend equivalents, an expected dividend yield assumption of 0.00% was used in the valuation. These valuations were performed in a risk-neutral framework, and no assumption was made with respect to an equity risk premium.

The grant date fair value of the Performance Awards was approximately $8.2 million, $12.3 million and $25.0 million for the years ended December 31, 2023, 2022 and 2021, respectively. We recognize compensation expense on a straight-line basis over the expected service period of approximately four years.

The aggregate intrinsic value of the Performance Awards that vested in 2023, 2022 and 2021 was $36.4 million, $41.2 million and $28.6 million, respectively.

Other Items: In addition to the LTIP Units, service-based Restricted Stock Units and Performance Awards described above, one-time grants of time and/or performance-based Class D units and Restricted Stock Units were issued in connection with the Interxion Combination. These awards vested over two- and three-year performance periods ending in 2022 and 2023 based on continued service and/or the attainment of performance metrics related to successful integration of the Interxion business.

As of December 31, 2023, approximately 4.2 million shares of common stock, including awards that can be converted to or exchanged for shares of common stock, remained available for future issuance under the Incentive Plan.

Each LTIP unit and each Class D unit issued under the Incentive Plan counts as one share of common stock for purposes of calculating the limit on shares that may be issued under the Incentive Plan and the individual award limits set forth therein.

Below is a summary of compensation expense and unearned compensation (in millions):

																	Expected
																	period to
	Deferred Compensation												Unearned Compensation				recognize
	Expensed						Capitalized						As of		As of		unearned
	Year Ended December 31,												December 31,		December 31,		compensation
Type of incentive award	2023		2022		2021		2023		2022		2021		2023		2022		(in years)
Long-term incentive units	$	14.5	$	21.7	$	15.4	$	0.2	$	0.2	$	0.2	$	16.6	$	20.7	2.1
Performance-based awards		12.9		21.4		23.9		0.2		0.5		0.7		19.9		30.3	2.0
Service-based restricted stock units		21.1		25.9		23.2		7.5		5.4		3.3		66.4		55.4	2.5
Interxion awards		6.0		4.7		17.7		0.1		—		—		—		1.9	—

The following table sets forth the weighted-average fair value per share/unit for each type of incentive award at the date of grant for the years ended December 31, 2023, 2022 and 2021:

	Weighted Average Fair Value at Date of Grant
Type of incentive award	2023		2022		2021
Long-term incentive units	$	121.99	$	146.37	$	132.66
Performance-based awards		97.06		154.26		137.69
Restricted stock		132.07		131.57		129.52

Activity for LTIP Units and service-based Restricted Stock Units for the year ended December 31, 2023 is shown below.

		Weighted-Average		Weighted-Average		Aggregate
		Grant Date Fair		Remaining Contractual		Intrinsic Value (1)
Unvested LTIP Units	Units	Value		Life (Years)		(in thousands)
Unvested, beginning of period	279,258	$	146.37
Granted	180,535		104.82
Vested	(181,182)		136.39
Cancelled or expired	(40,251)		149.36
Unvested, end of period	238,360	$	121.99		1.96	$	32,078

(1) The intrinsic value is calculated based on the market value of our common stock as of December 31, 2023.

The grant date fair values, which equal the market price of Digital Realty Trust, Inc. common stock on the applicable grant date(s), are being expensed on a straight-line basis for service awards between two and four years, the current vesting periods of the long-term incentive units.

The aggregate intrinsic value of long-term incentive units that vested in 2023, 2022 and 2021 was $18.3 million, $18.1 million and $17.5 million, respectively. As of December 31, 2023, we had approximately 1.2 million long-term incentive units that were outstanding and exercisable with an aggregate intrinsic value of approximately $158.1 million (based on the market price of our common stock as of December 31, 2023).

		Weighted-Average		Weighted-Average			Aggregate
		Grant Date Fair		Remaining Contractual			Intrinsic Value (1)
Unvested Restricted Stock Units	Shares	Value		Life (Years)			(in thousands)
Unvested, beginning of period	507,837	$	131.57
Granted	568,671		122.25
Vested	(371,232)		119.87
Cancelled or expired	(83,413)		116.39
Unvested, end of period	621,863	$	132.07		2.47	$		83,690

(1) The intrinsic value is calculated based on the market value of our common stock as of December 31, 2023.

The grant date fair values, which equal the market price of Digital Realty Trust, Inc. common stock on the grant date, are expensed on a straight-line basis for service awards over the vesting period of the restricted stock, which is generally four years.

The aggregate intrinsic value of restricted stock that vested in 2023, 2022 and 2021 was $41.5 million, $59.0 million and $53.4 million, respectively.

Interxion Equity Plans

On March 9, 2020, in connection with the Interxion Combination, certain outstanding awards granted under various Interxion equity plans were assumed by Digital Realty Trust, Inc. and converted into adjusted equity-based awards of Digital Realty Trust, Inc. common stock in accordance with the terms of the Purchase Agreement for the Interxion Combination. All such awards will continue to be governed by the terms of the applicable Interxion equity plan and underlying award agreement evidencing the award. Approximately 0.6 million shares of Digital Realty Trust, Inc. common stock are registered and issuable pursuant to such awards. The impact of these plans is included in the tables above.

Defined Contribution Plans

We have a 401(k) plan whereby our U.S. employees may contribute a portion of their compensation to their respective retirement accounts, in an amount not to exceed the maximum allowed under the Code. The 401(k) plan complies with Internal Revenue Service requirements as a 401(k) safe harbor plan whereby matching contributions made by us are 100% vested. The aggregate cost of our contributions to the 401(k) plan was approximately $6.8 million, $5.9 million, and $5.9 million for the years ended December 31, 2023, 2022 and 2021, respectively. In addition, Interxion has a defined contribution pension plan for most of its employees. Contributions are made in accordance with the terms of such defined contribution pension plan and are expensed as incurred.