Generally, compensation cost associated with share-based payment transactions is measured based on the grant-date fair value of the equity instruments issued. Compensation cost is recognized over the requisite service period, generally as the awards vest. The Company accounts for forfeitures of stock-based compensation as they occur.

The Zurn Elkay Water Solutions Corporation Performance Incentive Plan, which was last approved by stockholders in fiscal 2025 (the "Plan"), is utilized to provide performance incentives to the Company's officers, employees, directors and certain others by permitting grants of equity awards (for common stock), as well as performance-based cash awards, to such persons, to encourage them to maximize Zurn Elkay's performance and create value for Zurn Elkay's stockholders. To date, equity awards consisting of stock options, Restricted Stock Units ("RSUs") and Performance Stock Units ("PSUs") have been issued under the Plan. The Plan is administered by the Compensation Committee.

The options granted under the Plan have a maximum term of 10 years after the grant date. Options and RSUs granted since fiscal 2016 generally vest ratably over 3 years. RSUs granted to nonemployee directors vest immediately, but shares are not issued until six months after the director's cessation of service. PSUs generally cliff vest after 3 years based on performance over that three-year period. A portion of PSUs granted to certain executives during the year ended December 31, 2024 include a total shareholder return ("TSR") multiplier to determine the final number of PSUs earned.

In May 2024, the Company’s stockholders approved the adoption of the Zurn Elkay Water Solutions Corporation Employee Stock Purchase Plan (“ESPP"). The number of shares of Company common stock available for purchase under the ESPP is 2,000,000 shares, subject to adjustment in the event of a change in capitalization.

During the years ended December 31, 2025 and December 31, 2024, the Company issued 70,943 and 44,436 shares of common stock related to the ESPP, respectively. As of December 31, 2025, 1,884,621 shares remained available for future issuance. During the years ended December 31, 2025 and December 31, 2024, the Company recognized $0.5 million and $0.3 million of stock-based compensation expense related to the ESPP, respectively.

During the years ended December 31, 2025, 2024, and 2023, the Company recorded $40.6 million, $37.9 million and $40.0 million, respectively, of stock-based compensation expense from continuing operations (the related tax benefit on these amounts subject to the 162(m) compensation limitations during the years ended December 31, 2025, 2024, and 2023 was $8.5 million, $9.2 million, and $9.8 million, respectively). During the year ended December 31, 2025, 2024, and 2023, the Company also recorded $2.1 million, $4.6 million and $2.0 million, respectively, of an excess tax benefit related to stock options exercised during each period. As of December 31, 2025, there was $26.3 million of total unrecognized compensation


	Year Ended
	December 31, 2025		December 31, 2024		December 31, 2023
Expected option term (in years)	6.5		6.5		6.5
Expected volatility factor	32	%	32	%	32	%
Weighted-average risk-free interest rate	4.39	%	4.33	%	3.90	%
Expected dividend rate	1.0	%	1.0	%	1.2	%

Management’s estimate of the option term for options granted under the Plan is based on the midpoint between when the options vest and when they expire. The Company uses the simplified method to determine the expected term, as management does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The Company’s expected volatility assumption for all options granted prior to the Spin-Off Transaction is based on the historical volatility of the Company's common stock price. The expected volatility assumption for all options granted after the Spin-Off Transaction is based on the historical volatility of the common stock prices of a peer group. The weighted average risk free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant. The weighted-average grant date fair value of options granted under the Plan during the years ended December 31, 2025, 2024, and 2023 was $13.11, $11.43 and $8.28, respectively. The total fair value of options vested during the years ended December 31, 2025, 2024, and 2023 was $0.7 million, $1.1 million and $0.9 million, respectively.

A summary of stock option activity during the years ended December 31, 2025, 2024, and 2023 is as follows:


	Year Ended
	December 31, 2025			December 31, 2024			December 31, 2023
	Shares	Weighted Avg. Exercise Price		Shares	Weighted Avg. Exercise Price		Shares	Weighted Avg. Exercise Price
Number of shares under options:
Outstanding at beginning of period	914,583	$	18.72	2,089,493	$	14.67	2,647,578	$	13.75
Granted	66,540	35.47		93,410	31.05		146,295	22.25
Exercised (1)	(401,017)	13.95		(1,241,512)	12.62		(655,644)	11.66

Canceled/Forfeited	(30,434)	26.62		(26,808)	28.49		(48,736)	27.77
Outstanding at end of period (2)	549,672	$	23.80	914,583	$	18.72	2,089,493	$	14.67
Exercisable at end of period (3)	407,617	$	21.14	747,808	$	16.71	1,878,789	$	13.35

(2)The weighted average remaining contractual life of options outstanding was 5.5 years at December 31, 2025, 4.8 years at December 31, 2024 and 4.1 years at December 31, 2023. The aggregate intrinsic value of options outstanding at December 31, 2025 was $12.4 million.

(3)The weighted average remaining contractual life of options exercisable was 4.5 years at December 31, 2025, 3.9 years at December 31, 2024 and 3.4 years at December 31, 2023. The aggregate intrinsic value of options exercisable at December 31, 2025 was $10.3 million.

During the years ended December 31, 2025, 2024, and 2023 the Company granted RSUs to certain of its officers, directors, and employees. The fair value of each award is determined based on the Company's closing stock price on the date of grant. A summary of RSU activity during the years ended December 31, 2025, 2024, and 2023 is as follows:


	Year Ended
	December 31, 2025			December 31, 2024			December 31, 2023
	Units	Weighted Avg. Grant Date Fair Value		Units	Weighted Avg. Grant Date Fair Value		Units	Weighted Avg. Grant Date Fair Value
Nonvested RSUs at beginning of period	263,075	$	26.97	501,321	$	26.05	580,112	$	29.33
Granted	198,393	35.71		125,565	31.23		242,385	23.40

Vested	(165,527)	29.29		(318,274)	27.06		(218,153)	30.70
Canceled/Forfeited	(29,882)	31.02		(45,537)	27.30		(103,023)	28.40
Nonvested RSUs at end of period	266,059	$	31.70	263,075	$	26.97	501,321	$	26.05

During the years ended December 31, 2025, 2024, and 2023, the Company granted PSUs to certain of its officers and employees. The PSUs granted during the years ended December 31, 2025, 2024, and 2023 had a three-year performance period and are earned and vest, subject to continued employment, based on performance relative to metrics determined by the Compensation Committee. The number of performance share awards earned, which can range between 0% and 200% of the target awards granted depending on the Company's actual performance during the respective performance period, will be satisfied with Zurn Elkay common stock. A summary of PSU activity during the years ended December 31, 2025, 2024, and 2023 is as follows:


	Year Ended
	December 31, 2025			December 31, 2024			December 31, 2023
	Units	Weighted Avg. Grant Date Fair Value		Units	Weighted Avg. Grant Date Fair Value		Units	Weighted Avg. Grant Date Fair Value
Nonvested PSUs at beginning of period	945,741	$	29.53	866,810	$	27.88	939,459	$	27.07
Granted	395,700	35.64		553,548	34.33		425,246	23.25


Vested (1)	(402,020)	23.25		(431,702)	32.25		(468,722)	22.17
Canceled/Forfeited	(10,528)	33.00		(42,915)	30.91		(29,173)	26.07
Nonvested PSUs at end of period	928,893	$	34.81	945,741	$	29.53	866,810	$	27.88

During the years ended December 31, 2025 and 2024, PSUs were granted with vesting based on goals related to free cash flow conversion, return on invested capital, and sales growth, and certain awards granted in 2024 contained a TSR multiplier. During the year ended December 31, 2023, PSUs were granted with vesting based on goals related to free cash flow conversion and return on invested capital. The fair value of the portion of PSUs with vesting based on free cash flow conversion, return on invested capital, and sales growth is determined based on the Company's closing stock price on the date of grant. The fair value of the portion of PSUs granted in 2024 that include a TSR multiplier is determined using a Monte Carlo valuation model. For these awards, the number of PSUs earned based on the achievement of goals related to free cash flow conversion, return on invested capital, and sales growth may be increased by 0-75% if the Company's TSR over the performance period falls within a predefined range.