Share-based compensation

12 Months Ended

Jul. 31, 2024

Share-Based Payment Arrangement [Abstract]

Note 15. Share-based compensation

Following adoption by the board of directors of the Company (the “Board”), the Ferguson plc 2023 Omnibus Equity Incentive Plan (the “Ferguson plc Omnibus Plan”) was approved by the shareholders of the Company at the annual general meeting on November 28, 2023, and became effective as of September 21, 2023, the date of the Board’s adoption of the Ferguson plc Omnibus Plan. The Ferguson plc Omnibus Plan provided for the issuance of up to 6,750,000 of the Company’s ordinary shares, subject to share recycling and adjustment provisions. All new share-based compensation awards granted subsequent to November 28, 2023 have been granted under the Ferguson plc Omnibus Plan through July 31, 2024.

In connection with the Merger, on the Effective Date, Ferguson Enterprises Inc. assumed the Ferguson plc Omnibus Plan, the Ferguson Enterprises Inc. Ordinary Share Plan 2019, the Ferguson Enterprises Inc. Performance Ordinary Share Plan 2019 and the Ferguson Enterprises Inc. Long Term Incentive Plan 2019 (the “Prior Plans”) and adopted the Ferguson Enterprises Inc. 2023 Omnibus Equity Incentive Plan (the “FEI Omnibus Plan” and, together with the Ferguson plc Omnibus Plan, the “Omnibus Plan”). In addition, in connection with the assumption of the Prior Plans, Ferguson Enterprises Inc. adopted the Omnibus Amendment to The Ferguson Group International Sharesave Plan 2019, The Ferguson Group Long Term Incentive Plan 2019, The Ferguson Group Ordinary Share Plan 2019 and The Ferguson Group Performance Ordinary Share Plan 2019. No new awards have been, or will be, granted under the Prior Plans after November 28, 2023. Additionally, on the Effective Date, each outstanding ordinary share of the Company’s stock was canceled without any repayment of capital and Ferguson Enterprises Inc. issued as consideration new shares of common stock of Ferguson Enterprises Inc. In addition, on the Effective Date, each equity award previously granted under the Omnibus Plan and the Prior Plans were converted to an incentive award of Ferguson Enterprises Inc. that is subject to substantially the same terms and conditions as the former Ferguson plc incentive award. The security issuable upon vesting will be a share of common stock of Ferguson Enterprises Inc. rather than an ordinary share of Ferguson plc.

The Company grants share-based compensation awards that can be broadly characterized by the underlying vesting conditions as follows:

•Time vested, restricted stock units (“RSU”) typically vest at the end of three years. The fair value of these awards is based on the closing share price on the date of grant.

•Single metric performance stock units (“PSU”) typically vest following three-year performance cycles. The number of common stock shares issued will vary based upon the Company’s performance against an adjusted operating profit measure. The fair value of the award is based on the closing share price on the date of grant.

•Multiple metric performance stock units granted to Executive Directors (“PSU-ED”) typically vest following three-year performance cycles. The number of common stock shares issued will vary based upon multiple performance metrics as described below.

For PSU-ED awards granted prior to fiscal 2023, the number of shares eligible to vest will vary based on Company measures of inflation-indexed earnings per share (“EPS”), cash flow and relative total shareholder return (“rTSR”) compared to a peer company set. Based on these performance conditions, these awards granted prior to fiscal 2023 are treated as liability-settled awards. As such, the fair value of these awards are initially determined at the date of grant and are remeasured at each balance sheet date until the liability is settled. Dividend equivalents accrue during the vesting period with respect to these awards, but are not paid until the underlying awards vest. As of July 31, 2024 and July 31, 2023, the total liability recorded in connection with these grants was $8 million and $13 million, respectively.

In fiscal 2024 and 2023, the Company granted PSU-ED awards in which the number of shares eligible to vest will vary based on fixed measures of Company defined adjusted EPS growth (diluted) and return on capital employed (“ROCE”), as well as rTSR compared to a peer company set. Dividend equivalents accrue during the vesting period with respect to these awards, but are not paid until the underlying awards vest. Based on the performance conditions of these awards, such grants are treated as equity-settled awards (“PSU-ED, equity-settled”) with the fair value determined on the date of grant. Specifically, the fair value of such awards that vest based on achievement of the EPS and ROCE measures are equal to the closing share price on the date of grant. The fair value of the awards that vest based on rTSR were determined using a Monte-Carlo simulation, which estimate the fair value based on the Company's share price activity relative to the peer comparative set over the expected term of the award, risk-free interest rate, expected dividends, and the expected volatility of the shares of the Company and that of the peer company set.

The following table summarizes the share-based incentive awards activity for fiscal 2024:


	Number of shares	Weighted average grant date fair value
Outstanding as of July 31, 2023	1,158,673	$111.57
RSU awards granted	113,281	161.15
PSU awards granted	209,945	158.16
PSU-ED, equity-settled awards granted	32,050	149.37
Share adjustments based on performance	(27,836)	53.59
Vested	(477,323)	99.01
Forfeited	(45,660)	130.41
Outstanding as of July 31, 2024	963,130	$135.82

The following table relates to RSU, PSU and PSU-ED awards activity:


	For the years ended July 31,
(In millions, except per share amounts)	2024	2023	2022
Fair value of awards vested	$79	$67	$94
Weighted average grant date fair value per share granted	$158.32	$99.95	$134.88

The following table relates to all share-based compensation awards:


	For the years ended July 31,
(In millions)	2024	2023	2022
Share-based compensation expense (within SG&A)	$49	$51	$57
Income tax benefit	14	11	20

Total unrecognized share-based payment expense for all share-based payment plans was $56 million at July 31, 2024, which is expected to be recognized over a weighted average period of 1.9 years.

Employee share purchase plan

Similar to the Omnibus Plan and Prior Plans, in connection with the Merger, as of the Effective Date, Ferguson Enterprises Inc. assumed The Ferguson Group Employee Share Purchase Plan 2021, and in connection with such assumption, adopted the Ferguson Enterprises Inc. Employee Share Purchase Plan 2021 (the “ESPP”). In addition, as of the Effective Date, all outstanding options under the ESPP were converted into options of Ferguson Enterprises Inc. that were subject to substantially the same terms and conditions as the former Ferguson plc option, except, that the security issuable upon exercise of the option will be a share of common stock (or its cash equivalent) of Ferguson Enterprises Inc. rather than an ordinary share of Ferguson plc (or its cash equivalent). The ESPP provides for a limit of 20 million shares of common stock that can be awarded under the plan subject to certain guidelines set forth in the plan.

As of July 31, 2024, 19.5 million shares of common stock remain available for allotment under the ESPP. The exercise price per share of common stock will be prescribed by the Board for each offering period and may not be less than 85% of the lesser of the fair market value of common stock on the date of grant and the fair market value of common stock on the date of exercise. During fiscal 2024, there were approximately 160,800 shares purchased under the ESPP at an average price of $106.02. The expense associated with the ESPP is not material.