Stock-Based Compensation

3 Months Ended

Mar. 31, 2026

Share-Based Payment Arrangement [Abstract]

13. Stock-Based Compensation

In June 2023, TEC began granting performance stock units (“PSUs”) and restricted stock units (“RSUs”) to certain employees and non-employee directors under the Company’s 2023 Equity Incentive Plan (the “Equity Plan”). The aggregate number of shares authorized for issuance under the Equity Plan is 7,083,461 shares of common stock.

Performance Stock Units

PSUs have two or three-year cliff vesting schedules or vest upon consummation of a change in control event based on the satisfaction of a continued employment condition and the achievement of certain market conditions over a performance period. Participants will be awarded additional PSUs if market conditions exceed targets at the time of vesting. If the Company declares any cash dividends while the PSUs are outstanding, participants will be credited a dividend, payable at the time of vesting, based on the number of shares of common stock underlying the PSUs.

Changes in non-vested PSUs during the three months ended March 31, 2026 were:


	Liability-Classified PSUs (a)	Equity-Classified PSUs	Total PSUs	Weighted-Average Grant Date Fair Value per Unit
Non-vested as of December 31, 2025	569,477	488,857	1,058,334	$	147.45
Granted	—	145,911	145,911	2,045.20



Non-vested as of March 31, 2026 (b)	569,477	634,768	1,204,245	$	583.67

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(a)See description of liability-classified awards below.

(b)Represents the target number of PSUs. Subject to the PSU award agreements, the actual amount of PSUs earned by participants at vesting can range from 0% to 200% of the target number of PSUs based on the Company’s stock price performance. In addition, certain of the PSUs are eligible to earn an additional amount of Talen shares based on the incremental Company stock price performance in excess of the PSU targets. Assuming all non-vested PSUs vested on March 31, 2026 at the then current share price of the Company’s common stock the aggregate non-vested PSUs would be 1,405,355.

The fair value of PSUs is determined using a Monte Carlo valuation methodology based on the fair value of the underlying stock price at the grant date. Significant inputs and assumptions used in the valuations of PSUs were:



						Three Months Ended March 31, 2026
Volatility (a)						40% - 50%
Expected term (in years)						2 - 3
Risk-free rate (b)						3.45% - 3.49%

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(a) Derived from an option pricing method based on the average asset volatility of peer companies and the Company’s leverage ratio.

(b) Based on the U.S. constant maturity treasury rate with a term matching the expected time to the end of the performance measurement period.

Restricted Stock Units

RSUs have two or three-year ratable or two-year cliff vesting schedules beginning on the grant date, with restrictions on transferring settled shares prior to the final scheduled vesting date for the two and three-year awards. The fair value of RSUs granted is based on the closing price of TEC common stock on the grant date.

Changes in non-vested RSUs during the three months ended March 31, 2026 were:


	Liability-Classified RSUs (a)	Equity-Classified RSUs	Total RSUs	Weighted-Average Grant Date Fair Value per Unit
Non-vested as of December 31, 2025	169,642	171,011	340,653	$	106.18
Granted	—	75,687	75,687	391.43



Non-vested as of March 31, 2026	169,642	246,698	416,340	$	193.70

_____________

(a)See description of liability-classified awards below.

Liability-classified Awards

PSU and RSU awards of certain executive officers that are scheduled to vest in 2026 will be partially settled in cash. Generally, the cash settlement amount will equal up to 60% of the net after-tax value on the vesting date of each such award. However, the cash settlement amount is subject to a cap. Additionally, it is expected that non-employee directors could elect to net-settle a portion of their vested PSUs and RSUs for the payment of income taxes. The portion of each employee’s applicable awards that are expected to be settled in cash and all non-employee director awards are presented as “Stock-based compensation liabilities” on the Consolidated Balance Sheets and had a carrying value of $477 million, measured based on the closing share price of TEC common stock of $319.23 as of March 31, 2026.

Stock-based Compensation Expense

Stock-based compensation expense presented as “General and administrative” on the Consolidated Statement of Operations was:


	Three Months Ended March 31,
		2026		2025

Stock-based compensation expense (benefit), net, liability-classified awards		$	(24)	$	—
Stock-based compensation expense (benefit), net, equity-classified awards		23		11
Income tax benefit		—		(3)
After-tax stock-based compensation expense (benefit), net		$	(1)	$	8

Unrecognized stock-based compensation expense and related periods of recognition as of March 31, 2026 were:


	PSUs				RSUs
	Equity-Classified		Liability-Classified		Equity-Classified		Liability-Classified
Unrecognized stock-based compensation expense (a)	$	313	$	19	$	34	$	3
Weighted-average period of recognition (in years)	0.8		0.1		1.0		0.2

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(a) Stock-based compensation expense related to liability-classified awards is subject to variability due to changes in their value through the settlement date.