NOTE 16. STOCK-BASED COMPENSATION Stock-based incentive awards are granted to employees under the terms of Kyndryl’s employment and the Kyndryl Plan (see Note 1 – Significant Accounting Policies). Awards under the Kyndryl Plan principally include Restricted Stock Units (RSUs), market-conditioned and performance-conditioned stock units and stock options. RSUs and stock options generally vest based on continued passage of time. Market-conditioned and performance-conditioned stock units are cliff-vested at the end of the performance period if the market or performance conditions have been satisfied. The following table summarizes stock-based compensation cost, which is included in net income (loss). | | | | | | | | | | | | Year Ended March 31, | (Dollars in millions) | | 2026 | | 2025 | | 2024 | Cost of services | | $ | 9 | | $ | 12 | | $ | 16 | Selling, general and administrative expense | | | 55 | | | 89 | | | 78 | Pretax stock-based compensation expense | | $ | 64 | | $ | 100 | | $ | 95 | Income tax benefits | | | (2) | | | (7) | | | (5) | Stock-based compensation cost, net of tax | | $ | 62 | | $ | 93 | | $ | 90 |
The Company’s total unrecognized compensation cost related to non-vested awards at March 31, 2026 was $125 million and is expected to be recognized over a weighted-average period of approximately 2.6 years. Capitalized stock-based compensation cost was not material during any period presented. Stock Units The following table summarizes the activity related to Kyndryl’s RSUs, market-conditioned stock units and performance-conditioned stock units: | | | | | | | | | | | | | | | | | | | | | | | Market-Conditioned | | Performance-Conditioned | | | RSUs | | Stock Units | | Stock Units | | | | | | Weighted- | | | | | Weighted- | | | | | Weighted- | | | | | | Average | | | | | Average | | | | | Average | | | Number | | Grant-Date | | Number | | Grant-Date | | Number | | Grant-Date | | | of Units | | Fair Value | | of Units | | Fair Value | | of Units | | Fair Value | | | (in millions) | | (per share) | | (in millions) | | (per share) | | (in millions) | | (per share) | Nonvested balance at March 31, 2023 | | | 9.4 | | $ | 18.43 | | | 2.3 | | $ | 14.40 | | | 2.3 | | $ | 10.62 | Awards granted | | | 3.1 | | $ | 13.52 | | | 0.6 | | $ | 14.10 | | | 2.0 | | $ | 13.37 | Awards vested | | | (4.0) | | | 21.92 | | | — | | | — | | | — | | | — | Awards canceled/forfeited | | | (0.4) | | | 17.43 | | | (0.1) | | | 14.43 | | | (0.1) | | | 11.85 | Nonvested balance at March 31, 2024 | | | 8.0 | | $ | 15.33 | | | 2.9 | | $ | 14.32 | | | 4.3 | | $ | 12.28 | Awards granted | | | 1.7 | | $ | 26.65 | | | 0.4 | | $ | 26.23 | | | 1.2 | | $ | 26.47 | Awards vested | | | (3.3) | | | 17.14 | | | (0.8) | | | 15.14 | | | — | | | — | Awards canceled/forfeited | | | (0.3) | | | 16.58 | | | (0.8) | | | 15.12 | | | (0.1) | | | 12.13 | Nonvested balance at March 31, 2025 | | | 6.1 | | $ | 17.49 | | | 1.6 | | $ | 16.33 | | | 5.4 | | $ | 15.01 | Awards granted | | | 3.6 | | $ | 32.86 | | | — | | $ | — | | | 1.2 | | $ | 39.47 | Adjustment for performance achievement | | | | | | | | | 0.6 | | | 12.51 | | | (0.4) | | | 10.62 | Awards vested | | | (2.7) | | | 17.74 | | | (1.3) | | | 12.51 | | | (1.9) | | | 10.61 | Awards canceled/forfeited | | | (0.6) | | | 24.45 | | | (0.1) | | | 19.22 | | | (0.5) | | | 23.98 | Nonvested balance at March 31, 2026 | | | 6.4 | | $ | 25.36 | | | 0.9 | | $ | 18.70 | | | 3.8 | | $ | 24.24 |
The Company used the following assumptions in the Monte-Carlo simulation pricing model to estimate the grant-date fair values of stock units granted with both a performance and a market condition for the year ended March 31, 2026, and market-conditioned stock units granted during the years ended March 31, 2025 and March 31, 2024. | | | | | | | | | Year Ended March 31, | | | 2026 | | 2025 | | 2024 | Share price | | $39.18 | | $26.51 | | $13.55 | Expected volatility | | 48% | | 43% | | 39%* | Risk-free interest rate | | 3.88% | | 4.60% | | 4.57% - 5.38% | Dividend yield | | 0% | | 0% | | 0% |
| * | Based on the average three-year historic volatility across a group of peer companies. |
Stock Options The following table summarizes the activity related to Kyndryl’s stock options: | | | | | | | | | | | | | | | | | | Stock Options | | | | | | | | | | | | | | | | Weighted- | | | | | | | | | Weighted- | | | | | Average | | | | | | Weighted- | | Average | | Aggregate | | | Remaining | | | Number | | Average | | Grant Date | | Intrinsic | | | Contractual | | | of Units | | Exercise Price | | Fair Value | | Value | | | Term | | | (in millions) | | (per share) | | (per share) | | (in millions) | | | (in years) | Outstanding balance at March 31, 2023 | | | 3.7 | | $ | 17.76 | | $ | 6.54 | | $ | — | | | 8.7 | Awards exercised | | | (0.0) | | | 17.30 | | | 6.61 | | | — | | | | Awards canceled/forfeited | | | (0.1) | | | 17.78 | | | 6.54 | | | | | | | Outstanding balance at March 31, 2024 | | | 3.5 | | $ | 17.77 | | $ | 6.54 | | $ | — | | | 7.3 | Awards exercised | | | (0.4) | | | 17.69 | | | 6.56 | | | 4.7 | | | | Awards canceled/forfeited | | | (0.0) | | | 17.78 | | | 6.54 | | | | | | | Outstanding balance at March 31, 2025 | | | 3.1 | | $ | 17.78 | | $ | 6.54 | | $ | 42.7 | | | 6.4 | Awards exercised | | | (0.4) | | | 17.77 | | | 6.54 | | | 6.4 | | | | Awards canceled/forfeited | | | (0.0) | | | 17.78 | | | 6.54 | | | | | | | Outstanding balance at March 31, 2026 | | | 2.7 | | $ | 17.78 | | $ | 6.54 | | $ | — | | | 5.0 | Options vested and exercisable at March 31, 2026 | | | 2.7 | | $ | 17.78 | | $ | 6.54 | | $ | — | | | 5.0 |
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