Stock-Based Compensation

6 Months Ended

Jun. 30, 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 continued employment and the achievement of certain market conditions over the applicable performance period. Certain participants will be awarded additional PSUs if market conditions exceed certain targets at the time of vesting. The PSUs accrue dividends (if declared and paid) at the same rate as TEC’s common stock. These dividends are paid at the time of vesting.

Changes in non-vested PSUs during the six months ended June 30, 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	—	146,903	146,903	2,034.32
Forfeited	—	(7,032)	(7,032)	518.24
Vested	(569,477)	(386,870)	(956,347)	55.04

Non-vested as of June 30, 2026 (b)	—	241,858	241,858	$	1,430.56

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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 June 30, 2026 at the then current share price of the Company’s common stock the aggregate non-vested PSUs would be 619,525.

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:


						Six Months Ended June 30, 2026
Volatility (a)						40% - 50%
Expected term (in years)						2 - 3
Risk-free rate (b)						3.45% - 3.97%

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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. The fair value of RSUs granted is based on the closing price of TEC common stock on the grant date. The RSUs accrue dividends (if declared and paid) at the same rate as TEC’s common stock. These dividends are paid at the time of vesting.

Changes in non-vested RSUs during the six months ended June 30, 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	3,358	72,992	76,350	391.37
Forfeited	—	(2,645)	(2,645)	207.95
Vested	(151,800)	(111,204)	(263,004)	68.15

Non-vested as of June 30, 2026	21,200	130,154	151,354	$	296.55

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

Liability-Classified Awards

PSU and RSU awards of certain executive officers that have or are scheduled to vest in 2026 were or will be partially settled in cash. Generally, the cash settlement amount is equal up to 60% of the net after-tax value on the vesting date of each such award and is subject to a cap. Additionally, it is expected that some non-employee directors will 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 is 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 $6 million and $501 million as of June 30, 2026 and December 31, 2025, respectively, measured based on the closing share price of TEC common stock on such dates.

Liability-classified awards that vested and settled during the three months ended June 30, 2026, resulted in cash payments of $495 million, including payments related to income tax. Equity-classified awards that vested concurrently with the liability-classified awards resulted in the net settlement of 655,350 shares of TEC common stock and $140 million of cash payments related to income taxes.

Stock-Based Compensation Expense

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


	Three Months Ended June 30,				Six Months Ended June 30,
	2026		2025		2026		2025

Stock-based compensation expense (benefit), net, liability-classified awards	$	28	$	—	$	4	$	—
Stock-based compensation expense (benefit), net, equity-classified awards	42		16		65		27
Income tax benefit	(11)		(4)		(17)		(7)
After-tax stock-based compensation expense (benefit), net	$	60	$	12	$	52	$	20

Unrecognized stock-based compensation expense and related periods of recognition as of June 30, 2026 were:


	PSUs			RSUs
	Liability-Classified	Equity-Classified		Liability-Classified		Equity-Classified
Unrecognized stock-based compensation expense (a)	N/A	$	274	$	1	$	28
Weighted-average period of recognition (in years)	N/A	1.6		0.5		1.5

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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.