Stock-based compensation | Stock-based compensation The Company has granted stock-based awards under the Genpact Limited 2007 Omnibus Incentive Compensation Plan (the “2007 Omnibus Plan”) and the Genpact Limited 2017 Omnibus Incentive Compensation Plan (the “2017 Omnibus Plan”) to eligible persons, including employees, directors and certain other persons associated with the Company. A brief summary of each plan is provided below: 2007 Omnibus Plan The Company adopted the 2007 Omnibus Plan on July 13, 2007 and amended and restated it on April 11, 2012. The 2007 Omnibus Plan provided for the grant of awards intended to qualify as incentive stock options, non-qualified stock options, share appreciation rights, restricted share awards, restricted share units, performance units, cash incentive awards and other equity-based or equity-related awards. Under the 2007 Omnibus Plan, the Company was authorized to grant awards for the issuance of up to a total of 23,858,823 common shares. 2017 Omnibus Plan On May 9, 2017, the Company’s shareholders approved the adoption of the 2017 Omnibus Plan, pursuant to which 15,000,000 Company common shares are available for issuance. The 2017 Omnibus Plan was amended and restated on April 5, 2019 and April 5, 2022 to increase the number of common shares authorized for issuance by 8,000,000 shares to 23,000,000 shares and by 3,500,000 shares to 26,500,000 shares, respectively. No grants may be made under the 2007 Omnibus Plan after the date of adoption of the 2017 Omnibus Plan. Grants that were outstanding under the 2007 Omnibus Plan as of the date of the Company’s adoption of the 2017 Omnibus Plan, remain subject to the terms of the 2007 Omnibus Plan. Stock-based compensation costs relating to the foregoing plans during the years ended December 31, 2021, 2022 and 2023 were $80,548, $75,836 and $87,108, respectively, and have been allocated to cost of revenue and selling, general, and administrative expenses. Income tax benefits recognized in relation to stock-based compensation costs, including options, restricted share units ("RSUs") and performance units ("PUs"), including excess tax benefits, during the years ended December 31, 2021, 2022 and 2023 were $21,857, $21,863 and $19,312, respectively. Stock options All options granted under the 2007 and 2017 Omnibus Plans are exercisable into common shares of the Company, have a contractual period of ten years and vest over three The compensation cost is determined at the date of grant by estimating the fair value of an option using the Black-Scholes option-pricing model. The following table shows the significant assumptions used in connection with the determination of the fair value of options granted in 2021 and 2022. No options were granted in 2023. 2021 2022 Dividend yield 0.84% — 1.08% 0.96% Expected life (in months) 84 84 Risk-free rate of interest for expected life 1.12% — 1.37% 1.71% Volatility 26.05% — 26.18% 26.29% Volatility was calculated based on the historical volatility of the Company’s share price during a period equivalent to the estimated term of the option. The Company estimates the expected term of an option using the “simplified method,” which is based on the average of its contractual vesting term. The risk-free interest rate that the Company uses in the option valuation model is based on U.S. Treasury bonds with a term similar to the expected term of the options. The Company paid cash dividends of $0.1075 and $0.125 per share in each quarter of fiscal 2021 and 2022, respectively. The Company has issued, and intends to continue to issue, new common shares upon stock option exercises and the vesting of share awards under its equity-based incentive compensation plans. 18. Stock-based compensation (Continued) A summary of stock option activity during the years ended December 31, 2021, 2022 and 2023 is set out below: Year ended December 31, 2021 Shares arising Weighted Weighted average Aggregate Outstanding as of January 1, 2021 7,347,241 26.41 5.7 — Granted 1,831,180 43.98 — — Forfeited (25,000) 31.50 — — Expired — — — — Exercised (1,145,125) 20.23 — 30,463 Outstanding as of December 31, 2021 8,008,296 31.30 6.1 $ 174,428 Vested as of December 31, 2021 and expected to vest thereafter (Note a) 7,422,919 30.51 6.1 $ 167,551 Vested and exercisable as of December 31, 2021 3,117,333 24.17 3.4 $ 90,117 Weighted average grant-date fair value of options granted during the period $ 11.35 Year ended December 31, 2022 Shares arising Weighted Weighted average Aggregate Outstanding as of January 1, 2022 8,008,296 $ 31.30 6.1 — Granted 475,695 52.12 — — Forfeited (70,841) 41.46 — — Expired — — — — Exercised (665,036) 22.11 — 15,752 Outstanding as of December 31, 2022 7,748,114 $ 33.27 5.6 $ 105,261 Vested as of December 31, 2022 and expected to vest thereafter (Note a) 7,287,127 $ 32.59 5.6 $ 103,474 Vested and exercisable as of December 31, 2022 3,211,699 $ 25.35 3.3 $ 67,347 Weighted average grant-date fair value of options granted during the period $ 14.19 Year Ended December 31, 2023 Shares arising Weighted Weighted average Aggregate Outstanding as of January 1, 2023 7,748,114 $ 33.27 5.6 — Granted — — — — Forfeited (319,646) 41.06 — — Expired (53,990) 43.94 — — Exercised (1,376,330) 20.17 — 29,255 Outstanding as of December 31, 2023 5,998,148 $ 35.77 5.5 $ 19,341 Vested as of December 31, 2023 and expected to vest thereafter (Note a) 5,784,672 $ 35.38 5.5 $ 19,332 Vested and exercisable as of December 31, 2023 3,161,392 $ 30.42 4.3 $ 15,069 Weighted average grant-date fair value of options granted during the period — (a) Options expected to vest after considering an estimated forfeiture rate. 18. Stock-based compensation (Continued) Cash received by the Company upon the exercise of stock options during the years ended December 31, 2021, 2022 and 2023 amounted to $23,168, $14,701 and $27,755, respectively. Income tax benefits from the exercise of stock options during the years ended December 31, 2021, 2022 and 2023 were $6,927, $2,398 and $6,631 (including excess tax benefits of $4,191, $1,543 and $3,453), respectively. As of December 31, 2023, the total remaining unrecognized stock-based compensation cost for options expected to vest amounted to $8,690, which will be recognized over the weighted average remaining requisite vesting period of 2.4 years. Restricted Share Units The Company has granted RSUs, under the 2007 and 2017 Omnibus Plans. Each RSU represents the right to receive one common share. The fair value of each RSU is the market price of one common share of the Company on the date of grant. The RSUs granted to date have graded vesting schedules of three months to four years. The compensation expense is recognized on a straight-line basis over the vesting term. A summary of RSU activity during the years ended December 31, 2021, 2022 and 2023 is set out below: Year ended December 31, 2021 Number of Weighted Outstanding as of January 1, 2021 860,308 $ 36.44 Granted 466,702 44.00 Vested (Note b) (501,273) 34.41 Forfeited (66,230) 38.02 Outstanding as of December 31, 2021 759,507 $ 42.29 Expected to vest (Note a) 654,594 Year ended December 31, 2022 Number of Weighted Outstanding as of January 1, 2022 759,507 $ 42.29 Granted 206,280 45.66 Vested (Note c) (274,521) 43.23 Forfeited (111,644) 42.69 Outstanding as of December 31, 2022 579,622 $ 42.97 Expected to vest (Note a) 527,621 Year ended December 31, 2023 Number of Weighted Outstanding as of January 1, 2023 579,622 $ 42.97 Granted 1,047,905 42.77 Vested (Note d) (510,057) 42.77 Forfeited (80,854) 42.96 Outstanding as of December 31, 2023 1,036,616 $ 42.87 Expected to vest (Note a) 953,972 18. Stock-based compensation (Continued) (a) RSUs expected to vest after considering an estimated forfeiture rate. (b) 461,640 RSUs that vested during the period were net settled upon vesting by issuing 300,944 shares (net of minimum statutory tax withholding). 39,633 RSUs vested in the year ended December 31, 2021, in respect of which 39,515 shares were issued during the period ended December 31, 2023 after withholding shares to the extent of minimum statutory withholding taxes. 7,863 RSUs vested in the year ended December 31, 2021, in respect of which 5,496 shares were issued during the period ended December 31, 2022 after withholding shares to the extent required to satisfy minimum statutory withholding obligations. (c) 28,866 RSUs that vested during the period were net settled upon vesting by issuing 19,992 shares (net of minimum statutory tax withholding). 199,297 RSUs vested in the year ended December 31, 2022, in respect of which 120,858 shares were issued during the period ended December 31, 2023 after withholding shares to the extent of minimum statutory withholding taxes. 46,358 RSUs vested in the year ended December 31, 2022, shares in respect of which will be issued in 2024 after withholding shares to the extent of minimum statutory withholding taxes. (d) 453,761 RSUs vested during the period were net settled upon vesting by issuing 296,656 shares (net of minimum statutory tax withholding). 56,296 RSUs vested in the year ended December 31, 2023, shares in respect of which will be issued in 2024 after withholding shares to the extent of minimum statutory withholding taxes. As of December 31, 2023, the total remaining unrecognized stock-based compensation cost related to RSUs amounted to $26,685, which will be recognized over the weighted average remaining requisite vesting period of 1.9 years. Performance Units The Company also grants stock awards in the form of PUs, and has granted PUs under both the 2007 and 2017 Omnibus Plans. Each PU represents the right to receive one common share at a future date based on the Company’s performance against specified targets. PUs granted to date have vesting schedules of approximately six months to three years. PUs granted under the plans are subject to cliff vesting. The compensation expense for such awards is recognized on a straight-line basis over the vesting term. For PUs granted prior to 2023, the fair value of each PU was the market price of one common share of the Company on the date of grant and the performance period for such grants was one year. For PUs that have a performance period of one year, the Company’s estimate of the number of shares to be issued is adjusted upward or downward based upon the probability of achievement of the performance targets. The ultimate number of shares issued and the related compensation cost recognized is based on a comparison of the final performance metrics to the specified targets. For PUs granted in 2023, the performance period increased to three years from one year for PUs granted prior to 2023. The number of PUs granted in 2023 that will ultimately vest will be determined, subject to certain conditions and limitations, based on the Company’s achievement of the performance targets set forth in the awards as well as its TSR relative to the TSR of the companies included as of January 1, 2023 in the S&P 400 Midcap Index (the “Peer Group”) over the three-year performance period. The grant date fair value for PUs granted in 2023 is determined using a Monte Carlo simulation model. This model simulates a range of possible future stock prices and estimates the probabilities of the potential payouts. This model also incorporates the following assumptions: • The historical volatility for the companies in the Peer Group was measured using the most recent three-year period. • The risk-free interest rate is based on the U.S. Treasury rate assumption commensurate with the three-year performance period. • For determining the TSR of the Company and the companies in the Peer Group, dividends are assumed to have been reinvested in the stock of the issuing entities on a continuous basis. • The correlation coefficients used to model the way in which each entity tends to move in relation to each other are based upon the price data used to calculate historical volatility. 18. Stock-based compensation (Continued) The fair value of each PU granted in 2023 to employees was estimated on the date of grant using the following valuation assumptions: Year ended December 31, 2023 Dividend yield 1.22 % — 1.52 % Expected life (years) 2.54 — 2.80 Risk-free rate of interest for expected life 3.80 % — 4.44 % Volatility 24.03 % — 24.71 % A summary of PU activity during the years ended December 31, 2021, 2022 and 2023 is set out below: Year ended December 31, 2021 Number of Weighted Average Maximum Shares Outstanding as of January 1, 2021 4,876,196 $ 34.56 4,876,196 Granted 1,340,877 44.06 2,681,754 Vested (Note b) (1,784,140) 30.66 (1,784,140) Forfeited (258,258) 39.97 (320,098) Adjustment upon final determination of level of performance goal achievement (Note c) 408,480 43.99 Adjustment upon final determination of level of performance goal achievement (Note d) (870,557) Outstanding as of December 31, 2021 4,583,155 $ 39.40 4,583,155 Expected to vest (Note a) 4,263,803 Year ended December 31, 2022 Number of Weighted Average Maximum Shares Outstanding as of January 1, 2022 4,583,155 $ 39.40 4,583,155 Granted 1,590,794 44.50 3,181,588 Vested (Note e) (2,161,789) 34.61 (2,161,789) Forfeited (487,909) 43.52 (642,512) Adjustment upon final determination of level of performance goal achievement (Note f) 46,700 44.20 Adjustment upon final determination of level of performance goal achievement (Note g) (1,389,491) Outstanding as of December 31, 2022 3,570,951 $ 44.07 3,570,951 Expected to vest (Note a) 3,224,941 18. Stock-based compensation (Continued) Year ended December 31, 2023 Number of Weighted Average Maximum Shares Outstanding as of January 1, 2023 3,570,951 $ 44.07 3,570,951 Granted 986,891 43.99 2,368,538 Vested (Note h) (647,549) 42.53 (647,549) Forfeited (357,362) 44.19 (411,551) Adjustment upon final determination of level of performance goal achievement (Note i) 96,668 44.50 96,668 Outstanding as of December 31, 2023 3,649,599 $ 44.32 4,977,057 Expected to vest (Note a) 3,282,005 (a) PUs expected to vest are based on the probable achievement of the performance targets after considering an estimated forfeiture rate. (b) Vested PUs in the year 2021 were net settled upon vesting by issuing 1,102,440 shares (net of minimum statutory tax withholding). (c) Represents a 31.20% increase in the number of target shares expected to vest as a result of achievement of higher-than-target performance for PUs granted in 2021, partially offset by an adjustment made in March 2021 to the number of shares subject to the PUs granted in 2020 upon certification of the level of achievement of the performance targets underlying such awards. (d) Represents the difference between the maximum number of shares achievable and the number of shares expected to vest under the PU awards granted in 2021 based on the level of achievement of the performance goals. Also includes an adjustment made in March 2021 to the number of shares subject to the PUs granted in 2020 upon certification of the level of achievement of the performance targets underlying such awards. (e) 2,161,789 PSUs that vested during the year 2022 were net settled upon vesting by issuing 1,300,511 shares (net of minimum statutory tax withholding). (f) Represents a 1.31% increase in the number of target shares expected to vest as a result of achievement of higher-than-target performance for PUs granted in 2022, partially offset by an adjustment made in March 2022 to the number of shares subject to the PUs granted in 2021 upon certification of the level of achievement of the performance targets underlying such awards. (g) Represents the difference between the maximum number of shares achievable and the number of shares expected to vest under the PU awards granted in 2022 based on the level of achievement of the performance goals. Also includes an adjustment made in March 2022 to the number of shares subject to the PUs granted in 2021 upon certification of the level of achievement of the performance targets underlying such awards. (h) 647,549 PSUs that vested during the year 2023 were net settled upon vesting by issuing 412,275 shares (net of minimum statutory tax withholding). (i) Represents an adjustment made in March 2023 to the number of shares subject to the PUs granted in 2022 upon certification of the level of achievement of the performance targets underlying such awards. As of December 31, 2023, the total remaining unrecognized stock-based compensation cost related to PUs amounted to $42,615, which will be recognized over the weighed average remaining requisite vesting period of 1.6 years. 18. Stock-based compensation (Continued) Employee Stock Purchase Plan (ESPP) On May 1, 2008, the Company adopted the Genpact Limited U.S. Employee Stock Purchase Plan and the Genpact Limited International Employee Stock Purchase Plan (together, the “ESPP”). In April 2018, these plans were amended and restated, and their terms were extended to August 31, 2028. The ESPP allows eligible employees to purchase the Company’s common shares through payroll deductions at 90% of the closing price of the Company’s common shares on the last business day of each purchase interval. The dollar amount of common shares purchased under the ESPP must not exceed 15% of the participating employee’s base salary, subject to a cap of $25 per employee per calendar year. With effect from September 1, 2009, the offering periods commence on the first business day in March, June, September and December of each year and end on the last business day of the subsequent May, August, November and February. 4,200,000 common shares have been reserved for issuance in the aggregate over the term of the ESPP. During the years ended December 31, 2021, 2022 and 2023, 285,657, 324,783 and 337,875 common shares, respectively, were issued under the ESPP. The ESPP is considered compensatory under FASB guidance on Compensation-Stock Compensation. The compensation expense for the ESPP is recognized in accordance with the FASB guidance on Compensation—Stock Compensation. The compensation expense for the ESPP during the years ended December 31, 2021, 2022 and 2023 was $1,420, $1,537 and $1,468, respectively, and has been allocated to cost of revenue and selling, general, and administrative expenses. |