NOTE 11 — SHARE-BASED AWARDS AND CASH BASED AWARDS

Incentive Compensation Plan

The W&T Offshore, Inc. Amended and Restated Incentive Compensation Plan (as amended, from time to time, the “Plan”) was approved by the Company’s shareholders. The Plan covers the Company’s eligible employees and consultants and includes both cash and share-based compensation awards. The Plan grants the Compensation Committee of the Board of Directors administrative authority over all participants, and grants the CEO with authority over the administration of awards granted to participants that are not subject to section 16 of the Exchange Act (as applicable, the “Compensation Committee”).

Pursuant to the terms of the Plan, the Compensation Committee establishes the vesting or performance criteria applicable to the award and may use a single measure or combination of business measures as described in the Plan. Also, individual goals may be established by the Compensation Committee. Performance awards may be granted in the form of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), bonus stock, dividend equivalents, or other awards related to stock, and awards may be paid in cash, stock, or any combination of cash and stock, as determined by the Compensation Committee. The performance awards granted under the Plan can be measured over a performance period of up to 10 years and annual incentive awards (a type of performance award) will generally be paid within 90 days following the applicable year end.

Restricted Stock Units

During 2022 and 2021, the Company granted RSUs under the Plan to certain of its employees. There were no RSUs granted in 2020. RSUs are a long-term compensation component, granted to certain employees.

As of December 31, 2022, there were 9,595,681 shares of common stock available for issuance in satisfaction of awards under the Plan. The shares available for issuance are reduced on a one-for-one basis when RSUs are settled in shares of common stock, net of withholding tax through the withholding of shares. The Company has the option following vesting to settle RSUs in stock or cash, or a combination of stock and cash. During 2022, 2021 and 2020, only shares of common stock were used to settle all vested RSUs. The Company expects to settle RSUs that vest in the future using shares of common stock.

RSUs currently outstanding relate to the 2022 and 2021 grants. RSUs granted to employees are a long-term compensation component, that vest ratably over an approximate three year period subject to service conditions through each vesting date. See the table below for anticipated vesting by year of outstanding RSU grants.

Compensation cost for share-based payments to employees is recognized ratably over the period during which the recipient is required to provide service in exchange for the award. Compensation cost is based on the fair value of the equity instrument on the date of grant using the Company’s closing price on the grant date. Forfeitures are estimated during the vesting period, resulting in the recognition of compensation cost only for those awards that are expected to actually vest. Estimated forfeitures are adjusted to actual forfeitures when the award vests. All RSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period.

A summary of activity related to RSUs is as follows:

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RSUs fair value at grant date –The grant date fair value of RSUs granted during 2022 and 2021 was $6.1 million and $3.3 million, respectively. There were no RSUs granted during 2020.

RSUs fair value at vested date – The fair value of the RSUs that vested during 2022, 2021 and 2020 was $1.9 million, $2.4 million and $2.0 million, respectively, based on the Company’s closing price on the vesting date.

For the outstanding RSUs issued to the eligible employees as of December 31, 2022, vesting is expected to occur as follows (subject to forfeitures):

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Performance Share Units (“PSUs”)

During 2022 and 2021, the Company granted PSUs under the Plan to certain of its employees. There were no PSUs granted in 2020. PSUs are a long-term compensation component, granted to certain employees. The PSUs are RSU awards granted subject to performance criteria. The performance criteria relates to the evaluation of the Company’s total shareholder return (“TSR”) ranking against peer companies’ TSR for the applicable performance period and subject to service conditions through the vesting date. TSR is determined based on the change in the entity’s stock price plus dividends and distributions for the applicable performance period. PSUs currently outstanding relate to 2022 and 2021 grants.

PSUs granted to employees in 2022 are subject to an approximate three year performance period and service conditions through the vesting date. The performance period for the 2022 PSU grants ends on December 31, 2024 with vesting occurring on January 1, 2025.

PSUs granted to employees in 2021 were subject to an approximate one year performance period which ended on December 31, 2021. Subsequent to the performance period, the PSUs continue to be subject to service-based criteria until vesting occurring on October 1, 2023.

A summary of activity related to PSUs is as follows:

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Compensation cost for share-based payments to employees is recognized ratably over the period during which the recipient is required to provide service in exchange for the award. Compensation cost is based on the fair value of the equity instrument on the date of grant. All PSUs awarded are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restricted period. The grant date fair value of the PSUs was determined through the use of the Monte Carlo simulation method. This method requires the use of highly subjective assumptions. Key assumptions in the method include the price and the expected volatility of the Company’s stock and its self-determined Peer Group companies’ stock, risk free rate of return and cross-correlations between the Company and its Peer Group companies. The valuation model assumes dividends, if any, are immediately reinvested.

The following table summarizes the assumptions used to calculate the grant date fair value of the PSUs granted:

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PSUs fair value at vested date – The fair value of the PSUs that vested during 2022 was $0.1 million. No PSUs vested during 2021 and 2020.

For the outstanding PSUs issued to the eligible employees as of December 31, 2022, vesting is expected to occur as follows (subject to forfeitures):

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Share-Based Awards: Restricted Stock

Under the Directors Compensation Plan, shares of restricted stock (“Restricted Shares”) were issued in 2022, 2021 and 2020 to the Company’s non-employee directors as a component of their compensation arrangement. Vesting occurs upon completion of the one year vesting period. The holders of Restricted Shares generally have the same rights as a shareholder of the Company with respect to such shares, including the right to vote and receive dividends or other distributions paid with respect to the shares. Restricted Shares are subject to forfeiture until vested and cannot be sold, transferred or otherwise disposed of during the restriction period.

As of December 31, 2022, there were 368,316 shares of common stock available for issuance in satisfaction of awards under the Directors Compensation Plan. Reductions in shares available are made when Restricted Shares are granted.

A summary of activity related to Restricted Shares is as follows:

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Subject to the satisfaction of service conditions, the Restricted Shares outstanding as of December 31, 2022 are eligible to vest in 2023.

Restricted stock fair value at grant date - The grant date fair value of restricted stock granted during 2022, 2021 and 2020 was $0.2 million, $0.2 million and $0.3 million, respectively, based on the Company’s closing price on the date of grant.

Restricted stock fair value at vested date - The fair value of the restricted stock that vested during 2022, 2021 and 2020 was $0.4 million, $0.5 million and $0.2 million, respectively, based on the Company’s closing price on the date of vesting.

Share-Based Compensation

A summary of compensation expense under share-based payment arrangements is as follows (in thousands):

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As of December 31, 2022, unrecognized share-based compensation expense related to our awards of RSUs, PSUs and Restricted Shares was $2.4 million, $9.9 million and $0.1 million, respectively. Unrecognized compensation expense will be recognized through December 2024 for RSUs and PSUs and April 2023 for Restricted Shares.

Cash-based Incentive Compensation

Short-term Cash-Based Incentive Compensation

The following short-term cash-based incentive awards were granted during 2022 and 2021:

No cash-based incentive awards were granted in 2020. Cash-based incentive compensation expense recorded in 2020 related to the amortization of long-term cash awards granted in prior periods.

Long-term Cash-Based Incentive Compensation

No long-term cash-based incentive awards were granted during the year ended December 31, 2022.

During June 2021, the Company granted long-term, cash-based awards (the “2021 Cash Awards”) subject to the same performance-based criteria as the 2021 PSUs noted above. The 2021 Cash Awards were subject to an approximate one year performance period, which ended on December 31, 2021. Subsequent to the performance period, the 2021 Cash Awards will continue to be subject to service-based criteria until vesting occurring on October 1, 2023.

The 2021 Cash Awards are accounted for as liability awards and are measured at fair value each reporting date through the end of the performance period. Compensation cost for the 2021 Cash Awards to employees is recognized over the service period from June 28, 2021 through October 1, 2023. The fair value of the awards as of December 31, 2022 is $1.1 million. During the year ended December 31, 2022 and 2021, the Company recognized expense of $0.5 million and $0.2 million related to the 2021 Cash Awards. As of December 31, 2022, unrecognized compensation expense related to these awards was $0.4 million.

Share-Based Awards and Cash-Based Awards Compensation Expense

A summary of compensation expense related to share-based awards and cash-based awards is as follows (in thousands):

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