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Stock-Based Compensation
 12 Months Ended
Dec. 31, 2020
Share-based Payment Arrangement [Abstract]  
Stock-Based Compensation STOCK-BASED COMPENSATION
RTC’s long-term incentive plans authorize various types of market and performance based incentive awards that may be granted to officers and employees. The Raytheon Technologies Corporation 2018 Long-Term Incentive Plan (2018 LTIP) was approved by shareowners on April 30, 2018 (formerly the United Technologies Corporation 2018 Long-Term Incentive Plan).
Upon the separation of Carrier and Otis that occurred on April 3, 2020, the shares remaining for future issuance under the 2018 LTIP were adjusted, in accordance with plan rules. With this adjustment, a total of 81.3 million shares have been authorized for issuance pursuant to awards under the 2018 LTIP. As of December 31, 2020, approximately 48 million shares remain available for awards under the 2018 LTIP. The 2018 LTIP does not contain an aggregate annual award limit, however, it sets an annual award limit per participant. Unless shareowners approve a proposal to extend the term of the 2018 LTIP at the Company’s Annual Meeting on April 26, 2021, the 2018 LTIP will expire after all authorized shares have been awarded or April 30, 2028, whichever is sooner. If shareowners approve the proposed extension, the 2018 LTIP will expire after all authorized shares have been awarded or April 26, 2031, whichever is sooner.
As a result of the Raytheon Merger, Raytheon Company shares of restricted stock, restricted stock units (RSUs) and performance share units outstanding prior to the merge, which were issued originally under the Raytheon Company 2010 Stock Plan, as amended and restated, and the Raytheon Company 2018 Stock Plan (together “legacy Raytheon Company Plans”), were converted to Raytheon Technologies shares of restricted stock and RSUs, which resulted in 4.5 million new shares of restricted stock and 2.0 million new RSUs. The conversion of the stock awards resulted in de minimis incremental compensation cost. No new equity awards will be issued under the legacy Raytheon Company Plans.
As a result of the Separation Transactions and Distributions, outstanding awards granted to employees under the 2018 LTIP and under its predecessor plan (the amended and restated United Technologies Long-Term Incentive Plan) were converted into Carrier, Otis, and RTC stock-based awards, depending on whether awards were vested or unvested as of April 2, 2020. Vested awards were converted into vested awards of RTX, Carrier and Otis, and unvested awards were generally converted into unvested awards of the employee’s post-separation employer. This conversion resulted in an incremental 1.7 million stock options, 47.1 million stock appreciation rights, 2.7 million performance share units and 5.5 million RSUs. The conversion of the awards resulted in de minimis incremental compensation cost.
Additionally, concurrent with the Separation Transactions and Distributions, all performance share units outstanding on April 3, 2020 were converted to RSUs using payout metrics based on a combination of actual performance and the target for the remainder of the performance period. As a result, the performance share units were converted to 4.0 million RSUs, which were then converted into RTC, Carrier or Otis RSUs, as described above.
Of these converted awards, 1.4 million stock options, 47.9 million stock appreciation rights and 7.1 million RSUs were converted into Carrier and Otis awards and became obligations of Carrier and Otis due to the Separation Transactions and Distributions.
Under the 2018 LTIP, the exercise price of awards is set on the grant date and may not be less than the fair market value per share on that date. Generally, stock appreciation rights and stock options have a term of ten years and a three-year vesting period, subject to limited exceptions. In the event of retirement, annual stock appreciation rights, stock options, and RSUs held for more than one year may become vested and exercisable, subject to certain terms and conditions. LTIP awards with performance-based vesting generally have a minimum three-year vesting period and vest based on actual performance against pre-established metrics. In the event of retirement, performance-based awards held for more than one year, remain eligible to vest based on actual performance relative to performance goals. We have historically repurchased shares of our common stock in an amount at least equal to the number of shares issued under our equity compensation arrangements and will continue to evaluate this policy in conjunction with our overall share repurchase program.
We measure the cost of all share-based payments, including stock options and stock appreciation rights, at fair value on the grant date and recognize this cost in the Consolidated Statement of Operations, net of expected forfeitures, as follows:
(dollars in millions)202020192018
Total compensation cost recognized$330 $268 $169 
The associated future income tax benefit recognized was $63 million, $47 million and $31 million for the years ended December 31, 2020, 2019 and 2018, respectively.
For the years ended December 31, 2020, 2019 and 2018, the amount of cash received from the exercise of stock options was $15 million, $27 million and $36 million, respectively, with an associated tax benefit realized of $48 million, $75 million and $59 million, respectively. In addition, for the years ended December 31, 2020, 2019 and 2018, the associated tax benefit realized from the vesting of performance share units, restricted stock awards and RSUs was $58 million, $36 million and $13 million, respectively.
At December 31, 2020, there was $315 million of total unrecognized compensation cost related to non-vested equity awards granted under long-term incentive plans. This cost is expected to be recognized ratably over a weighted-average period of 2.6 years.
A summary of the transactions under our long-term incentive plans for the years ended December 31, 2020 follows. The amounts in the tables and paragraphs below have not been recast for discontinued operations.
 Stock OptionsStock Appreciation RightsPerformance Share UnitsRestricted Stock and RSUs
(shares and units in thousands)Shares
Average
Price (1)
Shares
Average
Price (1)
Units
Average
Price (1)
Units
Average
Price (1)
Outstanding at:
December 31, 20191,568 $106.75 32,713 $108.61 1,919 $120.04 3,319 $119.34 
Granted262 153.00 6,346 152.45 — — 1,718 119.86 
Exercised / earned(144)77.02 (3,755)83.78 (527)111.17 (2,622)72.13 
Cancelled(18)92.36 (991)95.30 (48)110.18 (267)79.66 
Conversion impact - Separation and Distribution (2)
276 43.71 (763)38.00 (1,344)46.58 2,404 42.69 
Conversion impact - Raytheon Merger (3)
— — — — — — 6,482 51.00 
December 31, 20201,944 $77.88 33,550 $77.93 — $— 11,034 $62.92 
(1)    Weighted-average grant / exercise price.
(2)    Represents UTC awards converted for the Separation and Distribution and conversion of performance share units to RSUs as discussed further above.
(3)    Represents Raytheon Company awards converted to RTC restricted stock and RSUs in accordance with the Raytheon Merger.
The weighted-average grant date fair value of stock options and stock appreciation rights granted during 2020, 2019 and 2018 was $23.37, $20.81 and $20.24, respectively. The weighted-average grant date fair value of performance share units, which vest upon achieving certain performance metrics, granted during 2019 and 2018 was $117.87 and $131.55, respectively. The total fair value of awards vested during the years ended December 31, 2020, 2019 and 2018 was $284 million, $211 million and $149 million, respectively. The total intrinsic value (which is the amount by which the stock price exceeded the exercise price on the date of exercise) of stock options and stock appreciation rights exercised during the years ended December 31, 2020, 2019 and 2018 was $206 million, $383 million and $283 million, respectively. The total intrinsic value (which is the stock price at vesting multiplied by the number of underlying shares) of performance share units and other restricted awards vested was $295 million, $188 million and $74 million during the years ended December 31, 2020, 2019 and 2018, respectively.
The following table summarizes information about equity awards outstanding that are vested and expected to vest as well as equity awards outstanding that are exercisable at December 31, 2020:
 Equity Awards Vested and Expected to VestEquity Awards That Are Exercisable
(shares in thousands; aggregate intrinsic value in millions)Awards
Average
Price (1)
Aggregate
Intrinsic
Value
Remaining Term (2)
Awards
Average
Price (1)
Aggregate
Intrinsic
Value
Remaining Term (2)
Stock Options1,923 $77.82 $— 6.49754 $74.28 $2,414 3.86
Stock Appreciation Rights33,164 77.86 — 6.3416,766 75.51 42,783 4.45
Restricted Stock and RSUs10,589 63.07 — 1.63
(1)    Weighted-average exercise price per share.
(2)    Weighted-average contractual remaining term in years.
The fair value of each option award is estimated on the date of grant using a binomial lattice model. The following table indicates the assumptions used in estimating fair value for awards granted during 2020, 2019 and 2018. Lattice-based option models incorporate ranges of assumptions for inputs; those ranges are as follows:
202020192018
Expected volatility
18.8%
18.8% - 19.7%
17.5% - 21.1%
Weighted-average volatility19 %20 %18 %
Expected term (in years)
6.5
6.5 - 6.6
6.5 - 6.6
Expected dividend yield1.9 %2.4 %2.2 %
Risk-free rate
1.4% - 1.6%
2.3% - 2.7%
1.3% - 2.7%
Expected volatilities are based on the returns of our stock, including implied volatilities from traded options on our stock for the binomial lattice model. We use historical data to estimate equity award exercise and employee termination behavior within the valuation model. The expected term represents an estimate of the period of time equity awards are expected to remain outstanding. The risk-free rate is based on the term structure of interest rates at the time of equity award grant.