Share-Based Compensation

12 Months Ended

Sep. 30, 2023

Share-Based Payment Arrangement [Abstract]

During 2023, 2022, and 2021, we recognized $88.3 million, $68.1 million, and $51.7 million of pre-tax share-based compensation expense, respectively. The total income tax benefit related to share-based compensation expense was $14.9 million, $11.2 million, and $8.6 million during 2023, 2022, and 2021, respectively. As of September 30, 2023, total unrecognized compensation cost related to share-based compensation awards, net of estimated forfeitures, was $106.5 million, which we expect to recognize over a weighted average period of approximately 1.7 years.

During 2020, we adopted, and our shareowners approved, our 2020 Long-Term Incentives Plan (2020 Plan), which replaced our 2012 Long-Term Incentives Plan, as amended (2012 Plan), and our 2003 Directors Stock Plan, as amended (Directors Plan). Our 2020 Plan authorizes us to deliver up to 13.0 million shares of our common stock upon exercise of stock options, upon grant, or in payment of stock appreciation rights, performance shares, performance units, restricted stock units, or restricted stock. Our Directors Plan authorized us to deliver up to 0.5 million shares of our common stock upon exercise of stock options, upon grant, or in payment of restricted stock units. Shares relating to awards under our 2012 Plan that terminate by expiration, forfeiture, cancellation, or otherwise without the issuance or delivery of shares or that are settled in cash in lieu of shares will be available for further awards under the 2020 Plan. Approximately 8.4 million shares under our 2020 Plan remain available for future grant or payment at September 30, 2023. We use treasury stock to deliver shares of our common stock under these plans. Our 2020 Plan does not permit share-based compensation awards to be granted after February 4, 2030.

Stock Options

We have granted non-qualified and incentive stock options to purchase our common stock under various incentive plans at prices equal to the fair market value of the stock on the grant dates. The exercise price for stock options granted under the plans may be paid in cash, already-owned shares of common stock, or a combination of cash and such shares. Stock options expire ten years after the grant date and vest ratably over three years.

The per share weighted average fair value of stock options granted during the years ended September 30, 2023, 2022, and 2021, was $77.62, $87.68, and $55.50, respectively. The total intrinsic value of stock options exercised was $69.8 million, $52.8 million, and $108.4 million during 2023, 2022, and 2021, respectively. We estimated the fair value of each stock option on the date of grant using the Black-Scholes pricing model and the following assumptions:


	2023		2022		2021
Average risk-free interest rate	3.78	%	0.38 %		0.38 %
Expected dividend yield	1.82	%	1.28	%	1.73 %
Expected volatility	34	%	31 %		31 %
Expected term (years)	4.8		4.8		4.9

The average risk-free interest rate is based on U.S. Treasury security rates corresponding to the expected term in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. We determined expected volatility using daily historical volatility of our stock price over the most recent period corresponding to the expected term as of the grant date. We determined the expected term of the stock options using historical data adjusted for the estimated exercise dates of unexercised options.

A summary of stock option activity for the year ended September 30, 2023, is as follows:


	Shares (in thousands)	Wtd. Avg. Exercise Price		Wtd. Avg. Remaining Contractual Term (years)	Aggregate Intrinsic Value of In-The-Money Options (in millions)
Outstanding at October 1, 2022	2,246	$	186.72
Granted	233	259.82
Exercised	(539)	165.34
Forfeited	(14)	282.78
Canceled	(2)	350.76
Outstanding at September 30, 2023	1,924	200.03		5.6	$	172.9

Exercisable at September 30, 2023	1,554	180.80		4.9	165.4

The amount of options expected to vest is materially consistent with those outstanding and not yet exercisable.

Performance Share Awards

Certain officers and key employees are also eligible to receive shares of our common stock in payment of performance share awards granted to them. Grantees of performance shares will be eligible to receive shares of our common stock depending upon our total shareowner return, assuming reinvestment of all dividends, relative to the performance of companies in the S&P 500 Index over a three-year period for the awards granted in fiscal 2020. The number of shares actually earned for awards granted in fiscal 2020 will range from zero percent to 200 percent of the targeted number of performance shares for the three-year performance periods and will be paid, to the extent earned, in the fiscal quarter following the end of the applicable three-year performance period. Beginning with the awards granted in fiscal 2021, the total shareowner return is measured relative to the performance of companies in the following S&P 500 Selected GICS groups: Capital Goods, Software and Services, and Technology Hardware and Equipment. The number of shares actually earned for awards granted in fiscal 2023, 2022, and 2021 will range from zero percent to 200 percent of the targeted number of performance shares for the three-year performance periods and will be paid, to the extent earned, in the fiscal quarter following the end of the applicable three-year performance period.

A summary of performance share activity for the year ended September 30, 2023, is as follows:


	Shares (in thousands)	Wtd. Avg. Grant Date Share Fair Value
Outstanding at October 1, 2022	97	$	354.29
Granted (1)	66	340.77
Adjustment for performance results achieved (2)	22	265.04
Vested and issued	(48)	265.04
Forfeited	(6)	381.85
Outstanding at September 30, 2023	131	364.57

(1) Performance shares granted assuming achievement of performance goals at target.

(2) Adjustments were due to the number of shares vested under fiscal 2020 awards at the end of the three-year performance period ended September 30, 2022, being higher than the target number of shares.

The following table summarizes information about performance shares vested during the years ended September 30, 2023, 2022, and 2021:


	2023			2022			2021
Percent payout	177		%	144		%	93		%
Shares vested (in thousands)	48			68			31
Total fair value of shares vested (in millions)	$	12.5		$	23.4		$	7.4

For the three-year performance period ending September 30, 2023, the payout will be 92% of the target number of shares, with a maximum of approximately 32,000 shares to be delivered in payment under the awards in December 2023.

The per share fair value of performance share awards granted during the years ended September 30, 2023, 2022, and 2021, was $340.77, $481.28, and $298.10, respectively, which we determined using a Monte Carlo simulation and the following assumptions:


	2023		2022		2021
Average risk-free interest rate	4.08	%	0.94	%	0.19	%
Expected dividend yield	1.82	%	1.28	%	1.73 %
Expected volatility	39	%	36	%	37	%

The average risk-free interest rate is based on the three-year U.S. Treasury security rate in effect as of the grant date. The expected dividend yield is based on the expected annual dividend as a percentage of the market value of our common stock as of the grant date. The expected volatilities were determined using daily historical volatility for the most recent three-year period as of the grant date.

Restricted Stock and Restricted Stock Units

We grant restricted stock and restricted stock units to certain employees, and non-employee directors may elect to receive a portion of their compensation in restricted stock units. Restrictions on employee restricted stock and employee restricted stock units generally lapse over periods ranging from one to five years. Director restricted stock units generally are payable upon retirement. We value restricted stock and restricted stock units at the closing market value of our common stock on the date of grant. The weighted average fair value of restricted stock and restricted stock unit awards granted during the years ended September 30, 2023, 2022, and 2021, was $263.67, $298.44, and $265.32, respectively. The total fair value of shares vested during the years ended September 30, 2023, 2022, and 2021, was $54.4 million, $35.6 million, and $10.4 million, respectively.

A summary of restricted stock and restricted stock unit activity for the year ended September 30, 2023, is as follows:


	Shares (in thousands)	Wtd. Avg. Grant Date Share Fair Value
Outstanding at October 1, 2022	448	$	271.71
Granted	245	263.67
Vested	(198)	256.98
Forfeited	(28)	279.30
Outstanding at September 30, 2023	467	273.28

We also granted approximately 6,600 shares of unrestricted common stock to non-employee directors during the year ended September 30, 2023. The weighted average grant date fair value of the unrestricted stock awards granted during the years ended September 30, 2023, 2022, and 2021, was $261.56, $345.00, and $228.80, respectively.