STOCK-BASED COMPENSATION

9 Months Ended

Sep. 30, 2021

Share-based Payment Arrangement, Noncash Expense [Abstract]

Presented below is a summary of the stock-based compensation cost and associated tax benefit included in the accompanying consolidated statements of operations:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Stock-based compensation cost	$	41	$	38	$	127	$	110
Tax benefit	$	8	$	8	$	29	$	22

On September 15, 2021, the Company acquired RMS, which is discussed in more detail in Note 8. As part of the acquisition, certain RMS employees' unvested equity awards (employee stock options and restricted stock) with an acquisition-date fair value of $32 million were converted into equity awards of the Company based on an exchange ratio as defined in the purchase agreement. The portion of the fair value of the replacement awards related to services provided prior to the acquisition was $5 million and was accounted for as consideration transferred (See Note 8). The remaining portion of the replacement awards of $27 million, which is associated with a future service requirement, will be recognized as compensation expense over the remaining vesting period. Moody's has reserved 1.2 million shares of the Company's common stock for issuance under the acquired RMS equity compensation plans.

During the first nine months of 2021, the Company granted 0.2 million employee stock options (including RMS replacement option awards), which had a weighted average grant date fair value of $113.91 per share. The Company also granted 0.6 million shares of restricted stock in the first nine months of 2021 (including RMS replacement restricted stock awards), which had a weighted average grant date fair value of $286.08 per share. Both the employee stock options and restricted stock generally vest ratably over four years. Additionally, the Company granted 0.1 million shares of performance-based awards whereby the number of shares that ultimately vest are based on the achievement of certain non-market-based performance metrics of the Company over three years. The weighted average grant date fair value of these awards was $269.88 per share.

The following weighted average assumptions were used in determining the fair value using the Black-Scholes option-pricing model for options granted in 2021 (excluding the aforementioned RMS replacement awards):


Expected dividend yield	0.89	%
Expected stock volatility	28	%
Risk-free interest rate	0.81 %
Expected holding period	5.6 years

Due to the RMS replacement option awards being heavily in-the-money at the acquisition date, the Company utilized a binomial valuation approach to determine the fair value of the options, which approximated the intrinsic value of the replaced awards at the acquisition date.

Unrecognized stock-based compensation expense at September 30, 2021 was $25 million and $211 million for stock options and unvested restricted stock, respectively, which is expected to be recognized over a weighted average period of 2.3 years and 2.5 years, respectively. Additionally, there was $35 million of unrecognized stock-based compensation expense relating to the aforementioned non-market-based performance-based awards, which is expected to be recognized over a weighted average period of 2.0 years.

The following tables summarize information relating to stock option exercises and restricted stock vesting:


	Nine Months Ended September 30,
	2021		2020
Exercise of stock options:
Proceeds from stock option exercises	$	20	$	32
Aggregate intrinsic value	$	44	$	102
Tax benefit realized upon exercise	$	11	$	24
Number of shares exercised	0.2		0.5
Vesting of restricted stock:
Fair value of shares vested	$	193	$	195
Tax benefit realized upon vesting	$	45	$	45
Number of shares vested	0.7		0.8
Vesting of performance-based restricted stock:
Fair value of shares vested	$	28	$	70
Tax benefit realized upon vesting	$	7	$	17
Number of shares vested	0.1		0.3