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STOCK-BASED COMPENSATION PLANS
 12 Months Ended
Dec. 31, 2023
Share-Based Payment Arrangement [Abstract]  
STOCK-BASED COMPENSATION PLANS STOCK-BASED COMPENSATION PLANS
Under the 1998 Plan, 33.0 million shares of the Company’s common stock have been reserved for issuance. In April 2023, stockholders approved an amendment to the 2001 Plan increasing the number of shares of Common Stock authorized for issuance by 4.0 million. This results in the 2001 Plan, which is shareholder approved, now permitting for the grant of up to 54.6 million shares, of which not more than 10.7 million shares are available for grants of awards other than stock options. The stock plans also provide for the granting of restricted stock. The stock plans provide that options are exercisable not later than ten years from the grant date. The vesting period for awards under the stock plans is generally determined by the Board at the date of the grant and has been four years except for employees who are at or near retirement eligibility, as defined, for which vesting is between one and four years. Additionally, the vesting period is three years for certain performance-based restricted stock that contain a condition whereby the number of shares that ultimately vest are based on the achievement of certain non-market based performance metrics of the Company. Options may not be granted at less than the fair market value of the Company’s common stock at the date of grant.
The Company maintains the Directors’ Plan for its Board, which permits the granting of awards in the form of non-qualified stock options, restricted stock or performance shares. The vesting period is determined by the Board at the date of the grant and is generally one year for both options and restricted stock. Under the Directors’ Plan, 1.7 million shares of common stock were reserved for issuance. Any director of the Company who is not an employee of the Company or any of its subsidiaries as of the date that an award is granted is eligible to participate in the Directors’ Plan.
On September 15, 2021, the Company acquired RMS, which is discussed in more detail in Note 9. As part of the acquisition, the Company registered the RMS Plans as part of the purchase agreement to acquire RMS. Under the RMS Plans, 1.2 million shares of the Company’s common stock have been reserved for issuance. The RMS Plans provide that options are exercisable not later than ten years from the grant date. The vesting period is generally determined by the Board at the date of the grant and is four years for both options and restricted stock granted during 2021.
As a result of the acquisition, certain RMS employees' unvested equity awards (employee stock options and restricted stock) with an acquisition-date fair value of $33 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 9). The remaining portion of the replacement awards of $28 million, which is associated with post-acquisition service requirements, will be recognized as compensation expense over the remaining vesting period.
Presented below is a summary of the stock-based compensation expense and associated tax benefit in the accompanying consolidated statements of operations:
Year Ended December 31,
202320222021
Stock-based compensation expense$193 $169 $175 
Tax benefit$45 $41 $42 
The fair value of each employee stock option award is estimated on the date of grant using the Black-Scholes option-pricing model that uses the assumptions noted below. The expected dividend yield is derived from the annual dividend rate on the date of grant. The expected stock volatility is based on an assessment of historical weekly stock prices of the Company as well as implied volatility from Moody’s traded options. The risk-free interest rate is based on U.S. government zero coupon bonds with maturities similar to the expected holding period. The expected holding period is determined by examining historical and projected post-vesting exercise behavior activity.
The following weighted average assumptions were used for options granted (excluding the aforementioned RMS replacement awards for the year ended December 31, 2021):
Year Ended December 31,
202320222021
Expected dividend yield1.04 %0.86 %0.89 %
Expected stock volatility29 %27 %28 %
Risk-free interest rate4.19 %1.91 %0.82 %
Expected holding period (in years)5.85.65.6
Due to the RMS replacement option awards being heavily in-the-money at the acquisition date, the Company utilized a binomial valuation approach in 2021 to determine the fair value of the options, which approximated the intrinsic value of the replaced awards at the acquisition date.
The following represents the fair value of the options at grant date (including the RMS replacement option awards for the year ended December 31, 2021):
Year Ended December 31,
202320222021
Weighted average grant date fair value per share$94.71 $84.00 $121.14 
A summary of option activity as of December 31, 2023 and changes during the year then ended is presented below:
OptionsSharesWeighted Average Exercise Price Per ShareWeighted Average Remaining Contractual TermAggregate Intrinsic Value
Outstanding, December 31, 2022
1.0 $181.35 
Granted0.1 $295.42 
Exercised(0.3)$116.05 
Outstanding, December 31, 2023
0.8 $212.29 5.0 years$147 
Vested and expected to vest, December 31, 2023
0.8 $212.11 5.0 years$147 
Exercisable, December 31, 2023
0.6 $176.07 3.8 years$123 
The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between Moody’s closing stock price on the last trading day of the year ended December 31, 2023 and the exercise prices, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options as of December 31, 2023. This amount varies based on the fair value of Moody’s stock. As of December 31, 2023, there was $9 million of total unrecognized compensation expense related to options. The expense is expected to be recognized over a weighted average period of 1.9 years.
The following table summarizes information relating to stock option exercises:
Year Ended December 31,
202320222021
Proceeds from stock option exercises$32 $8 $24 
Aggregate intrinsic value$58 $9 $55 
Tax benefit realized upon exercise$14 $2 $13 
A summary of nonvested restricted stock activity for the year ended December 31, 2023 is presented below:
Nonvested Restricted StockSharesWeighted Average Grant Date Fair Value Per Share
Balance, December 31, 2022
1.3 $288.47 
Granted0.7 $296.05 
Vested(0.6)$269.38 
Forfeited(0.1)$290.39 
Balance, December 31, 2023
1.3 $300.39 
As of December 31, 2023, there was $219 million of total unrecognized compensation expense related to nonvested restricted stock. The expense is expected to be recognized over a weighted average period of 2.4 years.
The following table summarizes information relating to the vesting of restricted stock awards:
Year Ended December 31,
202320222021
Fair value of shares vested$164 $180 $194 
Tax benefit realized upon vesting$40 $42 $46 
A summary of performance-based restricted stock activity for the year ended December 31, 2023 is presented below:
Performance-based restricted stockSharesWeighted Average Grant Date Fair Value Per Share
Balance, December 31, 2022
0.3 $303.80 
Granted0.1 $286.14 
Vested(0.1)$273.81 
Balance, December 31, 2023
0.3 $308.12 

The following table summarizes information relating to the vesting of the Company’s performance-based restricted stock awards:
Year Ended December 31,
202320222021
Fair value of shares vested$24 $50 $28 
Tax benefit realized upon vesting$3 $7 $7 
As of December 31, 2023, there was $24 million of total unrecognized compensation expense related to this plan. The expense is expected to be recognized over a weighted average period of 2.0 years.
The Company has a policy of issuing treasury stock to satisfy shares issued under stock-based compensation plans.
In addition, the Company also sponsors the ESPP. Under the ESPP, 6 million shares of common stock were reserved for issuance. The ESPP permits eligible employees to purchase common stock of the Company on a monthly basis at a discount to the average of the high and the low trading prices on the New York Stock Exchange on the last trading day of each month. This discount was 5% in 2023, 2022, and 2021 resulting in the ESPP qualifying for non-compensatory status under ASC Topic 718. Accordingly, no compensation expense was recognized for the ESPP in 2023, 2022, and 2021. The employee purchases are funded through after-tax payroll deductions, which plan participants can elect from one percent to ten percent of compensation, subject to the annual federal limit.