Stock-Based and Employee Savings Plans

Equity Incentive Plans

We have equity incentive plans under which we grant equity awards, including stock options, restricted stock units, performance-based restricted stock units, and performance share units, to our directors, officers and employees. At December 31, 2015, 740 million shares were authorized under our equity incentive plans and 65 million shares were available for future grant, these awards were modified as described below.

All stock options granted under these plans generally vest 12.5% six months from the date of grant (or 25% one year from the date of grant for grants to new employees) with the remainder vesting at a rate of 2.08% per month thereafter, and generally expire seven to ten years from the date of grant. The cost of stock options is determined using the Black-Scholes option pricing model on the date of grant.

Restricted stock units are granted to eligible employees under our equity incentive plans. In general, restricted stock units vest in equal annual installments over a period of three to five years, are subject to the employees' continuing service to us and do not have an expiration date. The cost of restricted stock units is determined using the fair value of our common stock on the date of grant.

In 2015, 2014 and 2013, certain executives were eligible to receive performance-based restricted stock units. The number of restricted stock units ultimately received depends on our business performance against specified performance targets set by the Compensation Committee. If the performance criteria are satisfied, the performance-based restricted stock units are granted, with one-half of the grant vesting in March following the end of the performance period and the remaining one-half vesting one year later.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan ("ESPP") for all eligible employees. Under the plan, shares of our common stock may be purchased over an offering period with a maximum duration of two years at 85% of the lower of the fair market value on the first day of the applicable offering period or on the last day of the six-month purchase period. Employees may purchase shares having a value not exceeding 10% of their eligible compensation during an offering period. During the years ended 2015, 2014, and 2013, employees purchased approximately 4 million, 4 million and 4 million shares under this plan at average prices of $30.83, $42.06 and $35.51 per share, respectively. At December 31, 2015, approximately 24 million shares of common stock were reserved for future issuance. These awards were modified as described below.

Employee Savings Plan

We have a savings plan, which qualifies under Section 401(k) of the Internal Revenue Code. Participating employees may contribute up to 50% of their eligible compensation, but not more than statutory limits. In 2015, 2014 and 2013, we contributed one dollar for each dollar a participant contributed, with a maximum contribution of 4% of each employee's eligible compensation, subject to a maximum employer contribution of $10,600, $10,400 and $10,200 per employee for each period, respectively. Our non-U.S. employees are covered by various other savings plans. Our total expenses for these savings plans were $51 million in 2015, $43 million in 2014 and $39 million in 2013.

Deferred Stock Units

Beginning with the 2011 annual meeting of stockholders, we have granted deferred stock units to each non-employee director (other than Mr. Omidyar) at the time of our annual meeting of stockholders equal to the result of dividing $220,000 by the fair market value of our common stock on the date of grant. In addition, prior to January 1, 2015, new directors who are not employees of the company or its subsidiaries or affiliates received a one-time grant of deferred stock units equal to the result of dividing $150,000 by the fair market value of our common stock on the date of grant. Each deferred stock unit constitutes an unfunded and unsecured right to receive one share of our common stock (or, with respect to deferred stock units granted prior to August 1, 2013, the equivalent value thereof in cash or property at our election). Each deferred stock unit award granted to a new non-employee director upon election to the Board vests 25% one year from the date of grant, and at a rate of 2.08% per month thereafter. If the services of the director are terminated at any time, all rights to the unvested deferred stock units will also terminate. In addition, directors may elect to receive, in lieu of annual retainer and committee chair fees and at the time these fees would otherwise be payable (i.e., on a quarterly basis in arrears for services provided), fully vested deferred stock units with an initial value equal to the amount based on the fair market value of common stock at the date of grant. Following the termination of a non-employee director's service on the Board of Directors, deferred stock units granted prior to August 1, 2013 are payable in stock or cash (at our election), while deferred stock units granted on or after August 1, 2013 are payable solely in stock. As of December 31, 2015, there were approximately 255,579 deferred stock units outstanding included in our restricted stock unit activity below. These awards were modified as described below.

Modifications of Share-Based Awards

During 2015, in connection with the Distribution, restricted and deferred stock awards and employee stock option awards were modified and converted into new equity awards using conversion ratios designed to preserve the value of these awards to the holders immediately prior to the Distribution. On July 17, 2015, employees holding stock options, restricted stock awards or units, deferred stock awards, and ESPP awards denominated in pre-Distribution eBay stock received a number of otherwise-similar awards in post-Distribution eBay stock and/or PayPal stock based on the conversion ratios outlined for each group of employees in the Employee Matters Agreement that we entered into in connection with the Distribution. Adjustments to our outstanding stock based compensation awards, including ESPP awards, resulted in additional compensation expense of approximately $68 million to be recognized over the remaining vesting life of the underlying awards.

In December 2014, the terms of various stock-based awards held by the Company’s CEO, CFO, General Counsel, SVP of Human Resources and SVP of Corporate Communications (the “Departing Executives”) were modified in anticipation of and contingent upon termination of employment at the time of the Distribution. The modifications for the Departing Executives, each of whom had his or her employment terminated at the time of the Distribution, provided for the full acceleration of certain awards and extended the exercise periods of certain awards. These modifications resulted in additional compensation expense of approximately $37 million recognized from the modification date in December 2014 through the Distribution on July 17, 2015.

Stock Option Activity

The following table summarizes stock option activity under our equity incentive plans as of and for the year ended December 31, 2015:



	Shares		Weighted Average Exercise Price			Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
	(In millions, except per share amounts and years)
Outstanding as of January 1, 2015	10		$	34.14
Granted and assumed	2		$	49.59	⁽¹⁾
Exercised	(6	)	$	18.46	⁽¹⁾
Forfeited/expired/canceled	(1	)	$	29.44	⁽¹⁾
Adjustment due to the Distribution	2
Outstanding as of December 31, 2015	7		$	20.05		4.31	$	50
Expected to vest	6		$	19.88		4.22	$	48
Options exercisable	4		$	17.44		2.98	$	37

(1) Weighted average exercise price is calculated using exercise prices prior to the Distribution and after the Distribution.

The aggregate intrinsic value of options was calculated as the difference between the exercise price of the underlying awards and the quoted price of our common stock. At December 31, 2015, options to purchase 7 million shares of our common stock were in-the-money.

The weighted average grant-date fair value of options granted during the years 2015, 2014 and 2013 was $6.84, $13.59 and $15.39, respectively. During the years 2015, 2014 and 2013, the aggregate intrinsic value of options exercised under our equity incentive plans was $130 million, $159 million and $292 million, respectively, determined as of the date of option exercise.

Restricted Stock Unit Activity

A summary of the status of restricted stock units ("RSU") granted (including performance-based restricted stock units that have been earned) under our equity incentive plans as of December 31, 2015 and changes during the year ended December 31, 2015 is presented below:



	Units		Weighted Average Grant-Date Fair Value (per share)
	(In millions, except per share amounts)
Outstanding as of January 1, 2015	36		$	50.21
Awarded and assumed	19		$	53.67	⁽¹⁾
Vested	(14	)	$	39.42	⁽¹⁾
Forfeited	(15	)	$	31.18	⁽¹⁾
Adjustment due to the Distribution	10
Outstanding as of December 31, 2015	36		$	22.50
Expected to vest at December 31, 2015	29

(1) Weighted average grant date fair value is calculated using grant date fair value prior to the Distribution and after the Distribution.

During the years 2015, 2014 and 2013, the aggregate intrinsic value of restricted stock units vested under our equity incentive plans was $697 million, $759 million and $813 million, respectively.

Stock-based Compensation Expense

The impact on our results of operations of recording stock-based compensation expense for years ended December 31, 2015, 2014 and 2013 was as follows:



	Year Ended December 31,
	2015		2014		2013
	(In millions)
Cost of net revenues	$	38	$	33	$	27
Sales and marketing	94		93		67
Product development	108		116		97
General and administrative	139		102		107
Total stock-based compensation expense	$	379	$	344	$	298
Capitalized in product development	$	13	$	12	$	10

As of December 31, 2015, there was approximately $544 million of unearned stock-based compensation that will be expensed from 2016 through 2019. If there are any modifications or cancellations of the underlying unvested awards, we may be required to accelerate, increase or cancel all or a portion of the remaining unearned stock-based compensation expense. Future unearned stock-based compensation will increase to the extent we grant additional equity awards, change the mix of grants between stock options and restricted stock units or assume unvested equity awards in connection with acquisitions.

Stock Option Valuation Assumptions

We calculated the fair value of each stock option award on the date of grant using the Black-Scholes option pricing model. The following weighted average assumptions were used for the years ended December 31, 2015, 2014 and 2013:



	Year Ended December 31,
	2015		2014		2013
Risk-free interest rate	1.4	%	1.2	%	0.6	%
Expected life (in years)	4.1		4.1		4.1
Dividend yield	—	%	—	%	—	%
Expected volatility	27	%	29	%	34	%

Our computation of expected volatility is based on a combination of historical and market-based implied volatility from traded options on our common stock. Our computation of expected life is based on historical experience of similar awards, giving consideration to the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior. The interest rate for periods within the contractual life of the award is based on the U.S. Treasury yield curve in effect at the time of grant.