Share-Based Payments

In May 2006, the Company implemented the Mastercard Incorporated 2006 Long Term Incentive Plan, which was amended and restated as of June 5, 2012 (the “LTIP”). The LTIP is a stockholder-approved plan that permits the grant of various types of equity awards to employees.

The Company has granted Options, RSUs and PSUs under the LTIP. The Options, which expire ten years from the date of grant, generally vest ratably over four years from the date of grant. The RSUs and PSUs generally vest after three years. The Company uses the straight-line method of attribution for expensing equity awards. Compensation expense is recorded net of estimated forfeitures. Estimates are adjusted as appropriate.

For all awards granted prior to March 2017, a participant’s unvested awards are forfeited upon termination of employment. For all awards granted on or after March 1, 2017, in the event of termination due to job elimination (as defined by the Company), a participant will retain a pro-rata portion of the unvested awards for services performed through the date of termination. In the event a participant terminates employment due to disability or retirement more than six months (seven months for those granted on or after March 1, 2017) after receiving the award, the participant retains all of their awards without providing additional service to the Company. Retirement eligibility is dependent upon age and years of service. Compensation expense is recognized over the shorter of the vesting periods stated in the LTIP or the date the individual becomes eligible to retire but not less than six months (or seven months for grants awarded on or after March 1, 2017).

There are approximately 116 million shares of Class A common stock authorized for equity awards under the LTIP. Although the LTIP permits the issuance of shares of Class B common stock, no such shares have been authorized for issuance. Shares issued as a result of Option exercises and the conversions of RSUs and PSUs were funded primarily with the issuance of new shares of Class A common stock.

Stock Options

The fair value of each Option is estimated on the date of grant using a Black-Scholes option pricing model. The following table presents the weighted-average assumptions used in the valuation and the resulting weighted-average fair value per option granted for the years ended December 31:



	2018			2017			2016
Risk-free rate of return	2.7		%	2.0		%	1.3		%
Expected term (in years)	6.00			5.00			5.00
Expected volatility	19.7		%	19.3		%	23.3		%
Expected dividend yield	0.6		%	0.8		%	0.8		%
Weighted-average fair value per Option granted	$	40.90		$	21.23		$	18.58

The risk-free rate of return was based on the U.S. Treasury yield curve in effect on the date of grant. The expected term and the expected volatility were based on historical Mastercard information. The expected dividend yields were based on the Company’s expected annual dividend rate on the date of grant.

The following table summarizes the Company’s option activity for the year ended December 31, 2018:



	Options		Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
	(in millions)				(in years)	(in millions)
Outstanding at January 1, 2018	8.6		$	77
Granted	0.9		$	173
Exercised	(1.8	)	$	57
Forfeited/expired	(0.1	)	$	112
Outstanding at December 31, 2018	7.6		$	93	6.4	$	726
Exercisable at December 31, 2018	4.3		$	72	5.2	$	505
Options vested and expected to vest at December 31, 2018	7.6		$	93	6.4	$	723

As of December 31, 2018, there was $34 million of total unrecognized compensation cost related to non-vested Options. The cost is expected to be recognized over a weighted-average period of 2.1 years.

Restricted Stock Units

The following table summarizes the Company’s RSU activity for the year ended December 31, 2018:



	Units		Weighted-Average Grant-Date Fair Value		Aggregate Intrinsic Value
	(in millions)				(in millions)
Outstanding at January 1, 2018	4.1		$	97
Granted	0.9		$	171
Converted	(1.1	)	$	90
Forfeited	(0.2	)	$	110
Outstanding at December 31, 2018	3.7		$	117	$	702
RSUs expected to vest at December 31, 2018	3.6		$	116	$	680

The fair value of each RSU is the closing stock price on the New York Stock Exchange of the Company’s Class A common stock on the date of grant, adjusted for the exclusion of dividend equivalents. Upon vesting, a portion of the RSU award may be withheld to satisfy the minimum statutory withholding taxes. The remaining RSUs will be settled in shares of the Company’s Class A common stock after the vesting period. As of December 31, 2018, there was $153 million of total unrecognized compensation cost related to non-vested RSUs. The cost is expected to be recognized over a weighted-average period of 1.7 years.

Performance Stock Units

The following table summarizes the Company’s PSU activity for the year ended December 31, 2018:



	Units		Weighted-Average Grant-Date Fair Value		Aggregate Intrinsic Value
	(in millions)				(in millions)
Outstanding at January 1, 2018	0.5		$	105
Granted	0.1		$	226
Converted	(0.3	)	$	99
Other¹	0.3		$	94
Outstanding at December 31, 2018	0.6		$	120	$	119
PSUs expected to vest at December 31, 2018	0.6		$	119	$	118

¹ Represents additional shares issued in March 2018 related to the 2015 PSU grant based on performance and market conditions achieved over the three-year measurement period. These shares vested upon issuance.

Since 2013, PSUs containing performance and market conditions have been issued. Performance measures used to determine the actual number of shares that vest after three years include net revenue growth, EPS growth and relative total shareholder return (“TSR”). Relative TSR is considered a market condition, while net revenue and EPS growth are considered performance conditions. The Monte Carlo simulation valuation model is used to determine the grant-date fair value.

Compensation expenses for PSUs are recognized over the requisite service period if it is probable that the performance target will be achieved and subsequently adjusted if the probability assessment changes. As of December 31, 2018, there was $13 million of total unrecognized compensation cost related to non-vested PSUs. The cost is expected to be recognized over a weighted-average period of 1.3 years.

Additional Information

The following table includes additional share-based payment information for each of the years ended December 31:



	2018		2017		2016
	(in millions, except weighted-average fair value)
Share-based compensation expense: Options, RSUs and PSUs	$	196	$	176	$	148
Income tax benefit recognized for equity awards	41		57		49
Income tax benefit realized related to Options exercised	53		36		31

Options:
Total intrinsic value of Options exercised	242		106		86
RSUs:
Weighted-average grant-date fair value of awards granted	171		112		91
Total intrinsic value of RSUs converted into shares of Class A common stock	194		131		122
PSUs:
Weighted-average grant-date fair value of awards granted	226		126		92
Total intrinsic value of PSUs converted into shares of Class A common stock	40		13		25