Share-Based Compensation and Other Compensation Arrangements

Share-Based Compensation

Our 2003 Incentive Stock Plan, as amended and restated, permits awards of incentive and non-qualified stock options, stock appreciation rights, restricted stock or units, performance shares, performance restricted stock or units, performance units and other stock and cash-based awards to our employees, officers, directors, consultants, and independent contractors. The aggregate number of shares of our stock authorized for issuance under the plan is 87,000,000.

Shares issued as a result of stock option exercises or conversion of stock unit awards will be funded out of treasury shares, except to the extent there are insufficient treasury shares, in which case new shares will be issued. We believe we currently have adequate treasury shares to satisfy these issuances during 2017.

Share-based plans expense is primarily included in General and administrative expense since it is incentive compensation issued primarily to our executives. The share-based plans expense and related income tax benefit were as follows:



Years ended December 31,	2016		2015		2014
Stock options		$4		$30		$62
Restricted stock units and other awards	189		160		133
Share-based plans expense		$193		$190		$195
Income tax benefit		$69		$68		$70

Stock Options

We discontinued granting options in 2014, replacing them with performance-based restricted stock units. Options granted through January 2014 had an exercise price equal to the fair market value of our stock on the date of grant and expire ten years after the date of grant. The stock options vest over a period of three years and were fully vested at December 31, 2016, except for 6,221 shares which vested in January 2017.

Stock option activity for the year ended December 31, 2016 is as follows:



	Shares	Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Number of shares under option:
Outstanding at beginning of year	12,925,944		$73.44
Exercised	(4,270,336)	75.04
Forfeited	(6,270)	84.20
Expired	(2,726)	74.43
Outstanding at end of year	8,646,612		$72.64	4.67		$718
Exercisable at end of year	8,640,391		$72.60	4.67		$718

The total intrinsic value of options exercised during the years ended December 31, 2016, 2015 and 2014 was $265, $385 and $250, respectively. Cash received from options exercised during the years ended December 31, 2016, 2015 and 2014 was $321, $399 and $343 with a related tax benefit of $94, $135 and $87, respectively, derived from the compensation deductions resulting from these option exercises. The grant date fair value of stock options vested during the years ended December 31, 2016, 2015 and 2014 was $27, $56 and $87, respectively.

Restricted Stock Units

In February 2016, 2015 and 2014, we granted to our executives 777,837, 590,778 and 695,651 restricted stock units (RSUs) as part of our long-term incentive program with grant date fair values of $117.50, $154.64 and $129.58 per unit, respectively. The RSUs granted under this program will vest and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date. If an executive terminates employment because of retirement, involuntary layoff, disability, or death, the employee (or beneficiary) will receive a proration of stock units based on active employment during the three-year service period. In all other cases, the RSUs will not vest and all rights to the stock units will terminate. In addition to RSUs awarded under our long-term incentive program, we grant RSUs to certain executives and employees to encourage retention or to reward various achievements. These RSUs are labeled other RSUs in the table below. The fair values of all RSUs are estimated using the average of the high and low stock prices on the date of grant.

RSU activity for the year ended December 31, 2016 was as follows:



	Long-Term Incentive Program			Other
Number of units:
Outstanding at beginning of year	2,346,640			1,121,001
Granted	811,317			391,961
Dividends	66,609			35,848
Forfeited	(165,111		)	(46,115		)
Distributed	(1,244,811		)	(424,775		)
Outstanding at end of year	1,814,644			1,077,920
Unrecognized compensation cost		$92			$58
Weighted average remaining contractual life (years)	1.8			3.8

The number of vested but undistributed RSUs at December 31, 2016 was not significant.

Performance-Based Restricted Stock Units

Performance-Based Restricted Stock Units (PBRSUs) are stock units that pay out based on the Company’s total shareholder return as compared to a group of peer companies over a three-year period. The award payout can range from 0% to 200% of the initial PBRSU grant, but will not exceed 400% of the initial value (excluding dividend equivalent credits). The PBRSUs granted under this program will vest at the payout amount and settle in common stock (on a one-for-one basis) on the third anniversary of the grant date. If an executive terminates employment because of retirement, involuntary layoff, disability, or death, the employee (or beneficiary) remains eligible under the award and, if the award is earned, will receive a proration of stock units based on active employment during the three-year service period. In all other cases, the PBRSUs will not vest and all rights to the stock units will terminate.

In February 2016, 2015 and 2014, we granted to our executives 721,176, 556,203 and 662,215 PBRSUs as part of our long-term incentive program. Compensation expense for the award is recognized over the three-year performance period based upon the grant date fair value. The grant date fair values were estimated using a Monte-Carlo simulation model with the assumptions presented below. The model includes no expected dividend yield as the units earn dividend equivalents.



Grant Year	Grant Date	Performance Period	Expected Volatility		Risk Free Interest Rate		Grant Date Fair Value
2016	2/22/2016	3 years	22.44	%	0.92	%	126.74
2015	2/23/2015	3 years	20.35	%	1.03	%	164.26
2014	2/24/2014	3 years	24.2	%	0.72	%	136.12

PBRSU activity for the year ended December 31, 2016 was as follows:



	Long-Term Incentive Program
Number of units:
Outstanding at beginning of year	1,123,035
Granted	721,176
Dividends	52,540
Forfeited	(150,240		)
Outstanding at end of year	1,746,511
Unrecognized compensation cost		$86
Weighted average remaining contractual life (years)	1.8

Other Compensation Arrangements

Performance Awards

Performance Awards are cash units that pay out based on the achievement of long-term financial goals at the end of a three-year period. Each unit has an initial value of $100 dollars. The amount payable at the end of the three-year performance period may be anywhere from $0 to $200 dollars per unit, depending on the Company’s performance against plan for a three-year period. The Compensation Committee has the discretion to pay these awards in cash, stock, or a combination of both after the three-year performance period. Compensation expense, based on the estimated performance payout, is recognized ratably over the performance period.

During 2016, 2015 and 2014, we granted Performance Awards to our executives as part of our long-term incentive program with the payout based on the achievement of financial goals for each three-year period following the grant date. The minimum payout amount is $0 and the maximum amount we could be required to pay out for the 2016, 2015 and 2014 Performance Awards is $338, $322 and $315, respectively. The 2014 grant is expected to be paid out in cash in March 2017.

Deferred Compensation

The Company has a deferred compensation plan which permits executives to defer receipt of a portion of their salary, bonus, and certain other incentive awards. Participants can diversify deferred compensation among 23 investment funds including a Boeing stock unit account.

Total expense related to deferred compensation was $46, $63 and $44 in 2016, 2015 and 2014, respectively. As of December 31, 2016 and 2015, the deferred compensation liability which is being marked to market was $1,126 and $1,191.