SHARE-BASED COMPENSATION

The Company accounts for stock-based compensation plans in accordance with ASC 718, "Compensation - Stock Compensation" (ASC 718), which requires a fair-value based method for measuring the value of stock-based compensation. Fair value is measured once at the date of grant and is not adjusted for subsequent changes. The Company’s share-based compensation plans include programs for stock options, restricted stock units (RSUs), performance share units (PSUs), and deferred compensation. Under the Company's incentive stock plan, the total number of ordinary shares authorized by the shareholders is 23.0 million, of which 22.9 million remains available as of December 31, 2018 for future incentive awards.

Compensation Expense

Share-based compensation expense related to continuing operations is included in Selling and administrative expenses. The following table summarizes the expenses recognized:



In millions	2018		2017		2016
Stock options	$	23.5	$	19.5	$	18.1
RSUs	30.4		26.4		26.3
PSUs	23.0		23.0		19.9
Deferred compensation	3.4		3.1		3.2
Other	0.5		1.6		2.1
Pre-tax expense	80.8		73.6		69.6
Tax benefit	19.6		28.2		26.6
After-tax expense	$	61.2	$	45.4	$	43.0
Amounts recorded in continuing operations	$	61.2	$	45.4	$	43.0
Amounts recorded in discontinued operations	—		—		—
Total	$	61.2	$	45.4	$	43.0

Grants issued during the year ended December 31 were as follows:



	2018			2017			2016
	Number Granted	Weighted-average fair value per award		Number Granted	Weighted-average fair value per award		Number Granted	Weighted-average fair value per award
Stock options	1,541,025	$	15.51	1,518,335	$	13.46	1,958,476	$	9.42
RSUs	327,411	$	90.07	372,443	$	81.09	486,401	$	51.28
Performance shares⁽¹⁾	363,342	$	106.31	419,404	$	93.68	597.088	$	53.82

(1) The number of performance shares represents the maximum award level.

Stock Options / RSUs

Eligible participants may receive (i) stock options, (ii) RSUs or (iii) a combination of both stock options and RSUs. The fair value of each of the Company’s stock option and RSU awards is expensed on a straight-line basis over the required service period, which is generally the 3-year vesting period. However, for stock options and RSUs granted to retirement eligible employees, the Company recognizes expense for the fair value at the grant date.

The average fair value of the stock options granted is determined using the Black Scholes option pricing model. The following assumptions were used during the year ended December 31:



	2018		2017		2016
Dividend yield	2.00	%	2.00	%	2.55	%
Volatility	21.64	%	22.46	%	28.60	%
Risk-free rate of return	2.48	%	1.80	%	1.12	%
Expected life in years	4.8		4.8		4.8

A description of the significant assumptions used to estimate the fair value of the stock option awards is as follows:


•	Volatility - The expected volatility is based on a weighted average of the Company’s implied volatility and the most recent historical volatility of the Company’s stock commensurate with the expected life.


•	Risk-free rate of return -The Company applies a yield curve of continuous risk-free rates based upon the published US Treasury spot rates on the grant date.


•	Expected life - The expected life of the Company’s stock option awards represents the weighted-average of the actual period since the grant date for all exercised or canceled options and an expected period for all outstanding options.


•	Dividend yield - The Company determines the dividend yield based upon the expected quarterly dividend payments as of the grant date and the current fair market value of the Company’s stock.


•	Forfeiture Rate - The Company analyzes historical data of forfeited options to develop a reasonable expectation of the number of options to forfeit prior to vesting per year. This expected forfeiture rate is applied to the Company’s ongoing compensation expense; however, all expense is adjusted to reflect actual vestings and forfeitures.

Changes in options outstanding under the plans for the years 2018, 2017 and 2016 are as follows:



	Shares subject to option		Weighted- average exercise price		Aggregate intrinsic value (millions)		Weighted- average remaining life (years)
December 31, 2015	6,836,029		$	43.46
Granted	1,958,476		50.04
Exercised	(1,854,058	)	33.71
Cancelled	(93,552	)	56.22
December 31, 2016	6,846,895		47.81
Granted	1,518,335		80.27
Exercised	(1,789,615	)	42.79
Cancelled	(220,733	)	61.91
December 31, 2017	6,354,882		56.49
Granted	1,541,025		89.71
Exercised	(1,515,955	)	45.44
Cancelled	(94,601	)	79.53
Outstanding December 31, 2018	6,285,351		$	66.95	$	152.8	6.7
Exercisable December 31, 2018	3,262,865		$	55.76	$	115.7	5.3

The following table summarizes information concerning currently outstanding and exercisable options:



					Options outstanding				Options exercisable
Range of exercise price					Number outstanding at December 31, 2018	Weighted- average remaining life (years)	Weighted- average exercise price		Number outstanding at December 31, 2018	Weighted- average remaining life (years)	Weighted- average exercise price
$	10.01	—	$	20.00	34,551	0.1	$	13.49	34,551	0.1	$	13.49
20.01		—	30.00		78,051	1.7	24.95		78,051	1.7	24.95
30.01		—	40.00		265,557	2.7	34.41		265,557	2.7	34.41
40.01		—	50.00		1,764,942	6.0	47.97		1,189,081	5.6	46.98
50.01		—	60.00		586,455	4.9	59.57		572,668	4.9	59.69
60.01		—	70.00		743,796	5.7	67.04		743,796	5.7	67.04
70.01		—	80.00		14,031	8.0	75.67		—	—	—
80.01		—	90.00		1,440,841	7.8	80.75		375,001	7.6	80.31
90.01		—	100.00		1,340,727	8.9	90.07		4,160	2.3	90.07
100.01		—	110.00		16,400	9.9	101.21		—	—	—
$	13.49	—	$	101.21	6,285,351	6.7	$	66.95	3,262,865	5.3	$	55.76

At December 31, 2018, there was $11.5 million of total unrecognized compensation cost from stock option arrangements granted under the plan, which is primarily related to unvested shares of non-retirement eligible employees. The aggregate intrinsic value of options exercised during the year ended December 31, 2018 and 2017 was $74.1 million and $72.7 million, respectively. Generally, stock options expire ten years from their date of grant.

The following table summarizes RSU activity for the years 2018, 2017 and 2016:



	RSUs		Weighted- average grant date fair value
Outstanding and unvested at December 31, 2015	922,611		$	58.14
Granted	486,401		51.28
Vested	(545,437	)	53.84
Cancelled	(27,826	)	58.19
Outstanding and unvested at December 31, 2016	835,749		$	56.95
Granted	372,443		81.09
Vested	(370,397	)	58.56
Cancelled	(34,096	)	63.79
Outstanding and unvested at December 31, 2017	803,699		$	67.09
Granted	327,411		90.07
Vested	(389,285	)	64.88
Cancelled	(20,186	)	77.95
Outstanding and unvested at December 31, 2018	721,639		$	78.40

At December 31, 2018, there was $16.8 million of total unrecognized compensation cost from RSU arrangements granted under the plan, which is related to unvested shares of non-retirement eligible employees.

Performance Shares

The Company has a Performance Share Program (PSP) for key employees. The program provides awards in the form of PSUs based on performance against pre-established objectives. The annual target award level is expressed as a number of the Company's ordinary shares based on the fair market value of the Company's stock on the date of grant. All PSUs are settled in the form of ordinary shares.

Beginning with the 2018 grant year, PSU awards are earned based 50% upon a performance condition, measured by relative Cash Flow Return on Invested Capital (CROIC) growth to the industrial group of companies in the S&P 500 Index over a 3-year performance period, and 50% upon a market condition, measured by the Company's relative total shareholder return (TSR) as compared to the TSR of the industrial group of companies in the S&P 500 Index over a 3-year performance period. The fair value of the market condition is estimated using a Monte Carlo Simulation approach in a risk-neutral framework based upon historical volatility, risk-free rates and correlation matrix. Awards granted prior to 2018 were earned based 50% upon a performance condition, measured by relative earnings-per-share (EPS) growth to the industrial group of companies in the S&P 500 Index over a 3-year performance period, and 50% upon a market condition measured by the Company's relative TSR as compared to the TSR of the industrial group of companies in the S&P Index over a 3-year performance period.

The following table summarizes PSU activity for the maximum number of shares that may be issued for the years 2018, 2017 and 2016:



	PSUs		Weighted-average grant date fair value
Outstanding and unvested at December 31, 2015	1,448,232		$	63.18
Granted	597,088		53.82
Vested	(462,035	)	46.81
Forfeited	(159,489	)	56.25
Outstanding and unvested at December 31, 2016	1,423,796		$	65.34
Granted	419,404		93.68
Vested	(353,834	)	65.35
Forfeited	(124,830	)	73.40
Outstanding and unvested at December 31, 2017	1,364,536		$	73.31
Granted	363,342		106.31
Vested	(309,306	)	76.00
Forfeited	(172,408	)	90.89
Outstanding and unvested at December 31, 2018	1,246,164		$	79.83

At December 31, 2018, there was $18.6 million of total unrecognized compensation cost from PSU arrangements based on current performance, which is related to unvested shares. This compensation will be recognized over the required service period, which is generally the three-year vesting period.

Deferred Compensation

The Company allows key employees to defer a portion of their eligible compensation into a number of investment choices, including its ordinary share equivalents. Any amounts invested in ordinary share equivalents will be settled in ordinary shares of the Company at the time of distribution.