Stock-Based Compensation

12 Months Ended

Oct. 31, 2021

Share-based Payment Arrangement [Abstract]

On April 14, 2021 (the "Approval Date"), shareholders of the Company approved the Hewlett Packard Enterprise Company 2021 Stock Incentive Plan (the "2021 Plan") that replaced the Company’s 2015 Stock Incentive Plan (the “2015 Plan”). The 2021 Plan provides for the grant of various types of awards including restricted stock awards, stock options and performance-based awards. These awards generally vest over 3 years from the grant date. The maximum number of shares that may be delivered to the participants under the 2021 Plan shall not exceed 7 million shares, plus 35.8 million shares that were available for grant under the 2015 Plan as of the Approval Date and any awards granted under the 2015 Plan prior to the Approval Date that were cash-settled, forfeited, terminated or lapsed after the Approval Date. The Company's stock-based incentive compensation program also includes various replacement awards through acquisitions under which stock-based awards are outstanding.

Stock-Based Compensation Expense

Stock-based compensation expense and the resulting tax benefits were as follows:


	For the fiscal years ended October 31,
	2021		2020		2019
	In millions
Stock-based compensation expense	$	382	$	278	$	270
Income tax benefit	(70)		(51)		(50)
Stock-based compensation expense, net of tax	$	312	$	227	$	220

Stock-based compensation expense as presented in the table above is recorded within the following cost and expense lines in the Consolidated Statement of Earnings.


	For the fiscal years ended October 31,
	2021		2020		2019
	In millions
Cost of sales	$	40	$	37	$	37
Research and development	124		81		70
Selling, general and administrative	208		156		161
Transformation costs	—		—		2
Acquisition, disposition and other related charges	10		4		—
Stock-based compensation expense	$	382	$	278	$	270

Employee Stock Purchase Plan

Effective November 1, 2015, the Company adopted the Hewlett Packard Enterprise Company 2015 Employee Stock Purchase Plan ("ESPP"). The total number of shares of Company's common stock authorized under the ESPP was 80 million. The ESPP allows eligible employees to contribute up to 10% of their eligible compensation to purchase Hewlett Packard Enterprise's common stock. The ESPP provides for a discount not to exceed 15% and an offering period up to 24 months. The Company currently offers 6-month offering periods during which employees have the ability to purchase shares at 95% of the closing market price on the purchase date. No stock-based compensation expense was recorded in connection with those purchases, as the criteria of a non-compensatory plan were met.

Restricted Stock Units

Restricted stock units have forfeitable dividend equivalent rights equal to the dividend paid on common stock. Restricted stock units do not have the voting rights of common stock, and the shares underlying restricted stock units are not considered issued and outstanding upon grant. The fair value of the restricted stock units is the closing price of the Company's common stock on the grant date of the award. The Company expenses the fair value of restricted stock units ratably over the period during which the restrictions lapse.

The following table summarizes restricted stock unit activity for the year ended October 31, 2021:


	Shares	Weighted-Average Grant Date Fair Value Per Share
	In thousands
Outstanding at beginning of year	42,325	$	13
Granted and replacement awards for acquisition	28,403	$	13

Vested	(20,605)	$	14
Forfeited/canceled	(4,374)	$	13
Outstanding at end of year	45,749	$	13

The total grant date fair value of restricted stock awards vested for Company employees in fiscal 2021, 2020 and 2019 was $271 million, $254 million and $182 million, respectively. As of October 31, 2021, there was $259 million of unrecognized pre-tax stock-based compensation expense related to unvested restricted stock units, which the Company expects to recognize over the remaining weighted-average vesting period of 1.3 years.

Performance Restricted Units

The Company issues performance stock units ("PSU") that vest on the satisfaction of service and performance conditions. The fair value of the PSUs is the closing price of the Company's common stock on the grant date of the award. The Company also issues performance-adjusted restricted stock units ("PARSU") that vest only on the satisfaction of service, performance and market conditions. The Company estimates the fair value of PARSUs subject to performance-contingent vesting conditions using the Monte Carlo simulation model. The expenses associated with these performance restricted units were not material for any of the periods presented.

Stock Options

Stock options granted under the Plan are generally non-qualified stock options, but the Plan permits some options granted to qualify as incentive stock options under the U.S. Internal Revenue Code. The exercise price of a stock option is equal to the closing price of the Company's common stock on the option grant date. The majority of the stock options issued by the Company contain only service vesting conditions. The Company has also issued performance-contingent stock options that vest only on the satisfaction of both service and market conditions. The Company did not issue stock options in fiscal 2021 and 2020, other than those that were replacement awards through acquisitions in fiscal 2020. The expenses associated with these stock options were not material for any of the periods presented.

The Company utilizes the Black-Scholes-Merton option pricing formula to estimate the fair value of stock options subject to service-based vesting conditions. The Company estimates the fair value of stock options subject to performance-contingent vesting conditions using a combination of a Monte Carlo simulation model and a lattice model, as these awards contain market conditions.