Stock-Based Compensation

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-based compensation

Accounting for stock-based compensation requires that the cost resulting from all stock-based payments be recognized in the financial statements based on the grant date fair value of the award.  Our stock-based compensation primarily consists of stock options, restricted stock units (RSUs), performance-based restricted stock units (PRSUs) and stock-settled stock appreciation rights (SARs).

Upon separation from service, if the participant is 55 years of age or older with more than five years of service, the participant meets the criteria for a "Long Service Separation." Award terms for awards granted in 2016 allow for immediate vesting upon separation of all outstanding options and RSUs with no requisite service period for employees who meet the criteria for a "Long Service Separation." Compensation expense was fully recognized immediately on the grant date for these employees. Award terms for the 2017 grant allow for continued vesting as of each vesting date specified in the award document for employees who meet the criteria for a "Long Service Separation" and fulfill a requisite service period of six months. Compensation expense for eligible employees for the 2017 grant is recognized over the period from the grant date to the end date of the six-month requisite service period. For employees who become eligible for a "Long Service Separation" subsequent to the end date of the six-month requisite service period and prior to the completion of the vesting period, compensation expense is recognized over the period from the grant date to the date eligibility is achieved.

Prior to 2017, all outstanding PRSU awards granted to employees with a "Long Service Separation" may vest at the end of the performance period based upon achievement of the performance target. For PRSU awards granted in 2017, only a prorated number of shares may vest at the end of the performance period based upon achievement of the performance target, with the proration based upon the number of months of continuous employment during the three-year performance period. Employees with a "Long Service Separation" must also fulfill a six-month requisite service period in order to be eligible for the prorated vesting of outstanding PRSU awards granted in 2017.

During the second quarter of 2017, the 2014 Long-Term Incentive Plan (the Plan) was amended and restated. The Plan initially provided that up to 38,800,000 Common Shares would be reserved for future issuance under the Plan, subject to adjustment in certain events. Upon shareholder approval of the amendment and restatement of the Plan, an additional 36,000,000 Common Shares became available for all awards under the Plan.

We recognized pretax stock-based compensation expense of $68 million and $117 million for the three and six months ended June 30, 2017, respectively and $45 million and $146 million for the three and six months ended June 30, 2016, respectively. The change in stock-based compensation expense was primarily due to the change in award terms for participants that meet the criteria for a "Long Service Separation", as the establishment of the six-month requisite service period results in lower expense in the first quarter (period of grant) and higher expense over the following two quarters.

The following table illustrates the type and fair value of the stock-based compensation awards granted during the six months ended June 30, 2017 and 2016, respectively:

	Six Months Ended June 30, 2017					Six Months Ended June 30, 2016
	Shares Granted	Weighted-Average Fair Value Per Share		Weighted-Average Grant Date Stock Price		Shares Granted	Weighted-Average Fair Value Per Share		Weighted-Average Grant Date Stock Price
Stock options	2,701,644	$	25.01	$	95.66	4,243,272	$	20.64	$	74.77
RSUs	906,068	$	89.76	$	95.63	1,085,505	$	68.04	$	74.77
PRSUs	437,385	$	86.78	$	95.66	614,347	$	64.71	$	74.77

The following table provides the assumptions used in determining the fair value of the stock-based awards for the six months ended June 30, 2017 and 2016, respectively:

	Grant Year
	2017	2016
Weighted-average dividend yield	3.42%	3.23%
Weighted-average volatility	29.2%	31.1%
Range of volatilities	22.1-33.0%	22.5-33.4%
Range of risk-free interest rates	0.81-2.35%	0.62-1.73%
Weighted-average expected lives	8 years	8 years

As of June 30, 2017, the total remaining unrecognized compensation expense related to nonvested stock-based compensation awards was $236 million, which will be amortized over the weighted-average remaining requisite service periods of approximately 1.7 years.