Note 5. Share-Based Compensation

Our share-based compensation plans provide stock options, restricted stock, restricted stock units, stock appreciation rights, performance stock, performance share units and other awards. Compensation expense included in net income for these plans is as follows:


	Three Months Ended
(In millions)		March 31, 2018		April 1, 2017
Compensation expense	$	33	$	20
Income tax benefit		(7)		(7)

Total net compensation expense included in net income	$	26	$	13

Stock Options

Options to purchase our shares have a maximum term of ten years and generally vest ratably over a three-year period. The stock option compensation cost calculated under the fair value approach is recognized over the vesting period of the stock options. We estimate the fair value of options granted on the date of grant using the Black-Scholes option-pricing model. Expected volatilities are based on implied volatilities from traded options on our common stock, historical volatilities and other factors. The expected term is based on historical option exercise data, which is adjusted to reflect any anticipated changes in expected behavior.

The weighted-average fair value of options granted and the assumptions used in our option-pricing model for such grants are as follows:


	Three Months Ended
		March 31, 2018		April 1, 2017
Fair value of options at grant date	$	15.83	$	13.80
Dividend yield		0.1%		0.2%
Expected volatility		26.6%		29.2%
Risk-free interest rate		2.6%		1.9%
Expected term (in years)		4.7		4.7

The stock option activity during the first quarter of 2018 is provided below:


(Options in thousands)	Number of Options		Weighted- Average Exercise Price
Outstanding at beginning of period	9,238	$	37.02
Granted	1,336		58.24
Exercised	(355)		(36.57)
Forfeited or expired	(33)		(46.63)

Outstanding at end of period	10,186	$	39.79

Exercisable at end of period	6,957	$	34.61

At March 31, 2018, our outstanding options had an aggregate intrinsic value of $195 million and a weighted-average remaining contractual life of six years. Our exercisable options had an aggregate intrinsic value of $169 million and a weighted-average remaining contractual life of five years at March 31, 2018. The total intrinsic value of options exercised was $8 million and $17 million during the first quarter of 2018 and 2017, respectively.

Restricted Stock Units

The activity for restricted stock units payable in both stock and cash during the first quarter of 2018 is provided below:


	Units Payable in Stock			Units Payable in Cash
(Shares/Units in thousands)	Number of Shares		Weighted- Average Grant Date Fair Value	Number of Units		Weighted- Average Grant Date Fair Value
Outstanding at beginning of period, nonvested	668	$	40.55	1,263	$	40.75
Granted	126		58.24	270		58.24
Vested	(174)		(36.99)	(303)		(37.50)
Forfeited	—		—	(13)		(42.33)

Outstanding at end of period, nonvested	620	$	45.15	1,217	$	45.42

The fair value of the restricted stock unit awards that vested and/or amounts paid under these awards is as follows:


	Three Months Ended
(In millions)		March 31, 2018		April 1, 2017
Fair value of awards vested	$	24	$	24
Cash paid		18		17

Performance Share Units

The activity for our performance share units during the first quarter of 2018 is provided below:


(Units in thousands)	Number of Units		Weighted- Average Grant Date Fair Value
Outstanding at beginning of period, nonvested	485	$	41.34
Granted	201		58.24

Outstanding at end of period, nonvested	686	$	46.22

Cash paid under these awards totaled $11 million and $14 million during the first quarter of 2018 and 2017, respectively.