Share-based Compensation

12 Months Ended

Dec. 31, 2020

19.Share-Based Compensation

Corning maintains long-term incentive plans (the “Plans”) for key employees and non-employee members of its Board of Directors. The Plans allow us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share units, restricted stock units, restricted stock awards or a combination of awards (collectively, share-based awards). At December 31, 2020, there were approximately 36 million unissued common shares available for future grants authorized under the Plans.

Beginning in 2020, Corning increased the equity component in its Long-Term Incentive (“LTI”) Plan from 40% to 75% of an executive’s annual targeted compensation opportunity.

Share-based compensation cost is allocated to the selling, general and administrative, research, development and engineering, and cost of sales expenses lines in the consolidated statements of income.

‎

Stock Compensation Plans

The Company measures and recognizes compensation cost for all share-based payment awards made to employees and directors based on estimated fair values.

The fair value of awards granted that are expected to ultimately vest is recognized as expense over the requisite service periods. The number of options expected to vest equals the total options granted less an estimation of the number of forfeitures expected to occur prior to vesting. The forfeiture rate is calculated based on 15 years of historical data and is adjusted if actual forfeitures differ significantly from the original estimates. The effect of any change in estimated forfeitures would be recognized through a cumulative adjustment that would be included in compensation cost in the period of the change in estimate.

Total share-based compensation cost was approximately $207 million, $56 million and $51 million, respectively, for the years ended December 31, 2020, 2019 and 2018. The incremental change in expense of $151 million for the year ended December 31, 2020, was driven primarily by a larger equity component for Director and Executive compensation, issuance of employee share-based compensation awards and the acceleration of vesting of options on December 3, 2020.

The income tax benefit realized from share-based compensation was $12 million, $9 million and $8 million, respectively, for the years ended December 31, 2020, 2019 and 2018. Refer to Note 8 (Income Taxes) to the consolidated financial statements for additional information.

Stock Options

Corning’s stock option plans provide non-qualified and incentive stock options to purchase authorized but unissued common shares, or treasury shares, at the market price on the grant date and generally become exercisable in installments from one year to five years from the grant date. The maximum term of non-qualified and incentive stock options is 10 years from the grant date. An award is considered vested when the employee’s retention of the award is no longer contingent on providing subsequent service (the “non-substantive vesting period approach”).

The following table summarizes information concerning stock options outstanding, including the related transactions under the stock option plans for the year ended December 31, 2020:



	Number of ‎shares ‎(in thousands)	Weighted- ‎average ‎exercise price		Weighted- ‎average ‎remaining ‎contractual ‎term in Years	Aggregate ‎intrinsic ‎value ‎(in thousands)
Options Outstanding as of December 31, 2019	13,172	$	21.94
Granted	10,653		19.65
Exercised	(6,502)		19.16
Forfeited and expired	(228)		19.96
Options outstanding as of December 31, 2020	17,095		21.60	7.18	$	246,236
Options expected to vest as of December 31, 2020	16,903		21.61	7.15		243,277
Options exercisable as of December 31, 2020	8,646		19.57	5.66		142,076

The aggregate intrinsic value (market value of stock less option exercise price) in the preceding table represents the total pretax intrinsic value, based on the Company’s closing stock price on December 31, 2020, which would have been received by the option holders had all option holders exercised their “in-the-money” options as of that date. The total number of “in-the-money” options exercisable on December 31, 2020, was approximately 9 million.

‎

The weighted-average grant-date fair value for options granted for the years ended December 31, 2020, 2019 and 2018 was $3.67, $8.78 and $7.17, respectively. The total fair value of options that vested during the years ended December 31, 2020, 2019 and 2018 was approximately $31 million, $10 million and $12 million, respectively. Compensation cost related to stock options for the years ended December 31, 2020, 2019 and 2018, was approximately $23 million, $13 million and $12 million, respectively.

As of December 31, 2020, there was approximately $21 million of unrecognized compensation cost related to stock options granted under the Plans. The cost is expected to be recognized over a weighted-average period of 2.2 years.

Proceeds received from the exercise of stock options were $124 million for the year ended December 31, 2020. The total intrinsic value of options exercised for the years ended December 31, 2020, 2019 and 2018 was approximately $99 million, $47 million and $66 million, respectively.

Corning uses a multiple-point Black-Scholes valuation model to estimate the fair value of stock option grants. Corning utilizes a blended approach for calculating the volatility assumption used in the multiple-point Black-Scholes valuation model defined as the weighted average of the short-term implied volatility, the most recent volatility for the period equal to the expected term, and the most recent 15-year historical volatility. The expected term is the period the options are expected to be outstanding and is calculated using a combination of historical exercise experience adjusted to reflect the current vesting period of options being valued, and partial life cycles of outstanding options. The risk-free rates used in the multiple-point Black-Scholes valuation model are the implied rates for a zero-coupon U.S. Treasury bond with a term equal to the option’s expected term. The ranges given below reflect results from separate groups of employees exhibiting different exercise behavior.

The following inputs were used for the valuation of option grants under the stock option plans:



	2020		2019					2018
Expected volatility	32.9	%	29.5	-		29.9	%	30.6	-		31.4	%
Weighted-average volatility	32.9	%	29.5	-		29.9	%	30.6	-		31.4	%
Expected dividends	4.48	%	2.36	-		2.95	%	2.22	-		2.66	%
Risk-free rate	0.5	%	1.5	-		2.4	%	2.7	-		3.1	%
Average risk-free rate	0.5	%	1.5	-		2.4	%	2.7	-		3.1	%
Expected term (in years)	7.4			7.4					7.4
Pre-vesting executive departure rate	0.6	%		0.6	%				0.6	%
Pre-vesting non-executive departure rate	2.5	%

Incentive Stock Plans

The Corning Incentive Stock Plan permits restricted stock and restricted stock unit grants, either determined by specific performance goals or issued directly, in most instances, subject to the possibility of forfeiture and without cash consideration. Restricted stock and restricted stock units under the Incentive Stock Plan are granted at the closing market price on the grant date, contingently vest over a period of generally one year to ten years, and generally have contractual lives of one year to ten years. The fair value of each restricted stock grant or restricted stock unit awarded under the Incentive Stock Plan is based on the grant date closing price of the Company’s stock.

Time-Based Restricted Stock and Restricted Stock Units

Time-based restricted stock and restricted stock units are issued by the Company on a discretionary basis, and are payable in shares of the Company’s common stock upon vesting. The fair value is based on the closing market price of the Company’s stock on the grant date. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting.

The following table represents a summary of the status of the Company’s non-vested time-based restricted stock and restricted stock units as of December 31, 2019 and changes which occurred during the year ended December 31, 2020:



	Number of ‎shares ‎(in thousands)	Weighted- ‎average ‎grant-date ‎fair value
Non-vested shares and share units at December 31, 2019	5,189	$	27.58
Granted	9,400		20.90
Vested	(1,408)		26.97
Forfeited	(238)		23.72
Non-vested shares and share units at December 31, 2020	12,943	$	22.87

As of December 31, 2020, there was approximately $149 million of unrecognized compensation cost related to non-vested time-based restricted stock and restricted stock units compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.4 years. The total fair value of time-based restricted stock that vested during the years ended December 31, 2020, 2019 and 2018 was approximately $38 million, $33 million and $31 million, respectively. Compensation cost related to time-based restricted stock and restricted stock units was approximately $95 million, $43 million and $39 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Performance-Based Restricted Stock Units

Performance-based restricted stock units are earned upon the achievement of certain targets, and are payable in shares of the Company’s common stock upon vesting typically over a three year period. The weighted-average grant date fair value is based on the market price of the Company’s stock on the grant date and assumes that the target payout level will be achieved. Compensation cost is recognized over the requisite vesting period and adjusted for actual forfeitures before vesting. During the performance period, compensation cost may be adjusted based on changes in the expected outcome of the performance-related target.

The following table summarizes information concerning the Company’s non-vested performance-based restricted stock units, including the related transactions under the performance-based restricted stock units plan for the year ended December 31, 2020:



	Number of ‎shares ‎(in thousands)	Weighted- ‎average ‎grant-date ‎fair value
Non-vested share units at December 31, 2019	—	$	—
Granted	2,784		20.13
Vested
Forfeited	(41)		19.11
Non-vested share units at December 31, 2020	2,743	$	20.14

As of December 31, 2020, there was approximately $32 million of unrecognized compensation cost related to non-vested performance-based restricted stock units compensation arrangements granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.0 years. Compensation cost related to performance-based restricted stock units for the year ended December 31, 2020, was approximately $81 million, largely driven by retirement-eligible employees.