SHARE-BASED COMPENSATION

12 Months Ended

Oct. 29, 2023

SHARE-BASED COMPENSATION

SHARE-BASED COMPENSATION

22. SHARE-BASED COMPENSATION

We issue stock options and restricted stock units to key employees. Restricted stock units are also issued to nonemployee directors for their services as directors. Restricted stock units consist of service-based and performance/service-based awards.

In 2023, we changed the accounting treatment of the Long-Term Incentive Cash that is granted to certain employees. As the performance metric related to this incentive plan is based, in part, on the price of our shares, we now account for it in accordance with FASB ASC Topic 718. At October 29, 2023, we are authorized to grant an additional 16.6 million shares related to stock options or restricted stock units. We currently use shares that have been repurchased through our stock repurchase programs to satisfy share option exercises. The stock awards vesting periods and the dividend equivalents earned during the vesting period follow:

	Vesting	Dividend
	Period	Equivalents
Stock options	1-3 years	Not included
Service-based RSUs	1-3 years	Included
Performance/service-based RSUs	3 years	Not included

Stock options expire ten years from the grant date. Performance/service-based awards are subject to a performance metric. The performance metric is based on our compound annual revenue growth rate, compared to a benchmark group of companies. The performance/service-based units award common stock in a range of zero to 200 percent for each unit granted based on the level of the metric achieved.

The fair value of stock options and restricted stock units is determined using our closing price on the grant date. These awards are expensed over the shorter of the award vesting period or the employee’s retirement eligibility period. The performance/service-based units’ expense is adjusted quarterly for the probable number of shares to be awarded. We recognize the effect of award forfeitures as an adjustment to compensation expense in the period the forfeiture occurs.

The total share-based compensation expense, recognized income tax benefits, and total grant-date fair values of stock options and restricted stock units vested consisted of the following:

	2023		2022		2021
Share-based compensation expense	$	130	$	85	$	82
Income tax benefits		21		17		16
Stock options and restricted stock units vested		84		74		93

At October 29, 2023, there was $93 of total unrecognized compensation cost from share-based compensation arrangements. This compensation is expected to be recognized over a weighted-average period of approximately 1.5 years.

Stock Options

The fair value of each stock option award was estimated on the date of grant using a binomial lattice option valuation model. The assumptions used for the binomial lattice model to determine the fair value of options follow:

	2023	2022	2021
Risk-free interest rate*	2.68%	1.27%	.47%
Expected dividends	1.1%	1.2%	1.2%
Volatility*	33.0%	32.0%	31.0%
Expected term (in years)*	5.1	5.1	5.5

*    Weighted-averages

The risk-free rates are based on U.S. Treasury security yields at the time of grant. Expected volatilities are based on implied volatilities from traded call options on our stock. We use historical data to estimate option exercise behavior representing the weighted-average period that options granted are expected to be outstanding.

The activity for outstanding stock options at October 29, 2023, and changes during 2023 follow:

				Remaining	Aggregate
		Exercise		Contractual	Intrinsic
	Shares	Price*		Term	Value
	(millions)	(per share)		(years)	(millions)
Outstanding at beginning of year	2.0	$	153.11
Granted	.2		438.44
Exercised	(.5)		118.54
Outstanding at end of year	1.7		190.08	4.62	$	302.3
Exercisable at end of year	1.3		144.71	3.66		292.3

*    Weighted-averages

The amounts related to stock options were as follows in millions of dollars unless otherwise noted:

	2023		2022		2021
Weighted-average grant date fair value (per share)	$	136.46	$	89.20	$	62.73
Intrinsic value of options exercised		153		169		318
Cash received from exercises		60		63		148
Tax benefit from exercises		34		39		71

Restricted Stock Units

The weighted-average grant date fair values were as follows:

	2023		2022		2021
Service-based	$	428.35	$	347.59	$	258.86
Performance/service-based		424.93		331.47		245.73

Our restricted stock units at October 29, 2023 and changes during 2023 in dollars and thousands of shares follow:

		Grant-Date
	Shares	Fair Value*
Service-based
Nonvested at beginning of year	404	$	251.42
Granted	126		428.35
Vested	(211)		211.03
Forfeited	(9)		333.29
Nonvested at end of year	310		348.82
Performance/service based
Nonvested at beginning of year	143		227.70
Granted	41		424.93
Vested	(130)		160.81
Performance change	65		160.81
Nonvested at end of year	119		331.78

* Weighted-averages