Stock-based compensation

Our Amended and Restated 2009 Equity Incentive Plan (the Amended 2009 Plan) authorizes for issuance, shares of our common stock pursuant to grants of equity-based awards, including RSUs, stock options and performance units to employees of Amgen, its subsidiaries and non-employee members of our Board of Directors. The pool of shares available under the Amended 2009 Plan is reduced by one share for each stock option granted and by 1.9 shares for other types of awards granted, including RSUs and performance units (full-value awards). In general, if any shares subject to an award granted under the Amended 2009 Plan expire, or are forfeited, terminated or canceled without the issuance of shares, the shares subject to such awards are added back into the authorized pool on the same basis that they were removed. In addition, under the Amended 2009 Plan, shares withheld to pay for minimum statutory tax obligations with respect to full value awards are added back into the authorized pool on the basis of 1.9 shares. As of December 31, 2017, the Amended 2009 Plan provides for future grants and/or issuances of up to 36 million shares of our common stock. Stock-based awards under our employee compensation plans are made with newly issued shares reserved for this purpose.

The following table reflects the components of stock-based compensation expense recognized in our Consolidated Statements of Income (in millions):



	Years ended December 31,
	2017			2016			2015
RSUs	$	174		$	177		$	190
Performance units	133			123			132
Stock options	22			11			—
Total stock-based compensation expense, pretax	329			311			322
Tax benefit from stock-based compensation expense	(118		)	(112		)	(120		)
Total stock-based compensation expense, net of tax	$	211		$	199		$	202

Restricted stock units and stock options

Eligible employees generally receive an annual grant of RSUs and, for certain executive level employees, stock options, with the size and type of award generally determined by the employee’s salary grade and performance level. In 2016, we reinstated the practice of granting stock options to eligible employees annually, which had been suspended from 2012 through 2015. In addition, certain management and professional-level employees typically receive RSU grants upon commencement of employment. Non-employee members of our Board of Directors also receive an annual grant of RSUs.

Our RSU and stock option grants provide for accelerated or continued vesting in certain circumstances as defined in the plans and related grant agreements, including upon death, disability, termination in connection with a change in control and the retirement of employees who meet certain service and/or age requirements. RSUs and stock options generally vest in equal amounts on the second, third and fourth anniversaries of the grant date. RSUs accrue dividend equivalents which are typically payable in shares only when and to the extent the underlying RSUs vest and are issued to the recipient.

Restricted stock units

The grant date fair value of an RSU equals the closing price of our common stock on the grant date, as RSUs accrue dividend equivalents during their vesting period. The weighted-average grant date fair values of RSUs granted during the years ended December 31, 2017, 2016 and 2015 were $163.99, $156.76 and $166.74, respectively. The following table summarizes information regarding our RSUs:



	Year ended December 31, 2017
	Units (in millions)		Weighted-average grant date fair value
Balance nonvested at December 31, 2016	3.9		$	141.07
Granted	1.3		$	163.99
Vested	(1.5	)	$	125.32
Forfeited	(0.3	)	$	149.79
Balance nonvested at December 31, 2017	3.4		$	155.11

The total grant date fair values of RSUs that vested during the years ended December 31, 2017, 2016 and 2015, were $182 million, $193 million and $206 million, respectively.

As of December 31, 2017, there was $304 million of unrecognized compensation cost related to nonvested RSU awards, which is expected to be recognized over a weighted-average period of 1.8 years.

Stock options

The exercise price for stock options is set as the closing price of our common stock on the grant date and the related number of shares granted is fixed at that point in time. Awards expire 10 years from the date of grant. We use a Black-Scholes option valuation model to estimate the grant date fair value of stock options. The weighted-average assumptions used in the option valuation model and the resulting weighted-average grant date fair values of stock options granted were as follows:



	Years ended December 31,
	2017			2016
Closing price of our common stock on grant date	$	162.60		$	156.35
Expected volatility (average of implied and historical volatility)	22.7		%	24.3		%
Expected life (in years)	5.8			5.8
Risk-free interest rate	2.1		%	1.5		%
Expected dividend yield	2.8		%	2.6		%
Fair value of stock options granted	$	27.54		$	27.55

The following table summarizes information regarding our stock options:



	Year ended December 31, 2017
	Options (in millions)		Weighted- average exercise price		Weighted- average remaining contractual life (in years)	Aggregate intrinsic value (in millions)
Balance unexercised at December 31, 2016	3.1		$	100.21
Granted	1.5		$	162.60
Exercised	(0.5	)	$	57.24
Expired/forfeited	(0.1	)	$	159.13
Balance unexercised at December 31, 2017	4.0		$	127.08	6.9	$	186
Vested or expected to vest at December 31, 2017	3.7		$	124.84	6.8	$	182
Exercisable at December 31, 2017	1.3		$	58.23	2.8	$	147

The total intrinsic values of options exercised during the years ended December 31, 2017, 2016 and 2015, were $60 million, $102 million and $150 million, respectively. The actual tax benefits realized from tax deductions from option exercises during the years ended December 31, 2017, 2016 and 2015, were $21 million, $37 million and $55 million, respectively.

Performance units

Certain management-level employees also receive annual grants of performance units, which give the recipient the right to receive common stock that is contingent upon achievement of specified pre-established goals over the performance period, which is generally three years. The performance goals for the units granted during the years ended December 31, 2017, 2016 and 2015, which are accounted for as equity awards, are based upon Amgen’s stockholder return compared with a comparator group of companies, which are considered market conditions and are reflected in the grant date fair values of the units, and for units granted during the years ended December 31, 2017 and 2016, Amgen’s standalone financial performance measures, which are considered performance conditions. The expense recognized for awards granted during the years ended December 31, 2017 and 2016 are based on the grant date fair value of a unit multiplied by the number of units expected to be earned with respect to the performance conditions, net of estimated forfeitures. The expense recognized for the awards granted during the year ended December 31, 2015 was based on the grant date fair value of a unit multiplied by the number of units granted, net of estimated forfeitures. Depending on the outcome of these performance goals, a recipient may ultimately earn a number of units greater or less than the number of units granted. Shares of our common stock are issued on a one-for-one basis for each performance unit earned. In general, performance unit awards vest at the end of the performance period. The performance award program provides for accelerated or continued vesting in certain circumstances as defined in the plan, including upon death, disability, a change in control and retirement of employees who meet certain service and/or age requirements. Performance units accrue dividend equivalents which are typically payable in shares only when and to the extent the underlying performance units vest and are issued to the recipient, including with respect to market and performance conditions that affect the number of performance units earned.

We use a payout simulation model to estimate the grant date fair value of performance units. The weighted-average assumptions used in this model and the resulting weighted-average grant date fair values of performance units granted were as follows:



	Years ended December 31,
	2017			2016			2015
Closing price of our common stock on grant date	$	162.60		$	156.35		$	164.26
Volatility	25.9		%	25.8		%	24.3		%
Risk-free interest rate	1.4		%	0.9		%	0.8		%
Fair value of units granted	$	178.87		$	170.56		$	182.55

The payout simulation model assumes correlations of returns of the stock prices of our common stock and the common stocks of the comparator groups of companies and stock price volatilities of the comparator groups of companies.

As of December 31, 2017 and 2016, 2.2 million and 2.8 million performance units were outstanding with weighted-average grant date fair values of $177.16 and $144.43 per unit, respectively. During the year ended December 31, 2017, 0.8 million performance units with a weighted-average grant date fair value of $178.87 were granted and 0.1 million performance units with a weighted-average grant date fair value of $179.58 were forfeited.

The total fair values of performance units that vested during the years ended December 31, 2017 and 2016 were $219 million and $347 million, respectively, based upon the number of performance units earned multiplied by the closing stock price of our common stock on the last day of the performance period. No performance units vested during the year ended December 31, 2015.

As of December 31, 2017, there was $144 million of unrecognized compensation cost that is expected to be recognized over a weighted-average period of 1 year.