Share-Based Compensation

12 Months Ended

Jan. 30, 2021

Share-based Payment Arrangement [Abstract]

Share-based compensation expense is as follows:


	Fiscal Year
($ in millions)	2020		2019		2018
Stock units	$	62	$	52	$	71
Stock options	12		12		16
Employee stock purchase plan	3		4		4
Share-based compensation expense	77		68		91
Less: Income tax benefit	(15)		(23)		(22)
Share-based compensation expense, net of tax	$	62	$	45	$	69

No material share-based compensation expense was capitalized in fiscal 2020, 2019, or 2018.

There were no material modifications made to our outstanding stock options and other stock awards in fiscal 2020, 2019, or 2018.

General Description of Stock Option and Other Stock Award Plans

The 2016 Long-Term Incentive Plan (the "2016 Plan") was amended and restated in May 2019 and further amended and restated in March 2020. Under the 2016 Plan, nonqualified stock options and other stock awards are granted to officers, directors, eligible employees, and consultants at exercise prices or initial values equal to the fair market value of the Company’s common stock at the date of grant or as determined by the Compensation and Management Development Committee of the Board of Directors.

As of January 30, 2021, there were 251,586,781 shares that have been authorized for issuance under the 2016 Plan.

Stock Units

Under the 2016 Plan, Stock Units are granted to employees and members of the Board of Directors. Vesting generally occurs over a period of three to four years of continued service by the employee in equal annual installments for the majority of the Stock Units granted. In some cases, Stock Unit vesting is also subject to the attainment of pre-determined performance metrics and/or the satisfaction of market conditions ("Performance Shares"). At the end of each reporting period, we evaluate the probability that the Performance Shares will vest. We record share-based compensation expense on an accelerated basis over a period of two to three years once granted, based on the grant-date fair value and the probability that the pre-determined performance metrics will be achieved. We use the Monte Carlo method to calculate the grant date fair value of Performance Shares containing a market condition.

A summary of Stock Unit activity under the 2016 Plan for fiscal 2020 is as follows:


	Shares	Weighted-Average Grant-Date Fair Value Per Share
Balance as of February 1, 2020	6,962,409	$	24.33
Granted	8,827,881	$	11.22

Vested	(2,699,411)	$	24.26
Forfeited	(1,601,983)	$	16.80
Balance as of January 30, 2021	11,488,896	$	15.33

A summary of additional information about Stock Units is as follows:


	Fiscal Year
($ in millions except per share amounts)	2020		2019		2018
Weighted-average fair value per share of Stock Units granted	$	11.22	$	21.93	$	29.33
Fair value of Stock Units vested	$	65	$	66	$	58

The aggregate intrinsic value of unvested Stock Units as of January 30, 2021 was $233 million.

As of January 30, 2021, there was $114 million (before any related tax benefit) of unrecognized share-based compensation expense related to unvested Stock Units, which is expected to be recognized over a weighted-average period of 2.3 years. Total unrecognized share-based compensation expense may be adjusted for future forfeitures as they occur.

Stock Options

We have stock options outstanding under the 2016 Plan. Stock options generally expire the earlier of 10 years from the grant date, three months after employee termination, or one year after the date of an employee’s retirement or death. Vesting generally occurs over a period of four years of continued service by the employee, with 25 percent vesting on each of the four anniversary dates.

The fair value of stock options issued to employees during fiscal 2020, 2019, and 2018 was estimated on the date of grant using the following assumptions:


	Fiscal Year
	2020		2019		2018
Expected term (in years)	4.5		4.2		3.9
Expected volatility	46.9	%	37.5	%	36.3	%
Dividend yield	1.6	%	4.1	%	3.1	%
Risk-free interest rate	0.4	%	2.2	%	2.5	%

A summary of stock option activity under the 2016 Plan for fiscal 2020 is as follows:


	Shares	Weighted- Average Exercise Price Per Share
Balance as of February 1, 2020	11,436,022	$	28.26
Granted	5,446,299	$	9.22
Exercised	(99,300)	$	22.67
Forfeited/Expired	(4,391,089)	$	27.33
Balance as of January 30, 2021	12,391,932	$	20.27

A summary of additional information about stock options is as follows:


	Fiscal Year
($ in millions except per share amounts)	2020		2019		2018
Weighted-average fair value per share of stock options granted	$	3.28	$	5.43	$	7.75
Aggregate intrinsic value of stock options exercised	$	—	$	1	$	5
Fair value of stock options vested	$	13	$	16	$	14

Information about stock options outstanding and exercisable as of January 30, 2021 is as follows:


	Intrinsic Value as of January 30, 2021 (in millions)		Number of Shares as of January 30, 2021	Weighted- Average Remaining Contractual Life (in years)	Weighted- Average Exercise Price Per Share
Options Outstanding	$	58	12,391,932	7.6	$	20.27
Options Exercisable	$	—	4,392,298	5.6	$	29.31

Nonemployee Stock Units and Stock Warrants

Under the 2016 Plan, some Stock Units are granted to members of the Board of Directors. Vesting is generally immediate in the case of members of the Board of Directors.

Additionally, during fiscal 2020, the Company issued stock warrants for up to 8.5 million shares of the Company's common stock in connection with a strategic agreement entered into by Gap and Yeezy Supply LLC. The stock warrants vest and may be exercised based on the achievement of certain net sales performance targets. The stock warrants expire after the end of the fiscal year 2025 performance period.

Employee Stock Purchase Plan

Under our Employee Stock Purchase Plan (“ESPP”), eligible U.S. and Canadian employees are able to purchase our common stock at 85 percent of the closing price on the New York Stock Exchange on the last day of the three-month purchase periods. Accordingly, compensation expense is recognized for an amount equal to the 15 percent discount. Employees pay for their stock purchases through payroll deductions at a rate equal to any whole percentage from 1 percent to 15 percent. There were 1,718,007, 1,381,391, and 1,008,100 shares issued under the ESPP in fiscal 2020, 2019, and 2018, respectively. As of January 30, 2021, there were 4,036,692 shares reserved for future issuances under the ESPP.