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Stock Plans
 12 Months Ended
Dec. 31, 2017
Disclosure Text Block Abstract  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 11

Stock Plans

Stock Option and Award Programs

Under the 2016 Incentive Compensation Plan and previously under the 2007 Incentive Compensation Plan, awards may be granted to employees and other key individuals who perform services for the Company and its participating subsidiaries. These awards may be in the form of stock options, restricted stock awards or units (RSAs/RSUs), portfolio grants (PGs) or other incentives, and similar awards designed to meet the requirements of non-U.S. jurisdictions.

For the Company’s Incentive Compensation Plans, there were a total of 14 million, 17 million and 33 million common shares unissued and available for grant as of December 31, 2017, 2016, and 2015, respectively, as authorized by the Company’s Board of Directors and shareholders.

A summary of stock option and RSA/RSU activity as of December 31, 2017, and changes during the year, is presented below:

  Stock Options  RSAs/RSUs
(Shares in thousands)SharesWeighted-Average Exercise PriceSharesWeighted-AverageGrantPrice
Outstanding as of December 31, 201610,272$47.68  7,500$69.22
Granted  86987.19  2,67077.80
Exercised/vested  (3,766)34.48  (2,335)75.85
Forfeited  (102)67.57  (620)68.80
Expired  (11)86.11  ――
Outstanding as of December 31, 20177,26258.92  7,215$70.29
Options vested and expected to vest as of December 31, 20177,19458.86
Options exercisable as of December 31, 20173,399$45.93  

The Company recognizes the cost of employee stock awards granted in exchange for employee services based on the grant-date fair value of the award, net of expected forfeitures. Those costs are recognized ratably over the vesting period.

Stock Options

Each stock option has an exercise price equal to the market price of the Company’s common stock on the date of grant. Stock options generally vest 100 percent on the third anniversary of the grant date and have a contractual term of 10 years from the date of grant.

The weighted-average remaining contractual life and the aggregate intrinsic value (the amount by which the fair value of the Company’s stock exceeds the exercise price of the option) of the stock options outstanding, exercisable, vested, and expected to vest as of December 31, 2017, were as follows:

OutstandingExercisableVested and Expected to Vest
Weighted-average remaining contractual life (in years)5.8  3.1  5.7
Aggregate intrinsic value (millions)  $293  $181  $291

The intrinsic value of options exercised during 2017, 2016 and 2015 was $197 million, $51 million and $87 million, respectively, (based upon the fair value of the Company’s stock price at the date of exercise). Cash received from the exercise of stock options in 2017, 2016 and 2015 was $130 million, $175 million and $146 million, respectively.

Effective January 1, 2017, the Company adopted new accounting guidance for employee share-based payments and accordingly, income tax benefits related to stock-based incentive arrangements were recognized in the Company’s Consolidated Statements of Income in the amount of $59 million for the year ended December 31, 2017. Previously, such benefits were recorded in additional paid-in capital. The tax benefit realized from income tax impacts of stock option exercises, which was recorded in additional paid-in capital, in 2016 and 2015 was $4 million and $18 million, respectively.

The fair value of each option is estimated on the date of grant using a Black-Scholes-Merton option-pricing model. The following weighted-average assumptions were used for options granted in 2017, 2016 and 2015:

201720162015
Dividend yield1.8% 1.9% 1.1% 
Expected volatility(a)24% 25% 37% 
Risk-free interest rate2.3% 1.5% 1.7% 
Expected life of stock option (in years)(b)6.9  6.3  6.7  
Weighted-average fair value per option$18.18  $13.67  $29.20  

  • The expected volatility is based on both weighted historical and implied volatilities of the Company’s common stock price.
  • The expected life of stock options was determined using both historical data and expectations of option exercise behavior.

On October 31, 2017, certain senior executives were awarded stock options with a term of seven years, and include a three-year service condition, as well as performance and market conditions. Therefore, the fair values of these options were estimated at the grant date using a Monte Carlo Valuation model with the following assumptions:

October 31, 2017
Dividend yield1.58% 
Expected volatility(a)21.41% 
Risk-free interest rate2.26% 
Expected life of stock option (in years)7  
Fair value per option$19.18  

The expected volatility is based on both weighted historical and implied volatilities of the Company’s common stock price.

Restricted Stock Awards and units

RSAs/RSUs are valued based on the stock price on the date of grant and contain either a) service conditions or b) both service and performance conditions. RSAs/RSUs containing only service conditions generally vest 25 percent per year beginning with the first anniversary of the grant date. RSAs/RSUs containing both service and performance conditions generally vest on the third anniversary of the grant date, and the number of shares earned depends on the achievement of predetermined Company metrics. All RSA/RSU holders receive non-forfeitable dividends or dividend equivalents. The total fair value of shares vested during 2017, 2016 and 2015, was $180 million, $171 million and $247 million, respectively (based upon the Company’s stock price at the vesting date).

The weighted-average grant date fair value of RSAs/RSUs granted in 2017, 2016 and 2015 was $77.80, $55.55 and $81.99, respectively.

Liability-based Awards

Certain employees are awarded PGs and other incentive awards that can be settled with cash or equity shares at the Company’s discretion, and final Compensation and Benefits Committee payout approval. These awards earn value based on performance, market and/or service conditions, and vest over periods of one to three years.

PGs and other incentive awards are generally settled with cash and thus are classified as liabilities; therefore, the fair value is determined at the date of grant and remeasured quarterly as part of compensation expense over the vesting period. Cash paid upon vesting of these awards in 2017, 2016 and 2015 was $48 million, $41 million and $74 million, respectively.

Summary of Stock Plan Expense

The components of the Company’s total stock-based compensation expense (net of forfeitures) for the years ended December 31 are as follows:

(Millions)  2017  2016  2015
Restricted stock awards(a)  $170  $178  $190
Stock options(a)  21  14  12
Liability-based awards  92  60  32
Total stock-based compensation expense (b)  $283  $252  $234

  • As of December 31, 2017, the total unrecognized compensation cost related to unvested RSAs/RSUs and options of $178 million and $21 million, respectively, will be recognized ratably over the weighted-average remaining vesting period of 2.1 years.
  • The total income tax benefit recognized in the Consolidated Statements of Income for stock-based compensation arrangements for the years ended December 31, 2017, 2016 and 2015 was $102 million, $89 million and $83 million, respectively.