XML 39 R22.htm IDEA: XBRL DOCUMENT v3.10.0.1
Stock Plans
 12 Months Ended
Dec. 31, 2018
Disclosure Text Block Abstract  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 11

Stock Plans

Stock Option and Award Programs

Under our 2016 Incentive Compensation Plan and previously under our 2007 Incentive Compensation Plan, awards may be granted to employees and other key individuals who perform services for us and our 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 our Incentive Compensation Plans, there were a total of 12 million, 14 million and 17 million common shares unissued and available for grant as of December 31, 2018, 2017, and 2016, respectively, as authorized by our Board of Directors and shareholders.

A summary of stock option and RSA/RSU activity as of December 31, 2018, 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, 20177,262$58.92  7,215$70.29
Granted  28298.47  2,22198.20
Exercised/vested  (1,844)46.95  (2,407)77.41
Forfeited  (216)65.36  (463)78.80
Expired  ――  ――
Outstanding as of December 31, 20185,48464.73  6,566$76.52
Options vested and expected to vest as of December 31, 20185,47364.73
Options exercisable as of December 31, 20183,230$57.04  

We recognize 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 our 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 our stock exceeds the exercise price of the option) of the stock options outstanding, exercisable, vested, and expected to vest as of December 31, 2018, were as follows:

OutstandingExercisableVested and Expected to Vest
Weighted-average remaining contractual life (in years)5.6  4.0  5.6
Aggregate intrinsic value (millions)  $169  $124  $168

The intrinsic value of options exercised during 2018, 2017 and 2016 was $104 million, $197 million and $51 million, respectively, (based upon the fair value of our stock price at the date of exercise). Cash received from the exercise of stock options in 2018, 2017 and 2016 was $87 million, $130 million and $175 million, respectively.

Effective January 1, 2017, we adopted new accounting guidance for employee share-based payments and accordingly, income tax benefits related to stock option exercises were recognized in our Consolidated Statements of Income in the amount of $18 million and $59 million for the years ended December 31, 2018 and 2017, respectively. 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 was $4 million.

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 2018, 2017 and 2016:

201820172016
Dividend yield1.4% 1.8% 1.9% 
Expected volatility(a)22% 24% 25% 
Risk-free interest rate2.7% 2.3% 1.5% 
Expected life of stock option (in years)(b)7.1  6.9  6.3  
Weighted-average fair value per option$23.17  $18.18  $13.67  

  • The expected volatility is based on both weighted historical and implied volatilities of our 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 our 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 2018, 2017 and 2016, was $239 million, $180 million and $171 million, respectively (based upon our stock price at the vesting date).

The weighted-average grant date fair value of RSAs/RSUs granted in 2018, 2017 and 2016 was $98.20, $77.80 and $55.55, respectively.

Liability-based Awards

Certain employees are awarded PGs and other incentive awards that can be settled with cash or equity shares at our 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 2018, 2017 and 2016 was $56 million, $48 million and $41 million, respectively.

Summary of Stock Plan Expense

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

(Millions)  2018  2017  2016
Restricted stock awards(a)  $181  $170  $178
Stock options(a)  19  21  14
Liability-based awards  88  92  60
Total stock-based compensation expense (b)  $288  $283  $252

  • As of December 31, 2018, the total unrecognized compensation cost related to unvested RSAs/RSUs and options of $179 million and $12 million, respectively, will be recognized ratably over the weighted-average remaining vesting period of 2.1 years and 1.6 years, respectively.
  • The total income tax benefit recognized in the Consolidated Statements of Income for stock-based compensation arrangements for the years ended December 31, 2018, 2017 and 2016 was $69 million, $102 million and $89 million, respectively.