Stock-Based Compensation

12 Months Ended

Jan. 30, 2021

Share-based Payment Arrangement, Noncash Expense [Abstract]

NOTE 12: STOCK-BASED COMPENSATION

Under our deferred and stock-based compensation plan arrangements, we issued 2.2, 2.1 and 4.9 shares of common stock

in 2020, 2019 and 2018. Under the 2019 Plan, the aggregate number of shares to be issued may not exceed 9.5 plus any shares currently outstanding under the 2010 Plan that are forfeited or expire during the term of the 2019 Plan. As of January 30, 2021, we have 24.5 shares authorized, 16.2 shares issued and outstanding and 18.3 shares remaining available for future grants under the 2019 Plan.

Under the ESPP, employees may make payroll deductions of up to 10% of their base and bonus compensation for the purchase of Nordstrom common stock. At the end of each six-month offering period, participants apply their accumulated payroll deductions toward the purchase of shares of our common stock at 90% of the fair market value on the last day of the offer period. As of January 30, 2021, we had 12.6 shares authorized and 3.8 shares available for issuance under the ESPP. We issued 1.0 and 0.5 shares under the ESPP during 2020 and 2019. At the end of 2020 and 2019, we had current liabilities of $5 for future purchases of shares under the ESPP.

During the year, we cancelled the grant of PSU awards to employees due to negative financial impacts of the COVID-19 pandemic and we therefore had no financial impacts from these awards during the year.

The following table summarizes our stock-based compensation expense:


Fiscal year	2020	2019	2018
RSUs	$53	$49	$71
Stock options	12	11	12
Other1	2	9	7
Total stock-based compensation expense, before income tax benefit	67	69	90
Income tax benefit	(26)	(18)	(23)
Total stock-based compensation expense, net of income tax benefit	$41	$51	$67

1 Other stock-based compensation expense includes PSUs, ESPP and nonemployee director stock awards.

The stock-based compensation expense before income tax benefit was recorded in our Consolidated Statements of Earnings as follows:


Fiscal year	2020	2019	2018
Cost of sales and related buying and occupancy costs	$16	$20	$28
SG&A expenses	51	49	62
Total stock-based compensation expense, before income tax benefit	$67	$69	$90

Restricted Stock

Our Compensation, People and Culture Committee of our Board of Directors approves grants of restricted stock units to employees. The number of units granted to an individual are determined based upon a percentage of the recipient’s base salary and the fair value of the restricted stock. Restricted stock units typically vest over four years.

A summary of restricted stock unit activity for 2020 is presented below:


Fiscal year	2020
	Shares	Weighted-average grant date fair value per unit
Outstanding, beginning of year	3.2	$44
Granted	3.6	21
Vested	(1.2)	51
Forfeited or cancelled	(0.8)	31
Outstanding, end of year	4.8	$37

The aggregate fair value of restricted stock units vested during 2020, 2019 and 2018 was $44, $65 and $54. As of January 30, 2021, the total unrecognized stock-based compensation expense related to nonvested restricted stock units was $74, which is expected to be recognized over a weighted-average period of 25 months.

Stock Options

Our Compensation, People and Culture Committee of our Board of Directors approves grants of nonqualified stock options to employees. We used the following assumptions to estimate the fair value for stock options at each grant date:


Fiscal year1		2020			2019
Assumptions
	Risk-free interest rate: Represents the yield on U.S. Treasury zero-coupon securities that mature over the 10-year life of the stock options.		0.18% – 0.62%			2.5% – 2.7%
	Weighted-average volatility: Based on a combination of the historical volatility of our common stock and the implied volatility of exchange-traded options for our common stock.		60.1	%		34.6	%
	Weighted-average expected dividend yield: Our forecasted dividend yield for the next 10 years.		3.4	%		1.9	%
	Expected life in years: Represents the estimated period of time until option exercise. The expected term of options granted was derived from the output of the Binomial Lattice option valuation model and was based on our historical exercise behavior, taking into consideration the contractual term of the option and our employees’ expected exercise and post-vesting employment termination behavior.		7.7			6.8

Grant Date Information
	Date of grant		June 1, 2020			March 5, 2019
	Weighted-average fair value per option		$7			$15
	Exercise price per option		$17			$45

1 There were no stock options granted in 2018.

Additional nonqualified stock options were also granted to certain company leaders on August 27, 2020 at an exercise price per option of $15. The assumptions used to estimate the fair value for the additional stock options were similar to the grant assumptions presented above. In 2020, we also granted stock options to certain qualified employees outside of the June and August grant dates, which were insignificant in aggregate. The number of awards granted to an individual are determined based upon target award amounts and fair value of stock options at the time of grant. Our options primarily vest equally over a four year period or at the end of two years, and expire ten years after the date of grant.

A summary of stock option activity for 2020 is presented below:


Fiscal year	2020
	Shares	Weighted- average exercise price	Weighted-average remaining contractual life (years)	Aggregate intrinsic value
Outstanding, beginning of year	8.3	$53
Granted	3.9	16
Exercised	(0.2)	34
Forfeited or cancelled	(1.0)	53
Outstanding, end of year	11.0	$40	6	$52
Vested, end of year	6.3	$54	3	$117
Vested or expected to vest, end of year	10.9	$40	6	$51

Fiscal year		2020	2019	2018
Aggregate intrinsic value of options exercised		$1	$5	$67
Fair value of stock options vested		$8	$17	$22

As of January 30, 2021, the total unrecognized stock-based compensation expense related to nonvested stock options was $24, which is expected to be recognized over a weighted-average period of 20 months.