Share-Based Compensation

3 Months Ended

Mar. 31, 2024

Share-Based Payment Arrangement [Abstract]

The Company typically grants equity awards annually at its regularly scheduled first quarter meeting of the Board of Directors based on the recommendation from the Compensation Committee.

The Company’s policy is to recognize compensation cost on a straight-line basis, assuming forfeitures, over the requisite service period for the entire award. Classification of share-based compensation cost within the Condensed Consolidated Statements of Income is consistent with the classification of cash compensation for the same employees.

Stock Options

Stock options granted under the Company’s plans are generally non-qualified and are granted with an exercise price equal to the market price of the Company’s stock on the date of grant. The fair value of each option grant was estimated on the date of the grant using the Black Scholes valuation model. Stock options generally vest ratably over four years, with vesting beginning one year from the date of grant, and generally expire 10 years from the date of grant. The service period for certain retiree eligible participants is accelerated. The assumptions used in determining the fair value of the stock options granted in the respective periods were as follows:


	Three Months Ended March 31,
		2024	2023
Weighted average fair value of grants		$63.74	$60.80
Dividend yield		1.09%	1.06%
Volatility		26.67%	27.19%
Risk-free interest rate		4.31%	4.12%
Expected life (in years)		4.60	4.50

A summary of the Company’s stock option activity as of March 31, 2024 and changes during the three months ended March 31, 2024 are presented in the following table:


	Shares	Weighted Average Price		Weighted-Average Remaining Contractual Term	Aggregate Intrinsic Value
Stock Options
Outstanding at January 1, 2024	983,267	$	178.86	6.88	$	39.3
Granted	192,065	234.91
Exercised	(64,168)	154.88
Forfeited	(14,482)	185.34
Outstanding at March 31, 2024	1,096,682	$	190.00	7.28	$	59.2
Vested and expected to vest as of March 31, 2024	1,053,090	$	188.59	7.20	$	58.4
Exercisable at March 31, 2024	605,708	$	166.99	5.91	$	46.7

As of March 31, 2024, there was $14.5 million of total unrecognized compensation cost related to stock options that is expected to be recognized over a weighted-average period of 1.6 years.

Restricted Stock

Restricted stock awards generally cliff vest after three years for employees and non-employee directors. The service period for certain retiree eligible participants is accelerated. Unvested restricted stock carries dividend and voting rights and the sale of the shares is restricted prior to the date of vesting. Dividends are paid on restricted stock awards and their fair value is equal to the market price of the Company’s stock at the date of the grant. A summary of the Company’s restricted stock activity as of March 31, 2024 and changes during the three months ended March 31, 2024 are presented in the following table:


Restricted Stock	Shares	Weighted-Average Grant Date Fair Value
Unvested at January 1, 2024	112,891	$	193.03
Granted	28,545	228.93
Vested	(15,035)	198.33
Forfeited	(3,395)	206.55
Unvested at March 31, 2024	123,006	$	200.34

As of March 31, 2024, there was $11.3 million of total unrecognized compensation cost related to restricted stock that is expected to be recognized over a weighted-average period of 1.1 years.

Cash-Settled Restricted Stock

The Company also maintains a cash-settled share-based compensation plan for certain employees. Cash-settled restricted stock awards generally cliff vest after three years. The service period for certain retiree eligible participants is accelerated. Cash-settled restricted stock awards are recorded at fair value on a quarterly basis using the market price of the Company’s stock on the last day of the quarter. At March 31, 2024 and December 31, 2023, the Company had accrued $3.8 million and $4.2 million, respectively, for cash-settled restricted stock in Accrued expenses in the Condensed Consolidated Balance Sheets and had accrued $1.7 million and $2.9 million, respectively, for cash-settled restricted stock in Other noncurrent liabilities in the Condensed Consolidated Balance Sheets. These recurring fair value measurements are classified as Level 1 in the fair value hierarchy. Dividend equivalents are paid on certain cash-settled restricted stock awards. A summary of the Company’s unvested cash-settled restricted stock activity as of March 31, 2024 and changes during the three months ended March 31, 2024 are presented in the following table:


Cash-Settled Restricted Stock	Shares	Weighted-Average Fair Value
Unvested at January 1, 2024	56,655	$	217.11
Granted	19,760	235.01
Vested	(14,980)	235.97
Forfeited	(1,700)	244.02
Unvested at March 31, 2024	59,735	$	244.02

As of March 31, 2024, there was $7.0 million of total unrecognized compensation cost related to cash-settled restricted shares that is expected to be recognized over a weighted-average period of 1.2 years.

Performance Share Units

The performance share units are market condition awards and have been assessed at fair value on the date of grant using a Monte Carlo simulation model. The assumptions used in determining the fair value of the performance share units granted in the respective periods were as follows:


	Three Months Ended March 31,
	2024	2023
Weighted average fair value of grants	$349.59	$308.18
Dividend yield	—%	—%
Volatility	22.23%	27.00%
Risk-free interest rate	4.45%	4.37%
Expected life (in years)	2.94	2.94

A summary of the Company’s performance share unit activity as of March 31, 2024 and changes during the three months ended March 31, 2024 are presented in the following table:


Performance Share Units	Shares	Weighted-Average Grant Date Fair Value
Unvested at January 1, 2024	67,455	$	265.15
Granted	27,135	349.59
Vested	(9,606)	245.40
Forfeited	(10,629)	246.70
Unvested at March 31, 2024	74,355	$	300.72

On January 31, 2024, 19,200 performance share units vested. Based on the Company’s relative total shareholder return rank during the three-year period ended January 31, 2024, the Company achieved a 50% payout factor and issued 9,606 common shares in February 2024 for awards that vested in 2024.

As of March 31, 2024, there was $5.7 million of total unrecognized compensation cost related to performance share units that is expected to be recognized over a weighted-average period of 1.2 years.

Summary of Share-Based Compensation Expense

Pre-tax compensation cost is recognized in both Cost of sales and Selling, general and administrative expenses in the Condensed Consolidated Statements of Income depending on the functional area of the underlying employees. Total compensation cost related to all share-based awards was as follows:


	Three Months Ended March 31,
	2024		2023
Stock options expense	$	5.4	$	6.0
Restricted stock expense	2.0		1.6
Cash-settled restricted stock expense	1.9		1.1
Performance share units expense	5.1		5.2
Total pre-tax share-based compensation expense	14.4		13.9
Income tax benefit	(0.9)		(0.8)
Total share-based compensation expense, net of income taxes	$	13.5	$	13.1