On May 17, 2018, shareholders approved the Zebra Technologies Corporation 2018 Long-Term Incentive Plan (“2018 Plan”). The 2018 Plan superseded and replaced the Zebra Technologies Corporation 2015 Long-Term Incentive Plan (“2015 Plan”) on the approval date, except that the 2015 Plan remains in effect with respect to outstanding awards under the 2015 Plan until such awards have been exercised, forfeited, canceled, expired or otherwise terminated in accordance with their terms. Together, the 2018 Plan and 2015 Plan provide for incentive compensation to the Company’s non-employee directors, officers, and employees. The awards available under the plans include stock appreciation rights, restricted stock awards, performance share awards, cash-settled stock appreciation rights, restricted stock units, performance stock units, incentive stock options, and non-qualified stock options.

The compensation expense from the Company’s share-based compensation plans and associated income tax benefit, excluding the effects of excess tax benefits or shortfalls, were included in the Consolidated Statements of Operations as follows (in millions):



	Year Ended December 31,
Compensation costs and related income tax benefit	2019		2018		2017
Cost of sales	$	4	$	4	$	3
Selling and marketing	17		13		8
Research and development	16		15		11
General and administration	23		21		16
Total compensation expense	$	60	$	53	$	38
Income tax benefit	$	9	$	10	$	11

As of December 31, 2019, total unearned compensation costs related to the Company’s share-based compensation plans was $62 million, which will be amortized to expense over the weighted average remaining service period of 1.4 years.

Upon exercise of SARs, the Company issues whole shares of Class A Common Stock to participants based on the difference between the fair market value of the stock at the time of exercise and the exercise price. Fractional shares are settled in cash upon exercise. The grant date fair value of SARs is expensed over the 4-year vesting period of the related awards.

A summary of the Company’s SARs outstanding is as follows:



	2019				2018				2017
SARs	SARs		Weighted- Average Exercise Price		SARs		Weighted- Average Exercise Price		SARs		Weighted- Average Exercise Price
Outstanding at beginning of year	1,261,185		$	75.71	1,817,991		$	65.73	1,740,786		$	56.15
Granted	70,141		205.12		88,042		149.75		402,029		98.87
Exercised	(395,015	)	66.82		(598,249	)	55.93		(250,326	)	48.66
Forfeited	(39,388	)	92.72		(46,161	)	80.41		(66,550	)	75.38
Expired	—		—		(438	)	108.20		(7,948	)	108.20
Outstanding at end of year	896,923		$	89.05	1,261,185		$	75.71	1,817,991		$	65.73
Exercisable at end of year	489,357		$	70.37	595,086		$	60.85	874,942		$	50.86

The fair value of share-based compensation is estimated on the date of grant using a binomial model. Volatility is based on an average of the implied volatility in the open market and the annualized volatility of the Company’s stock price over its entire stock history.



	2019	2018	2017
Expected dividend yield	0%	0%	0%
Forfeiture rate	8.20%	8.40%	9.37%
Volatility	36.79%	35.93%	35.49%
Risk free interest rate	2.28%	2.96%	1.77%
Expected weighted-average life (in years)	4.02	4.11	4.13
Weighted-average grant date fair value of SARs granted (per underlying share)	$64.17	$47.63	$29.86

The intrinsic value for SARs exercised during fiscal 2019, 2018 and 2017 was $58 million, $59 million and $14 million, respectively. The total fair value of SARs vested during fiscal 2019, 2018 and 2017 was $9 million, $12 million and $8 million, respectively.

The Company’s restricted stock grants consist of time-vested RSAs and PSAs, which hold voting rights and therefore are considered participating securities. The outstanding RSAs and PSAs are included as part of the Company’s Class A Common Stock outstanding. The RSAs and PSAs vest at each vesting date, subject to restrictions such as continuous employment, except in certain cases as set forth in each stock agreement. Upon vesting, RSAs and PSAs are released to holders and are no longer subject to restrictions. The Company’s RSAs and PSAs are expensed over the vesting period of the related award, which is

typically 3 years. Some awards, including those granted annually to non-employee directors, such as an equity retainer fee, vest upon grant. PSA targets are set based on certain Company-wide financial metrics. Compensation cost is calculated as the market date fair value of the Company’s Class A Common Stock on grant date multiplied by the number of shares granted, net of estimated forfeitures.

The Company also issues stock awards to non-employee directors. Each director receives an equity grant of shares annually in the month of May. The number of shares granted to each director is determined by dividing the value of the annual grant by the price of a share of the Company’s Class A Common Stock. New directors in any fiscal year earn a prorated amount. During fiscal 2019, there were 7,371 shares granted to non-employee directors compared to 7,980 and 12,488 shares granted during fiscal 2018 and 2017, respectively. The shares vest immediately upon the grant date.



	2019				2018				2017
Restricted Stock Awards	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of year	657,724		$	93.45	628,642		$	77.70	622,814		$	70.19
Granted	170,502		204.26		206,922		150.60		199,629		98.90
Released	(372,075	)	73.71		(154,878	)	107.22		(165,846	)	75.90
Forfeited	(21,510	)	141.29		(22,962	)	88.77		(27,955	)	72.81
Outstanding at end of year	434,641		$	151.52	657,724		$	93.45	628,642		$	77.70



	2019				2018				2017
Performance Share Awards	Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value		Shares		Weighted-Average Grant Date Fair Value
Outstanding at beginning of year	259,727		$	86.41	265,747		$	77.04	379,226		$	70.14
Granted	150,224		206.04		59,849		146.83		79,423		98.97
Released	(231,513	)	120.86		(57,074	)	107.31		(2,029	)	62.70
Forfeited	(7,689	)	102.42		(8,795	)	81.07		(190,873	)	73.09
Outstanding at end of year	170,749		$	144.47	259,727		$	86.41	265,747		$	77.04

The Company also has cash-settled compensation awards, including cash-settled stock appreciation rights, restricted stock units and performance stock units, which are expensed over the vesting period of the related award, which is up to 4 years. Compensation cost is calculated at the fair value on grant date multiplied by the number of share-equivalents granted, and the fair value is remeasured at the end of each reporting period based on the Company’s stock price. Cash settlement is based on the fair value of share equivalents at the time of vesting, which was $6 million, $2 million and $2 million in 2019, 2018 and 2017, respectively. Share-equivalents issued under these programs totaled 17,207, 20,393 and 45,781 in fiscal 2019, 2018 and 2017, respectively.



	2019			2018				2017
Non-qualified Options	Shares	Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price		Shares		Weighted- Average Exercise Price
Outstanding at beginning of year	—	$	—	15,705		$	26.34	154,551		$	35.96
Granted	—	—		—		—		—		—
Exercised	—	—		(15,705	)	26.34		(132,905	)	36.86
Forfeited	—	—		—		—		—		—
Expired	—	—		—		—		(5,941	)	41.25
Outstanding at end of year	—	$	—	—		$	—	15,705		$	26.34
Exercisable at end of year	—	$	—	—		$	—	15,705		$	26.34

The last remaining non-qualified stock options were exercised in 2018. The intrinsic value for non-qualified options exercised in fiscal 2018 and 2017 was $2 million and $8 million, respectively. Cash received from the exercise of non-qualified options was less than $1 million and approximately $5 million during fiscal 2018 and 2017, respectively. The related income tax benefit realized was $2 million and $2 million during fiscal 2018 and 2017, respectively.

The Zebra Technologies Corporation 2011 Employee Stock Purchase Plan (“2011 Plan”) permits eligible employees to purchase common stock at 95% of the fair market value at the date of purchase. Employees may make purchases by cash or payroll deductions up to certain limits. The aggregate number of shares that may be purchased under the 2011 Plan is 1,500,000 shares. As of December 31, 2019, 774,186 shares were available for future purchase.