STOCK OWNERSHIP AND COMPENSATION PLANS

12 Months Ended

Dec. 31, 2024

Share-Based Payment Arrangement [Abstract]

Employee and Non-employee Directors Stock Ownership Programs

The ELTIP provides for three types of awards: (a) stock options, (b) stock appreciation rights and (c) stock awards. The ELTIP provides for the grant to eligible employees of either non-qualified or incentive stock options, or both, to purchase shares of Company common stock at an exercise price no less than the fair market value of the Company's common stock on the date of grant. Grants of stock appreciation rights allow eligible employees to receive a payment based on the appreciation of Company common stock in cash, shares of Company common stock or a combination thereof. The stock appreciation rights are granted at an exercise price no less than the fair market value of the Company's common stock on the date of grant. Stock options and stock appreciation rights granted under the ELTIP expire on the date designated by the Board of Directors but in no event more than ten years from date of grant. No stock appreciation rights have been granted under the ELTIP. Under the ELTIP, awards are subject to forfeiture if employment terminates prior to the end of the vesting period prescribed by the Board of Directors. For all award types, the vesting period is generally over three years from the date of grant. For performance share units, the actual amount of shares earned is based on the achievement of the performance goals specified in the awards. The performance goals for awards granted in 2022, 2023 and 2024 were based on the financial performance of the Company, as well as relative TSR. The maximum number of shares of Company common stock in respect of which awards may be granted under the ELTIP is approximately 87 million shares.

The DLTIP provides for the grant to non-employee directors of non-qualified stock options to purchase shares of Company common stock at an exercise price no less than the fair market value of the Company's common stock on the date of grant. The DLTIP also permits awards of restricted stock and restricted stock units to non-employee directors. Stock options granted under the DLTIP expire on the date designated by the Board of Directors but in no event more than ten years from date of grant. For all award types, the vesting period is generally over three years from the date of grant, regardless of whether the award recipient remains a director of the Company. The maximum number of shares that may be issued under the DLTIP is 2.4 million shares. For the years ended December 31, 2024, 2023 and 2022, grants under the DLTIP totaled 13 thousand shares, 12 thousand shares and 10 thousand shares, respectively.

The Company's practice is to issue shares related to its ESPP and stock-based compensation program solely from common stock held in treasury. See Note 16 for further information regarding the Company's share repurchase program.

The fair value of each stock option award granted was estimated on the date of grant using a Black-Scholes option-valuation model. The expected volatility under the Black-Scholes option-valuation model was based on historical volatilities of the Company's common stock. The dividend yield was based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. The risk-free interest rate was based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the expected holding period of the related award.

The expected holding period was estimated using the historical stock option exercise behavior of employees. The Black-Scholes option-valuation model also incorporates the average market price of the Company's common stock at the date of grant.

The weighted average assumptions used in valuing stock options granted in the periods presented were:


	2024	2023	2022

Fair value at grant date	$30.77	$36.09	$26.80
Expected volatility	26.6%	27.4%	26.4%
Dividend yield	2.3%	2.0%	2.0%
Risk-free interest rate	4.3%	4.2%	2.0%
Expected holding period, in years	4.9	4.9	4.9

The following summarizes the activity related to stock option awards for 2024:


	Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value

Options outstanding, beginning of year	4.2	$	107.47
Options granted	0.4	128.19
Options exercised	(0.8)	92.76

Options outstanding, end of year	3.8	$	112.76	4.9	$	145

Exercisable, end of year	3.1	$	108.02	4.1	$	131
Vested and expected to vest, end of year	3.8	$	112.64	4.9	$	144

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company's closing common stock price on the last trading day of 2024 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on December 31, 2024. This amount changes based on the fair market value of the Company's common stock. Total intrinsic value of options exercised in 2024, 2023 and 2022 was $43 million, $42 million and $70 million, respectively.

As of December 31, 2024, there was $5 million of unrecognized stock-based compensation cost related to nonvested stock options which is expected to be recognized over a weighted average period of 1.6 years.

The fair value of restricted stock awards and restricted stock units is the average market price of the Company's common stock at the date of grant. For performance share units with a goal based on the financial performance of the Company, the fair value is based on the average market price of the Company's common stock at the date of grant, adjusted for the present value of dividends expected to be paid on the Company's common stock during the vesting period. For performance share units with a market-based relative TSR goal, the fair value is estimated on the date of grant using a Monte Carlo valuation model. The expected volatility under the Monte Carlo valuation model is based on the historical volatility of the common stock of the Company and the common stock of the companies in the peer index. The dividend yield is based on the approved annual dividend rate in effect and current market price of the underlying common stock at the time of grant. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for bonds with maturities consistent with the performance period of the related award.

The weighted average assumptions used in valuing performance share units with a market-based relative TSR goal in the periods presented were:


	2024	2023	2022

Fair value at grant date	$130.17	$171.58	$130.00
Expected volatility	21.3%	25.0%	29.9%
Dividend yield	2.4%	2.0%	2.0%
Risk-free interest rate	4.4%	4.4%	1.7%

The following summarizes the activity related to stock awards, including restricted stock units and performance share units, for 2024, 2023 and 2022:


	2024			2023			2022
	Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value		Shares	Weighted Average Grant Date Fair Value

Shares outstanding, beginning of year	1.2	$	130.70	1.1	$	122.45	1.0	$	107.46
Shares granted	0.6	128.00		0.6	141.77		0.8	128.49
Shares vested	(0.5)	124.59		(0.5)	112.28		(0.6)	92.45
Shares forfeited and canceled	—	—		—	—		(0.1)	122.38

Shares outstanding, end of year	1.3	$	130.02	1.2	$	130.70	1.1	$	122.45

As of December 31, 2024, there was $38 million of unrecognized stock-based compensation cost related to nonvested stock awards, which is expected to be recognized over a weighted average period of 1.6 years. Total fair value of shares vested was $62 million, $74 million and $72 million for the years ended December 31, 2024, 2023 and 2022, respectively. For performance share units with a goal based on financial performance of the Company, the amount of unrecognized stock-based compensation cost is subject to change based on changes, if any, to management's best estimates of the achievement of the performance goals specified in such awards and the resulting number of shares that will be earned at the end of the performance periods.

For the years ended December 31, 2024, 2023 and 2022, stock-based compensation expense totaled $88 million, $77 million and $77 million, respectively. Income tax benefits recognized in the consolidated statements of operations related to stock-based compensation expense totaled $24 million, $24 million and $27 million for the years ended December 31, 2024, 2023 and 2022, respectively, which includes excess tax benefits associated with stock-based compensation arrangements of $9 million, $11 million and $14 million for the years ended December 31, 2024, 2023 and 2022, respectively.

Employee Stock Purchase Plan

Under the Company's ESPP, substantially all employees can elect to have up to 10% of their annual wages withheld to purchase Quest Diagnostics common stock. The purchase price of the stock is 95% of the market price of the Company's common stock on the last business day of each calendar month. Under the ESPP, the maximum number of shares of Quest Diagnostics common stock which may be purchased by eligible employees is 9 million. Approximately 191 thousand shares, 208 thousand shares and 216 thousand shares of common stock were purchased by eligible employees in 2024, 2023 and 2022, respectively.

Defined Contribution Plans

The Company maintains qualified defined contribution plans covering substantially all of its employees. The maximum Company matching contribution is 5% of eligible employee compensation. The Company's expense for contributions to its defined contribution plans aggregated $99 million, $96 million and $95 million for 2024, 2023 and 2022, respectively.

Supplemental Deferred Compensation Plans

The Company has a supplemental deferred compensation plan that is an unfunded, non-qualified plan that provides for certain management and highly compensated employees to defer up to 50% of their salary in excess of their defined contribution plan limits and for certain eligible employees, up to 95% of their variable incentive compensation. The maximum Company matching contribution is 5% of eligible employee compensation. The compensation deferred under this plan, together with Company matching amounts, are credited with earnings or losses measured by the mirrored rate of return on investments elected by plan participants. Each plan participant is fully vested in all deferred compensation, Company match and earnings credited to their account. The amounts accrued under the Company's deferred compensation plans were $72 million and $70 million as of December 31, 2024 and 2023, respectively. Although the Company is currently contributing all participant deferrals and matching amounts to a trust, the funds in this trust, totaling $72 million and $70 million as of December 31, 2024 and 2023, respectively, are general assets of the Company and are subject to any claims of the Company's creditors.

The Company also offers certain employees the opportunity to participate in a non-qualified deferred compensation program. The Company matches employee contributions equal to 25%, up to a maximum of five thousand dollars per plan year. A participant's deferrals, together with Company matching credits, are “invested” at the direction of the employee in a hypothetical portfolio of investments which are tracked by an administrator. Each participant is fully vested in their deferred compensation and vests in Company matching contributions over a period of four years at 25% per year. This plan was amended effective January 1, 2018 so that future deferrals under the plan may only be made by participants who made deferrals under the plan in 2017. The amounts accrued under this plan were $68 million and $61 million as of December 31, 2024 and 2023, respectively. The Company purchases life insurance policies, with the Company named as beneficiary of the policies, for the purpose of funding the program's liability. The cash surrender value of such life insurance policies was $64 million and $55 million as of December 31, 2024 and 2023, respectively.

For each of the years ended December 31, 2024, 2023 and 2022, the Company's expense for matching contributions to these plans was not material.