Our stock-based compensation generally includes stock options, restricted stock units (RSUs), performance share units (PSUs) and purchases under our employee stock purchase plan. Shares issued relating to our stock-based plans are generally issued out of treasury stock.

Stock compensation expense was $122 million, $115 million and $107 million in 2019, 2018 and 2017, respectively. The related tax benefit recognized was $70 million in 2019, $61 million in 2018 and $87 million in 2017. Included in the benefit in 2019, 2018 and 2017 were realized excess tax benefits for stock-based compensation of $54 million, $40 million and $56 million, respectively.

Stock compensation expense is recorded at the corporate level and is not allocated to the segments. Approximately 80% of stock compensation expense is classified in SG&A expenses, with the remainder classified in cost of sales and R&D expenses. Costs capitalized in the consolidated balance sheets at December 31, 2019 and 2018 were not material.

Stock options are granted to employees and non-employee directors with exercise prices equal to 100% of the market value on the date of grant. Stock options granted to employees generally vest in one-third increments over a three-year period. Stock options granted to non-employee directors generally vest immediately on the grant date and are issued with a six-month claw-back provision. Stock options typically have a contractual term of 10 years. The grant-date fair value, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the substantive vesting period.

The fair value of stock options is determined using the Black-Scholes model. The weighted-average assumptions used in estimating the fair value of stock options granted during each year, along with the weighted-average grant-date fair values, were as follows:


years ended December 31	2019			2018			2017
Expected volatility	19		%	18		%	19		%
Expected life (in years)	5.5			5.5			5.5
Risk-free interest rate	2.5		%	2.6		%	2.1		%
Dividend yield	1.0		%	1.0		%	1.0		%
Fair value per stock option	$	15		$	13		$	10


(options and aggregate intrinsic values in thousands)	Options	Weighted- average exercise price		Weighted- average remaining contractual term (in years)	Aggregate intrinsic value
Outstanding as of January 1, 2019	25,314	$	43.76
Granted	3,801	$	75.03
Exercised	(8,043)	$	38.52
Forfeited	(596)	$	66.91
Expired	(132)	$	46.44
Outstanding as of December 31, 2019	20,344	$	50.99	6.1	$	663,620
Vested or expected to vest as of December 31, 2019	20,029	$	50.66	6.0	$	660,342
Exercisable as of December 31, 2019	12,945	$	41.74	4.9	$	542,128

The aggregate intrinsic value in the table above represents the difference between the exercise price and our closing stock price on the last trading day of the year. The total intrinsic value of options exercised in 2019, 2018 and 2017 was $272 million, $222 million and $203 million, respectively.

RSUs are granted to employees and non-employee directors. RSUs granted to employees generally vest in one-third increments over a three-year period. RSUs granted to non-employee directors generally vest immediately on the grant date and are issued with a six-month claw-back provision. The grant-date fair value, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the substantive vesting period. The fair


(share units in thousands)	Share units	Weighted- average grant-date fair value
Nonvested RSUs as of January 1, 2019	1,611	$	56.45
Granted	537	$	75.60
Vested	(740)	$	51.82
Forfeited	(134)	$	63.90
Nonvested RSUs as of December 31, 2019	1,274	$	66.46

As of December 31, 2019, $46 million of unrecognized compensation cost related to RSUs is expected to be recognized as expense over a weighted-average period of approximately 1.7 years. The weighted-average grant-date fair value of RSUs granted in 2019, 2018 and 2017 was $75.60, $67.11 and $55.11, respectively. The fair value of RSUs vested in 2019, 2018 and 2017 was $57 million, $69 million and $88 million, respectively.

Our annual equity awards stock compensation program for senior management includes the issuance of PSUs based on adjusted operating margin as well as stock performance relative to our peer group. Fifty percent of the PSUs granted in 2015 were based on return on invested capital (ROIC) instead of adjusted operating margin. The vesting condition for adjusted operating margin or ROIC PSUs is set at the beginning of the year for each tranche of the award during the 3-year service period. Compensation cost for the adjusted operating margin or ROIC PSUs is measured based on the fair value of the awards on the date that the specific vesting terms for each tranche of the award are established. The fair value of the awards is determined based on the quoted price of our stock on the grant date for each tranche of the award. The compensation cost for adjusted operating margin or ROIC PSUs is adjusted at each reporting date to reflect the estimated vesting outcome.

The fair value for PSUs based on stock performance relative to our peer group is determined using a Monte Carlo model. The assumptions used in estimating the fair value of these PSUs granted during the period, along with the grant-date fair values, were as follows:


years ended December 31	2019			2018			2017
Baxter volatility	19		%	19		%	19		%
Peer group volatility	18%-113%			16%-53%			16%-54%
Correlation of returns	0.13-0.63			0.16-0.61			0.19-0.58
Risk-free interest rate	2.5		%	2.3		%	1.6		%
Fair value per PSU	$	106		$	90		$	69


(share units in thousands)	Share units	Weighted- average grant-date fair value
Nonvested PSUs as of January 1, 2019	913	$	63.88
Granted	626	$	69.36
Vested	(559)	$	46.47
Forfeited	(50)	$	77.70
Nonvested PSUs as of December 31, 2019	930	$	75.50

The Baxter International Inc. Employee Stock Purchase Plan provides for 10 million shares of common stock available for issuance to eligible participants, of which approximately three million shares were available for future purchases as of December 31, 2019.

A quarterly dividend of $0.19 per share ($0.76 on an annualized basis) was declared in February 2019 and was paid in April 2019. Quarterly dividends of $0.22 per share ($0.88 on an annualized basis) were declared in May and July of 2019 and were paid in July and October of 2019, respectively. Our Board of Directors declared a quarterly dividend of $0.22 per share in November of 2019, which was paid in January of 2020.

As authorized by the Board of Directors, we repurchase our stock depending on our cash flows, net debt level and market conditions. In July 2012, the Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018 and by an additional $2.0 billion in November 2018. We repurchased 16.5 million shares under this authority pursuant to Rule 10b5-1 plans and otherwise for $1.3 billion in cash in 2019, 35.8 million shares under this authority pursuant to Rule 10b5-1 plans and otherwise for $2.5 billion in cash in 2018 and 9.2 million shares under this authority pursuant to Rule 10b5-1 plans for $564 million in cash in 2017. As of December 31, 2018, we recognized a liability within accounts payable and accrued liabilities of $23 million for share repurchases that settled in early January 2019. We had $897 million of purchase authority available as of December 31, 2019.

In December 2018, we entered into a $300 million accelerated share repurchase agreement (ASR Agreement) with an investment bank. We funded the ASR Agreement with available cash. The ASR Agreement was executed pursuant to the 2012 Repurchase Authorization described above. Under the ASR Agreement, we received 3.6 million shares upon execution. Based on the volume-weighted average price of our common stock during the term of the ASR Agreement, we received an additional 0.6 million shares from the investment bank at settlement on May 7, 2019.